Ontario draft policy: surplus withdrawal upon wind-up
On October 15, 2018, the Financial Services Commission of Ontario (FSCO) announced that it was in the process of updating FSCO’s surplus policies based on changes to the Pension Benefits Act that became effective on July 1, 2012. The surplus policies set out FSCO’s expectations respecting applicatons for the payment of surplus to employers.
To date, two draft surplus policies were posted by FSCO for consultation, namely, Policy S900-512: Application by Employer for Payment of Surplus on Wind Up of a Pension Plan and Policy S900-514: Surplus Distribution by Written Agreement – The Role of Legal Counsel. This summary discusses draft Policy 900-512 (the Draft Policy), as Policy S900-514 is less noteworthy.
Employer application for surplus withdrawal upon pension plan wind-up
The Draft Policy outlines the process for applying to the Superintendent of Financial Services (the Superintendent) for consent for the payment of surplus to an employer on a pension plan wind up. Employer withdrawals from an ongoing pension plan will be the subject of a future FSCO policy.
The Draft Policy will replace two pre-existing policies that set out rules for surplus withdrawal on full and partial wind-ups. The Draft Policy will apply to surplus withdrawal on both full and partial wind-ups. Note that the Pension Benefits Act permits partial wind-ups only with an effective date that is prior to July 1, 2012.
As the Draft Policy states, there are three possible bases for the payment of surplus to an employer on a plan wind-up: a) the pension plan terms authorize payment to the employer, b) written agreement between the employer, members and others entitled to payments from the pension plan; and c) court order.
Some key points of the Draft Policy and the new surplus withdrawal rules are as follows:
- There is now a statement that an employer will not generally file a surplus application until payment of the basic benefits has been approved by the Superintendent. Under the current surplus policies, it is stated that the Superintendent will not complete his consideration of the surplus application until he has approved payment of the basic benefits.
- The administrator of the plan must disclose if buy-out annuities were previously purchased, as members who were subject to buy-out annuities retain their rights to surplus pursuant to the new buy-out annuity rules under the Pension Benefits Act.
- If the application is made on the basis of the pension plan terms authorizing payment to the employer, a historical analysis of the plan documentation is required. The terms of any predecessor plan must also be analyzed if the pension plan is a successor pension plan (i.e., it received assets under past asset transfers).
- A historical analysis is not required if the withdrawal is authorized under court order or written agreement.
- A written agreement requires the consent of two-thirds of the active members. It also requires the consent of he number which is considered appropriate in the circumstances by the Superintendent of former members, retired members and other persons entitled to payments under the pension plan on the date of the wind up. In most cases, the Superintendent has determined the appropriate number is two-thirds of this group; however, the number is ultimately at the discretion of the Superintendent.
- Detailed requirements are provided for the surplus application notice to members and written agreement with members and other persons with an entitlement in the pension plan.
- A detailed surplus application outline is provided.
- A certificate of compliance with respect to surplus withdrawal requirements in respect of members located outside of Ontario is required.
The release of the Draft Policy and the promise of a draft policy on surplus withdrawal from an ongoing pension plan will be welcome to employers of Ontario-registered defined benefit pension plans who are contemplating access to surplus funds in their pension plans. The current surplus withdrawal policies are outdated, raising a source of uncertainty for employers and members in this situation.
The deadline for submitting comments to FSCO was November 12, 2018.