Ontario Pension Report Misses the Mark

Hamilton feels the mandate of the two-year long commission should have focused on how to improve and strengthen Ontario’s retirement system, as was the case for other pension review panels in B.C./Alberta and in Nova Scotia. “Instead, it was given the mandate of, How do we save the defined benefit plan in Ontario?”

The report also suffered the misfortune of being released in the midst of the global economic crisis, rendering some of its recommendations unlikely to be implemented, he added.

Hamilton was disappointed by three aspects of the report. He feels the commission’s assumption that the decline of defined benefit (DB) plan participation in Ontario is due to the decline in unionization is over-simplistic, and attributes the decline to DB’s inability to appeal to employers as a viable plan. Nothing in the report, he explained, is likely to change their minds.

Hamilton also suggested that the OECP report makes a distinction between “favoured” plans such as joint-sponsored pension plans (JSPPs) and multi-employer pension plans (MEPPs), and “plans to be abandoned”, such as single-employer pension plans (SEPPs). In effect, he explained, there are two separate reports: one for the former, and one for the latter.

The third area where Hamilton feels the commission stumbled has to do with pricing, particularly relating to the proposed pension benefit guarantee fund. “The commission seemed not to notice that everywhere in the world this has been tried, they had the same objectives and failed miserably,” he said. “In my view, it’s impossible to have a self-supporting guarantee fund with fair risk-based assessments.”

Independent pension consultant Gretchen Van Riesen was also critical of the report, particularly its treatment of SEPPs.

“This won’t do a lot to enhance coverage,” she said. “On the contrary, if you are a SEPP, there are plenty of reasons to be discouraged and to believe that, in fact, the day of the SEPP—if these recommendations are adopted—is over.”

She explained that the commission’s call for mandatory pension committees is unworkable for national employers of SEPPs, as they would prove too unwieldy and labour-intensive. She also questioned the idea of mandatory indexing in emergencies, as it constitutes an additional cost at a vulnerable time and is a potential regulatory grey area.

“What constitutes an emergency?” she asked. “Who defines that?”

Van Riesen supports the commission’s recommendation on the use of letters of credit, but said that the point is moot due to the current tight credit market.

In the event that the OECP’s recommendations are implemented, MEPPs and JSPPs will enjoy exemption from a host of regulations such as solvency funding, grow-in benefits, partial wind-ups and certain investment restrictions.

However, according to Hamilton, the commission has missed the “glaring governance failings” of both types of plans. He said that taxpayers and future entrants are poorly served in the governance of these plans, as neither was represented in the consultations.

The panelists did approve of some aspects of the report, including the recommendations on partial windups, the ability to fund future defined contribution accruals from an accumulated DB surplus and the ability, upon windup, to transfer pension obligations to the Ontario pension agency.

“This is very useful, because if you can discharge windup obligations at a lower price, it gives you some solvency funding relief,” said Hamilton.

He believes that the commission realized it could not offer a solution to save the DB plan for single employers and instead offered a route for a possible migration.

“What they did in the final analysis is, they gave the SEPP a set of rules that will encourage them to migrate,” he said. “They pointed in a direction that was toward a jointly-governed target benefit plan, which is really a collective DC plan.”

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