Proposed exemption of certain individual pension plans and designated plans from Ontario pension legislation
On December 20, 2019, the Ontario Ministry of Finance released its consultation with stakeholders on proposed changes to the Pension Benefits Act (PBA), which would exempt certain individual pension plans (IPPs) and designated plans (DPs) from the application of the PBA.
The consultation also invites stakeholders to provide feedback on which areas, if any, the Financial Services Regulatory Authority (FSRA) should have rule-making authority on for the IPPs and DPs that remain subject to the PBA.
Allowing certain IPPs and DPs to elect to be exempt from the PBA
It is proposed that employers of IPPs and DPs registered under the PBA be allowed to elect whether to be exempt from the PBA, provided that all of the following criteria are met:
- Every member is connected with the employer;
- Every former member and retired member was connected with the employer immediately before leaving the company or retiring; and
- Every member, former member, retired member and other person entitled to benefits under the plan has consented in writing to the exemption.
The term “connected” comes from the income tax regulations and would typically include significant shareholders and their family members.
The member consent would include an acknowledgement that, as a result of the exemption, the PBA, the regulations and FSRA rules would not apply to any benefits or entitlements accrued by the member under the plan, whether the benefits or entitlements accrued before or after the effective date of the exemption.
The effective date of such an election would need to be set out in the election itself, and such election would have to be filed with FSRA.
Once exempt from the application of the PBA, the IPP or DP would be closed to individuals who are not connected with the employer. The PBA, the regulations, and FSRA rules would no longer apply to an exempt IPP or DP, including any past benefits or entitlements accrued under the plan. An exemption would continue to apply with respect to an IPP or DP, even if a member, former member or retired member was connected with the employer, then ceases to be connected.
Automatically exempting certain IPPs and DPs that are established after the date when the proposed amendments would come into force
Where an IPP or DP is established after the date the proposed amendments are to come into force and contains only members who are connected with the employer, it is proposed that the IPP or DP be automatically exempt from the application of the PBA. Therefore, the IPP or DP would require no election or registration under the PBA.
Exempting IPPs and DPs that have had their ITA registration revoked
Lastly, where the IPP or DP has had its Income Tax Act (ITA) registration revoked, while still being registered under the PBA, the IPP or DP would be automatically exempt from the application of the PBA, as of a date set out in the proposed amendments. Therefore, the revoked IPP or DP would require no election to become exempt from PBA regulation.
The proposal would potentially be of benefit to employers who provide IPPs or DPs to employees with significant shareholdings and their family members, as it would reduce many compliance costs. However, actuarial valuations would still be required at least every four years if contributions are to be made to the IPP or DP. Annual information returns would also have to be filed with the Canada Revenue Agency.
In some cases, a careful analysis will be required to determine if the IPP or DP members qualify or qualified as “connected” under the ITA. In particular, many DP members may not be considered connected.
Once exempted from the PBA, the IPP or DP members would lose the protections of the PBA and would lose recourse to FSRA, even if they lose connected status in the future. This may be a concern to members in some cases, for example if a family business that sponsors an IPP or DP is sold to a third party.
Public comments were requested by January 23, 2020. Morneau Shepell made a submission to the Ministry of Finance.