Ontario: Proposed changes to Pension Benefits Guarantee Fund assessments
On January 19, 2018, the Ontario Ministry of Finance (the “MOF”) released a description of proposed changes to the assessment formula for the Pension Benefits Guarantee Fund (PBGF). The PBGF is a fund established under the Ontario Pension Benefits Act to ensure that a minimum pension benefit is paid to Ontario plan members of certain types of defined benefit pension plans, if these plans are wound up with insufficient funds.
The proposed changes to the PBGF assessments are related to the 50% increase in the PBGF coverage limit (see our News & Views of December 2017).
If the proposed changes are adopted, they would result in the elimination of some components of the current PBGF assessment structure, the addition of a new component based on a pension plan’s PBGF liabilities, and an increase in some components of the current PBGF assessment structure.
Elimination of current components
If adopted, the proposed changes would result in the elimination of some components of the current PBGF assessment structure by:
- Eliminating the basic assessment of $5 per pension plan member; and
- Eliminating the current minimum pension plan assessment of $250.
The proposed changes would add a new component based on a pension plan’s PBGF liabilities with the introduction of an assessment component equal to 0.015% of a plan’s PBGF liabilities. For example, if the PGBF liabilities are $100 million, then this component would be equal to $15,000; it would not vary regardless of how well those liabilities are funded.
Increase of current components
The proposed changes would also affect the PBGF assessment by:
- Revising the existing risk-based assessment formula to increase existing rates for each tier of the laddered three-tier, risk-based assessment formula by 50%;
- Increasing the plant closure permanent benefit assessment such that the rate applied would increase from 2% to 3% times the liability for plant closure and permanent lay off benefits that the employer elected to exclude from solvency liabilities; and
- Increasing the maximum assessment per plan member from $300 to $600.
The proposed changes would take effect for plan assessments on or after January 1, 2019. The MOF has stated that the proposed changes to the PBGF assessment formula fit within the broader framework of proposed reforms to the funding rules for pension plans registered in Ontario. However, to the extent their plan membership includes Ontario members, defined benefit pension plans that are registered in jurisdictions outside Ontario will also be impacted by these proposed changes to the PBFG assessments, even though they will not be impacted by Ontario’s funding reform.
The Ontario Ministry of Finance is accepting comments on the proposed changes until February 20, 2018.