Ontario permits statutory discharge for buy-out annuities in respect of surviving spouses
On October 15, 2019, the Ontario government filed Ontario Regulation (O. Reg.) 335/19, which sets out the rules for a statutory discharge to be provided for a buy-out annuity in respect of a pension for a surviving spouse. This means that it is now possible for a plan sponsor to discharge its responsibilities in respect of a surviving spouse, in addition to former and retired members for whom such discharges were already available. Also, the Financial Services Regulatory Authority of Ontario (FSRA) has published a proposed approach that would reduce the regulatory burden for defined benefit (DB) pension plans that have previously purchased annuities that are not subject to statutory discharges.
The Ontario Pension Benefits Act allows the administrator of a single-employer pension plan to discharge its responsibility to provide a pension or ancillary benefit to former members or retired members by purchasing a buy-out annuity, provided that certain notice and funding requirements are met. Bill 57, the Restoring Trust, Transparency and Accountability Act, 2018, extended that provision to surviving spouses.
The new regulation sets out the notice and funding rules applicable to annuities for purchases for surviving spouses. These are similar to the requirements applicable to former members.
With the adoption of the regulation, these provisions of Bill 57 became effective October 15, 2019 and it is now possible to receive a statutory discharge from liabilities by purchasing annuities for surviving spouses.
Easing reporting requirements for frozen, annuitized DB plan components
As part of its effort to focus on burden reduction for pension administrators, FSRA has published Approach No. PE0195APP (the Approach), a new guidance document setting out FSRA’s approach to reducing the regulatory burden on pension plans with frozen DB components where annuities have been purchased in respect of members’ defined benefits. This Approach can apply where annuities have been purchased for active members with frozen benefits, but a statutory discharge is not available because active members are still employed and earning benefits in a defined contribution provision.
FSRA says it will re-evaluate the ongoing requirements to submit actuarial valuation reports and Actuarial Information Summaries, Pension Benefits Guarantee Fund Assessment Certificates and Investment Information Summaries for such plans on a case-by-case basis. FSRA has also indicated that Annual Information Returns will no longer need to include information on members with annuitized benefits unless they continue to accrue benefits under a defined contribution provision in the same plan.
Plan administrators for plans must first contact FSRA to determine if the guidance under this Approach applies to their plan. In the absence of written confirmation from FSRA that this Approach guidance is applicable in advance of the relevant filing deadline, all required statutory filings required will be expected to be filed on time.
The new regulation will allow sponsors who have previously purchased annuities in respect of surviving spouses to obtain a statutory discharge for such past purchases, provided that the notice and funding rules are met. It will also increase the appeal of purchasing annuities for the purpose of receiving a statutory discharge by including surviving spouses in the groups that are covered by the statutory discharge.
The new Approach will be of value to plan administrators with frozen DB benefits, provided they can demonstrate that their particular circumstances meet FSRA’s requirements.