Ontario funding reform update: Ontario requires amendments to Statements of Investment Policies and Procedures and plan texts

As part of Ontario’s funding reform which became effective May 1, 2018, most Ontario-registered defined benefit (DB) pension plans will have to make amendments to their Statements of Investment Policies and Procedures (SIPPs) and pension plan texts. For most plans, these amendments will be required to be made over the next year.

Required Amendments to Ontario SIPPs

Effective May 1, 2018, each SIPP must include a target asset allocation that reflects the categories of investments that are already reflected on financial statements and defined in subsection 76(12) of the regulations under the Pension Benefits Act (the Regulations). Given that the list of investment categories is not broken down by the traditional groupings such as equities, bonds and cash equivalents, this means that nearly every SIPP for an Ontario-registered DB pension plan will require amendment to add target asset allocations that are compliant with the amended Regulations.

The SIPP can retain its pre-existing asset table, if a compliant table of target asset allocations is also added. If there are two asset allocation tables, the plan administrator must comply with both tables.

Who is affected?

All Ontario-registered DB pension plans are affected. FSCO has also confirmed that defined contribution pension plans where administrators (rather than plan members) direct investments are also subject to this requirement. Defined contribution pension plans where members make investment choices are not affected.

When is the change required?

The Regulations did not specify a deadline for submission of amendments to a SIPP; however, given that the change is required in order for the SIPP to be compliant, it would be prudent to make the amendment soon. It has been suggested by FSCO that SIPP amendments should be made by the end of 2019 at the latest.

Any amendment to a SIPP must be filed with FSCO via the Pension Services Portal within 60 days of the amendment being made.

Required Amendments to Ontario DB Plan Texts

Also effective May 1, 2018, the Regulations have been amended to state that an Ontario-registered defined benefit pension plan must include specific plan wording regarding employer’s duty to fund the following items:

  1. the provision for adverse deviations in respect of the normal cost;
  2. any plan amendment that increases going concern liabilities; and
  3. any reduced solvency deficiency under the plan.

Prior to this amendment to the Regulations, an Ontario-registered DB pension was required to set out the employer’s duty to fund the normal cost and any going concern unfunded liability and solvency deficiency under the plan.

Although many pension plan texts set out the general requirement to fund the pension plan in accordance with legislative requirement, it appears that the legislative intent is that the plan text must specifically set out the items to be funded, as per the Regulations. Therefore, all Ontario-registered DB pension plans will have to be amended to set out specific funding requirements under the amended regulations in order to comply with the legislative change.

When is the Change Required?

The regulations provide that any amendment needed to bring the plan document into compliance must be made within 12 months after the date the first valuation report with an effective date on or after December 31, 2017 is filed. Any pension plan amendment must be filed with FSCO in hard copy or through the Pension Services Portal within 60 days of being made.


Comment

The new requirements will effectively require most or all Ontario DB pension plans to amend their SIPPs and pension plan texts over the next year. A DB SIPP must already be reviewed at least once annually, as per the regulations. The annual review may be a good time to make any required amendment. If a DB plan text is being amended for other purposes, it may be a good opportunity to include the newly required wording regarding plan funding. If not, Ontario DB plan sponsors should determine their deadline for making the required amendments and ensure that the amendment can be made by the legislative deadline.

Morneau Shepell consultants, including our investment and governance, legal and compliance consultants, are available to assist with reviewing existing documents, drafting and filing the required amendments.


News & Views - November 2018 (PDF)