Ontario releases proposals on funding framework for target benefit MEPPs
On April 4, 2018, the implementation of a framework for collectively bargained target benefit multiemployer pension plans (TB MEPPs) in Ontario continued with the posting of the proposed funding framework for TB MEPPs. The proposals provide a description of the funding framework that would apply to eligible MEPPs that convert defined benefits into target benefits as well as to any newly established TB MEPP.
In June 2017, the Ontario government announced that it would be implementing a framework for TB MEPPs to replace the existing time-limited funding regulations currently in place for specified Ontario multi-employer pension plans (SOMEPPs). On April 3, 2018, the Ontario government extended the current SOMEPP regulations to January 1, 2024.
The proposed TB MEPP framework would establish a new category of pension benefits that would target a specified retirement pension and be funded with fixed contributions. To address funding shortfalls, the accrued benefits, including retirees’ pensions, could be reduced.
The proposed TB MEPP framework include descriptions of:
- The permanent exemption from solvency funding requirements;
- The amortization period for going-concern funding deficiencies;
- Determination of the provision for adverse deviations (PfAD) applicable to normal cost contribution requirements and benefit improvements;
- The contribution sufficiency test;
- Funding rules for benefit improvements;
- The new basis for determining commuted value payments; and
- Transition rules.
Further proposed regulations related to the target benefit framework are expected to be made in subsequent postings. These postings are expected to include proposed regulations on funding and governance policies, eligibility requirements, processes to reduce accrued benefits, and conversion rules.
Overall, we expect that these proposals will be considered by most SOMEPPs as a positive development. In anticipation of transitioning to these rules, SOMEPP administrators may wish to arrange for an advance analysis of the impact of the proposed changes on their plans.
The Ontario Ministry of Finance encouraged interested stakeholders to provide feedback on the proposed TB MEPP funding framework by May 4, 2018.