4. Clarify surplus entitlement
• In addition to continuing to allow surplus to be paid to an employer where surplus entitlement can be demonstrated by the employer or a surplus sharing agreement has been reached, a binding arbitration process will be created to address surplus distributions on plan wind up. Osler notes that the scope of this arbitration provision remains to be seen. For example, will it cover all disputes that arise in the context of negotiation or just surplus entitlement?
• Payments of surplus to an employer from an ongoing plan will be permitted where there is either employer entitlement or appropriate consent has been obtained (2/3rds of members or bargaining agent and retireds and deferreds). However, for ongoing withdrawals, the surplus remaining in the plan must be no less than the greater of 25% of the wind-up liabilities; or twice the current service cost plus 5% of wind-up liabilities.
• For plan splits and mergers, surplus sharing agreements will be required if the importing and exporting plan surplus provisions differ, to protect member surplus rights. Osler points out that this recommendation is particularly surprising given the recommendations surrounding plan mergers from the Expert Commission and the Bill 236 changes to the PBA. This could be a significant impediment to plan mergers and other plan asset transfers, especially if a historical analysis of plan terms is required.
5. Increased funding flexibility for MEPPs and JSPPs
• “Target benefit” MEPPs that meet certain criteria are to be exempt from solvency funding requirements. These MEPPs will also be permitted to reduce benefit levels to the greater of the transfer ratio or going concern ratio when individual members exercise portability and the plan is underfunded.
• Current JSPPs would be exempt from solvency funding requirements provided that certain criteria (e.g., enhanced disclosure to members and retired members) are met.
• “Target benefit” MEPPs or JSPPs would have five years to fund a benefit improvement if that improvement causes the plan to become less than 85% funded (on a going concern basis).
6. Create financial stability in the PBGF
• Assessment levels for PBGF covered plans would be increased by creating a minimum assessment level of $250 for each pension plan covered by the PBGF; raising the base fee per plan member from $1 to $5; raising the maximum fee per plan member in underfunded pension plans from $100 to $300; and eliminating the overall assessment cap for underfunded pension plans.
• New plans, and benefit improvements under existing plans, will be excluded from PBGF coverage for a period of five years (formerly three years).
7. Temporary solvency funding relief for certain broader public sector plans
• This proposal is expected to be utilized by certain universities in Ontario, but its potential application to other pension plans in the broader public sector is not yet clear.
• The criteria plans must meet to participate are not yet clear. “Participating” defined benefit and hybrid plans that are less than 90% funded would be able to receive temporary solvency funding relief. To qualify, a proposal must first be submitted to the ministry of finance, outlining how sustainability will be achieved. These plans would be given a three-year window where a lower solvency threshold would be applied. Plans that have demonstrated progress towards stability at the end of the three-year period would then be permitted to enter “stage two” of the process. Plans that are not permitted to enter “stage two” are to be transitioned back into the normal pension funding rules.
• “Stage two” would facilitate negotiations between plan members and their representatives by providing up to 10 years to implement the proposed changes and liquidate solvency deficits. During this period, contribution holidays and benefit improvements would be restricted.
8. Encourage flexibility and opportunities for plan innovation
• Employers will be permitted to use irrevocable letters of credit from a financial institution to cover up to 15% of solvency liabilities.
• Defined contribution plans will be permitted to pay variable (life income fund-like) benefits.
• Flexible defined benefit plans will be allowed (subject to Income Tax Act requirements).
• Defined benefit plans will be permitted to amortize going concern and solvency special payments over a period beginning up to one year following the valuation date.
• The recent federal investment rule changes will be adopted (Ontario currently applies the federal investment rules as they read on Dec. 31, 1999), and Ontario will continue to review the appropriateness of the 30% rule for pension investments.
• Require the PBA to be reviewed every five years.
