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Ontario Pension Bill: Restructuring of pension regulator and portability after age 65

On November 16, 2016, the Ontario government introduced Bill 70, the Building Ontario Up for Everyone Act (Budget Measures), 2016. Bill 70 will make several changes to the Pension Benefits Act (the PBA). Also, in the Fall 2016 Economic Outlook, Ontario stated that it will encourage innovative retirement savings tools and review the DC policy framework.

Establishment of the Financial Services Regulatory Authority

Bill 70 will create the Financial Services Regulatory Authority (FSRA) to replace FSCO, along with other financial regulators in Ontario. The establishment of the FSRA was proposed by an Expert Review Panel in November 2015 (see our News and Views of December 2015).

Administrative penalties

FSCO and FSRA will be permitted to impose administrative penalties on pension plan administrators and others who do not comply with the PBA or other regulatory requirements. Administrative penalties can be imposed in a summary process without going to court, as opposed to requiring a full prosecution and court-imposed fine. A person or company who receives an administrative penalty can still appeal it to the Financial Services Tribunal.

The maximum possible administrative penalty will be $25,000 for a company and $10,000 for an individual. Additional rules governing administrative penalties will be prescribed by regulation.

Prior to this change, FSCO could impose fines only after a successful prosecution for a provincial offence under the PBA and its regulations. This was a relatively expensive and cumbersome process for the regulator. Administrative penalties are a much easier way for the regulator to impose financial penalties. Alberta, British Columbia and Manitoba pension legislation already provides for administrative penalties to be imposed by the regulator.

Portability after age 65

Ontario will once again permit defined benefit (DB) pension plans to allow former members to transfer the commuted value of their pension benefits to a locked-in vehicle, pension plan or annuity after age 65.

Because of amendments to the Pension Benefits Act in 2012, the Financial Services Commission of Ontario (FSCO) took the position that DB plans could not offer this option to Ontario members. It did not attempt to apply this restriction to defined contribution (DC) plans. This change was problematic for some members and plan sponsors, because of the previous belief and practice in their pension plan allowing for portability for former members eligible to retire, including those who have reached age 65. Only Ontario applied this restriction on portability after age 65. Bill 70 will once again permit portability after age 65 and permit DB plans to offer this option to Ontario members, but it will depend on the plan provisions.

Fall 2016 Economic Outlook

In the Fall 2016 Economic Outlook, released on November 14, 2016, Ontario stated that it will pursue the following workplace pension plan initiatives:

  • Continuing the ongoing review of the current solvency funding framework for defined benefit (DB) plans;
  • Reforms to encourage innovative and flexible retirement savings tools;
  • Regulations to allow the payment of variable benefits directly from defined contribution (DC) plans;
  • Considering the strengths and weaknesses of the existing DC policy and legislative framework.

Conclusion

Revisions to the PBA to permit portability after age 65 for Ontario DB members will be welcome to those DB pension plan sponsors who wish to offer this option to their Ontario members. The creation of a new financial regulator and the potential imposition of administrative penalties will increase the onus on plan administrators to comply with the PBA and all applicable regulatory requirements, including deadlines. Finally, the government’s intention to encourage innovative and flexible retirement savings tools and to review the DC pension plan policy framework is to be followed closely.


News & Views - December 2016 (PDF)