Christmas arrived early for plan sponsors and members as the Government of Ontario introduced legislation on Dec. 9, 2009, to amend the Ontario Pension Benefits Act (PBA). The legislation is noteworthy for its “multi-step process,” but it is even more important because it’s the first time in 20 years that the government has taken major steps to overhaul the pension system.
Previous governments chose not to proceed with pension reform unless all of the parties could agree on the proposed reform measures. The current government, however, chose to follow the sage advice of Professor Harry Arthurs. The goal of the final report of the Ontario Expert Commission on Pensions, entitled A Fine Balance, is not to proceed on the basis of agreement but to balance the interests of plan members and retirees on the one hand and plan sponsors on the other.
While the legislative provisions are many, here are the resolutions of a few issues that have dominated pension debate over the past 20 years.
Partial Windups
Under the current legislation, a partial windup occurs after an administrator voluntarily declares one or when the Superintendent of Financial Services orders it. Plan members seek a partial windup because if one is declared, members whose age plus years of service total 55 are deemed to grow in to, or meet the eligibility criteria for, the best available benefits under the plan. In addition, under the Monsanto decision, if the plan has a surplus at the time of the partial windup, then the members are eligible for a share of that surplus.
The Dec. 9 legislation seeks to balance the interests of plan members and employers. After Dec. 31, 2011, partial windups will be eliminated. In exchange, any member who is involuntarily terminated by an employer for reasons other than wilful misconduct or gross neglect, and whose age plus years of service totals 55, will be entitled to statutory grow-ins. This will assist employees in circumstances other than a partial windup and allow terminated employees to receive the full value of their pension benefits.
Plan Transfers and Restructurings
As a result of changes in the common law and the manner in which the PBA has been interpreted by the Financial Services Commission of Ontario, plan members of an employer that sells or transfers its business to another employer could end up receiving two or more pension cheques—one from each employer with which the member earned pension credits. If the member is participating in a final earnings plan, this could cause a situation where the sum of the separate cheques could lead to a lesser pension than what the member would have earned if he or she had belonged to only one plan.
The new legislation gives the member (or the member’s bargaining agent) more involvement in resolving the situation by allowing the member to choose to transfer the benefit to a successor plan.
This change creates a defined set of rules for plan sponsors and gives members the opportunity to maximize their pension benefits. In a court-supervised restructuring, the legislation gives members, sponsors and retirees the ability to develop their own solutions, subject to the approval of the Superintendent.
Transparency, Retiree Recognition and Surplus Rules
The Dec. 9 legislation includes measures that give the Superintendent the ability to order special valuations for plans deemed at risk. It also corrects an oversight: retirees are now defined in the legislation, can participate in pension advisory committees and can obtain information about the plan.
The legislation also legitimizes the current approach to surplus sharing by setting out the requirements to share surplus in the legislation itself instead of attempting to do so through regulation.
Pension reform is a difficult process and does not often lead politicians to act. The legislation introduced by the Ontario government represents an important first step in establishing a balanced approach to reform. It will be interesting to see the next installment of this multi-step process.
Hugh O’Reilly heads the pension and benefits practice group at Cavalluzzo Hayes Shilton McIntyre & Cornish in Toronto.
horeilly@cavalluzzo.com
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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the January 2010 edition of BENEFITS CANADA magazine.