Update: Ontario legislative changes in force July 1
As discussed in our May 2012, edition of News & Views, the Ontario government has proclaimed a number of changes to the Pension Benefits Act (the “Act”) in force effective July 1 and issued final regulations concerning grow‑in benefits and other matters. The Financial Services Commission of Ontario (“FSCO”) has also issued some summaries of the changes on its Web site. While the proclamations were widely expected, it is worth summarizing and updating the changes.
Immediate Vesting, Partial Wind-ups and Grow-in
Immediate vesting will come into force for all terminations on or after July 1, 2012. At the same time, partial wind-ups are abolished for events that took place on or after July 1, 2012.
Grow-in benefits must now be provided in respect of most involuntary terminations on and after July 1, 2012.
The final regulation specifying which involuntary terminations lead to grow-in has been released. An involuntary termination does not lead to grow‑in if the employee is a construction employee as defined in the Employments Standards Regulations, or the employee is only on temporary lay-off within the meaning of the Employment Standards Act. A provision which would have excluded situations in which the employee was hired on the basis that his or her employment would terminate on expiry of a definite term or on completion of a specific task was deleted in the final regulation.
An employee resignation is also considered an involuntary termination if the employee receives written notice of termination and the employee resigns prior to the termination date. A clause that would have limited this situation to employee resignations within 60 days of the termination date was deleted in the final regulation.
Involuntary termination of employment does not lead to grow-in if the termination is a result of willful misconduct, disobedience or willful neglect of duty by the member that is not trivial and has not been condoned by the employer. Note that this standard is even more difficult for the employer to establish than simply “termination with cause”.
Provisions under which a multi-employer pension plan or a jointly sponsored pension plan can exempt itself from grow-in have also been proclaimed.
The Act has been amended to grant eligible individuals (members, former members, retired members, their spouses, and their agents) the right, if they make the request in writing and pay a fee, to access certain plan records electronically or by mail. Access by an individual is limited to once per calendar year for a specific plan record. The maximum fee for paper copies is 25 cents per page and the maximum fee for electronic copies is $5 for each request.
FSCO is also required to provide certain plan records
to members if requested in writing and if the
prescribed fee is paid. These records include the plan
text and amendments and the most recent version
of the actuarial report and other financial reports filed
The administrator must also allow individuals who are inspecting plan records in person to extract information from the records or copy the prescribed records without charging them a fee.
The Act is also amended to authorize administrators to use electronic means to send certain notices, statements and other plan records to members and other plan beneficiaries. Electronic delivery may only be used if the administrator has the individual’s permission to do so and the electronic means comply with the Electronic Commerce Act.
Annual and Termination Statements
Minor changes have been made to the contents of member statements in light of immediate vesting and grow-in rights.
In particular, a termination statement must now include the statement, where applicable, that the member is entitled to grow-in benefits or, if the member is not entitled to benefits because of termination for willful misconduct, disobedience or willful neglect of duty, a statement indicating that the member is not entitled to benefits and stating the reason. Furthermore, a termination statement must include an explanation of which early, normal or postponed retirement options include benefit enhancements resulting from grow-in.
Small Benefit Unlocking
The small benefit unlocking rule for former plan members has been amended. Effective July 1, a benefit may be unlocked if either:
- the annual benefit payable at a former member’s or retired member’s normal retirement date is not more than 4% of the Year’s Maximum Pensionable Earnings (YMPE) in the year that he or she terminated employment; or
- the commuted value of the former member’s or retired member’s benefit is less than 20% of the YMPE in the year that he or she terminated employment.
In that case, the commuted value of the benefit is payable as a lump sum. The former member or retired member also has the right to transfer the lump sum directly to an unlocked Registered Retirement Savings Plan or a Registered Retirement Income Fund.
The Act has also been amended to provide for small benefit unlocking of a survivor pension payable to a spouse. The same rules apply to a spouse as to a former member or a retired member, with the exception that the YMPE is calculated based on the year of the retired member’s death, not the year of termination of employment.
Depending on the current plan wording, a plan will need to be amended to apply the updated small benefit unlocking rule. Given that there may be more small benefits due to immediate vesting, most plans will want to do so.
FSCO has stated that the payment of a small amount is not subject to restrictions on transfer of commuted value due to plan underfunding.
The rules for a notice of application in support of a surplus withdrawal application have been amended. Among other changes, a historical plan summary and analysis is no longer required where the application for surplus withdrawal from a continuing plan is based on agreement between the employer and the plan members and beneficiaries.