While the Pension Benefits Act (PBA) was amended in 2010 by Bills 236 and 120, regulations to clarify the Ontario government's pension reform agenda are only now being introduced. The first batch of draft regulations (amending the general regulation under the PBA) were posted on the Regulatory Registry on April 30 and May 3. We discuss these in detail below. The budget papers from the March 2012 Ontario budget also made a number of comments about Pooled Registered Pension Plans, which we review below.
The key proposed regulatory changes are:
- the proclamation of the "retired member" provisions in the PBA and insertion of the words "retired member" throughout the regulations besides "former member";
- implementation of immediate vesting for plan members. The 2012 Ontario budget suggested that immediate vesting would come into effect on July 1, 2012;
- to allow small pensions to be paid even if the funded ratio is below one and offer the right to transfer such small amounts to an RRSP. These changes would also require member statements on termination to be amended to reflect this new portability option;
- some minor clarifications to the process under which a surplus withdrawal may be undertaken;
- eliminate references to "qualifying plans" and reflect recent changes to the Income Tax Act (Canada) governing "individual pension plans";
- update the references to the section of the Standards of Practice of the Actuarial Standards Board, published by the Canadian Institute of Actuaries, to be used when calculating members' commuted values; and
- clarify the provisions in the regulations with respect to crediting interest.
New Grow-In Regime
The Ontario government also released a discussion paper and additional draft regulations setting out the prescribed requirements applicable to the new "grow-in" provisions in section 74 of the PBA, as these are to be applied to most involuntarily terminated plan members (not just those affected by a full wind-up). The new grow-in provisions would apply to "without cause" terminations for plan members who have 55 age plus service points, beginning on July 1, 2012.
The discussion paper and draft regulations introduce the notion of "activating events" or circumstances that would trigger grow-in benefits under the PBA, for example, in instances where an employer has given notice of termination of employment to an employee but that person opts to leave employment within 60 days of the termination date. An "activating event" also would not include the following circumstances:
- a termination of an employee hired under a fixed-term contract or under a contract providing that employment will end on the completion of a specific task;
- termination of a "construction employee", as defined in Regulation 285/01 under the Employment Standards Act, 2000 (ESA); or
- a temporary lay-off, as defined in subsection 56(2) of the ESA.
Moreover, no "activating event" would exist when the termination is a result of wilful misconduct, disobedience or wilful neglect of duty by the member that is not trivial and has not been condoned by the employer.
Authority of Superintendent to Order Wind-Ups
The draft regulations also propose to strengthen the Superintendent's authority to order a plan wind-up, in the following circumstances:
i. the plan has no (active) members (i.e., it has only former members, retired members and beneficiaries who are not members); or
ii. members of the pension plan no longer accrue pension benefits or ancillary benefits under the plan and employees are no longer allowed to become members of the plan.
Ontario's View On Pooled Registered Pension Plans
The main legislative solution proposed by the federal government to address the question of inadequate pension coverage in Canada was the introduction of a bill to create Pooled Registered Pension Plans (or PRPPs). While corresponding amendments to the Income Tax Act (Canada) now found in (yet to be proclaimed) section 147.5 would allow Ontario to adopt its own PRPP legislation, the provincial government has expressed strong reservations about the efficacy of the PRPP solution.
Its concerns with the PRPP model include:
- the fact that PRPPs may simply replace one form of retirement arrangement with another, instead of expanding retirement income savings and coverage;
- how the PRPP's fiduciary framework will adequately protects plan members in a for-profit environment;
- whether compulsory employee contributions would be flexible enough to allow for various life events, such as divorce or periods of financial hardship;
- how PRPPs will achieve their low-cost objectives; and
- how an effective licensing and regulatory regime (and the inherent costs thereof) would impact PRPP participants.
While the province has pledged to continue its collaborative with other governments to further refine the PRPP model, Ontario believes the implementation of pension innovation should be tied to CPP enhancement as part of a comprehensive approach. This may be a signal that Ontario will not introduce its own PRPP legislation in the near future.
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