Ontario will implement changes to the regulations of the Ontario Pension Benefits Act to improve flexibility in the funding requirements for defined benefit Multi-Employer Pension Plans(MEPPs), says an Eckler Special Notice.

The changes allow certain MEPPs registered in Ontario to exclude consideration of any new solvency deficiencies in setting contributions based on actuarial valuations with effective dates between September 1, 2007 and August 31, 2010.

The new regulations create a class of MEPP called a Specified Ontario Multi-Employer Pension Plan(SOMEPP).

These are Ontario-registered MEPPs that meet three key criteria: satisfy the requirements for a Specified Multi-Employer Pension Plan under the Income Tax Act; permit the trustees to reduce benefits based on plan provisions; and elect to be classified as a SOMEPP.

“A pension plan may make such an election between September 1, 2007 and August 31, 2010,” says the notice. “It may be rescinded, but a plan may only elect to be a SOMEPP once and if this election has been rescinded, the rescission may not be withdrawn.”

This special treatment for SOMEPPs expires on August 31, 2010, making these changes temporary.

The new requirements provide that SOMEPPs: must continue any existing going-concern special payments as filed with the Financial Services Commission of Ontario; must advise all plan members, the union(s), and contributing employers that the plan has been registered as a SOMEPP, indicating the potential impacts of such an election; must fund any new going-concern shortfalls identified while the plan is registered as a SOMEPP over a 12-year period; and may grant benefit improvements, provided that any improvements must be funded on a going-concern basis over an eight-year period(instead of 12)if, after reflecting the benefit improvements, the plan’s transfer ratio is less than 80% or the plan’s going-concern funded ratio is less than 90%;

Even though the current regulations don’t stipulate an amortization period to eliminate going-concern losses, most plans typically use 15 years or less. The shorter amortization period specified in the new regulations reflects the government’s concerns that some plans use overly aggressive actuarial assumptions.

“Although the new MEPP funding requirements have only been implemented as a temporary measure at this stage,” says the notice, “we are hopeful that the Ontario Expert Commission on Pensions will recognize the unique issues faced by MEPPs and will consider recommending a permanent funding regime along the same lines.”

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