Ontario’s Budget Addresses Pensions
Article originally published by Benefits Canada, April 13, 2009
"Ontario’s Budget Addresses Pensions "
As anticipated, the 2009 Ontario Budget, entitled “Confronting the Challenge: Building Our Economic Future,” contained several measures directed at pension reform. The Budget indicates that the Ontario government is committed to introducing a package of pension reforms in the autumn of 2009. This is welcome news in the pension industry.
Solvency Relief Measures
Further details on the temporary solvency relief measures that were first announced in December 2008 were provided. The proposed measures would apply to the first valuation report dated on or after Sept. 30, 2008. It is proposed that a plan administrator may elect to (i) consolidate existing solvency payment schedules into a new five year schedule; (ii) defer for one year the start of new going concern and solvency special payments; and (iii) subject to consent, extend the solvency payment schedule to 10 years for a new solvency deficiency (under the existing rules any new solvency deficiency must be paid off over five years).
The Budget clarifies that the proposal is to allow the extension of the solvency amortization period to ten years provided that no more than one-third of the aggregate of all active, deferred and retired members indicate that they do not consent. In addition, collective bargaining agents would be permitted to consent only with respect to their proportionate share of the active members represented by the agent. There would be enhanced reporting requirements on the plan administrator in the event that an election is made.
The Budget proposed that due to the current economic conditions, employers should not be permitted to take contribution holidays in fiscal years ended 2010 to 2012, unless an actuarial cost certificate is filed each year confirming that the pension plan is in a surplus position as of the start of the year, or the plan is a designated plan under the Income Tax Act.
The government intends to introduce amendments to Ontario’s pension legislation to permit (but not require) pension plans to provide phased retirement for workers. If implemented, plans that are amended to provide for phased retirement would allow workers who have attained the age of retirement to draw a pension and continue working and accruing pension benefits.
Expanded Mandate of Ontario Teachers’ Pension Plan
The Budget proposes introducing legislation to permit Ontario Teachers’ Pension Plan to provide pension administration and investment services to other plans. This would potentially permit smaller pension plans to bear lower overall administrative costs and have better investment opportunities. This proposed change is consistent with the recommendations of the Ontario Expert Commission on Pensions that larger plans should be allowed to offer services to smaller ones.
Pension Benefits Guarantee Fund
The Budget also addresses Ontario’s pension benefits guarantee fund (PBGF). The government intends to introduce legislation clarifying that the PBGF is self-sustaining and independent from the government, but that the government has the flexibility to make grants to the PBGF. The Budget indicates that the government is not required to make either grants or loans to the fund. An independent actuarial study of the stability and financial status of the PBGF will be undertaken. The intention is to continue the operation of the PBGF, but with coverage levels and fees that make the fund sustainable for the long term.
Pension Reform Advisory Council
The Budget indicates that the government will continue to seek stakeholder input as it moves towards the planned introduction of reforms this fall.
The government will also be establishing a new pension reform advisory council, which will provide feedback on specific proposals related to pension reform.
The process that was started by the establishment of the Ontario Expert Commission on Pensions back in 2006 is still moving forward. As mentioned at the outset, the government intends to introduce a package of pension reforms in the autumn of 2009. Ontario’s pension legislation has not been overhauled since the major reforms in 1987 and is in great need of reform at this time.
The changes proposed in the Budget are a move in the right direction and all stakeholders and professionals in the pension industry eagerly await further proposed changes in this important area of the law.
To view the article, please visit the Benefits Canada website.