Canada: Bill 177, Stronger, Fairer Ontario Act (Budget Measures), 2017: Pension Issues

On November 14, 2017, the Ontario government released its 2017 Ontario Economic Outlook and Fiscal Review and introduced Bill 177, Stronger, Fairer Ontario Act (Budget Measures), 2017 (Bill 177), which looks to amend the Ontario Pension Benefits Act (Ontario PBA) and Financial Services Regulatory Authority of Ontario Act, 2016 (FSRA Act). Bill 177 also enacts the Financial Services Tribunal Act, 2017, to continue the Financial Services Tribunal under substantially the same terms under which it operated pursuant to the Financial Services Commission of Ontario Act, 1997. Draft regulations accompanying Bill 177 are expected to be released before the end of the year. Below is a summary of the key amendments to the Ontario PBA and the FSRA Act, if Bill 177 is passed in its current form.

1. SOLVENCY RULES

Bill 177 contains limited provisions to reflect the new funding framework, which requires the yet-to-be-released regulations to be complete.

Certain references to "solvency deficiency" throughout the Ontario PBA will be changed to "reduced solvency deficiency," which will be defined by the anticipated regulations. Similarly, references to "surplus" in the unproclaimed sections of the Ontario PBA relating to contribution holidays will be changed to "available actuarial surplus," which will also be defined by the anticipated regulations.

A new term "provision for adverse deviations" will be added to the Ontario PBA and is to be defined in the anticipated regulations. Further, the unproclaimed sections of the Ontario PBA relating to contribution holidays will be amended to allow for the reduction or suspension of any contributions required to be made by members and employers of a jointly sponsored pension plan for the provision for adverse deviations in respect of the normal cost of the pension plan, if the plan had a surplus and prescribed requirements are satisfied.

Currently, subsection 79 (1) of the Ontario PBA provides that the Superintendent of Financial Services (Superintendent) shall not consent to the payment of surplus to an employer out of a continuing pension plan unless certain requirements are met. Amendments will be made to this section to add a requirement that at least twice the provision for adverse deviations in respect of the normal cost of the pension plan must be retained in the pension fund as surplus.

2. REGISTRY FOR MISSING PLAN BENEFICIARIES

In response to growing concerns regarding missing pension plan beneficiaries, the Ontario PBA will be amended to include a new requirement that the Superintendent must establish, maintain and operate an electronic registry of missing beneficiaries. The highlights of the new registry are as follows:

• If an administrator cannot locate a beneficiary, the administrator will be required to notify the Superintendent within a reasonable time. The notice must contain information to be specified by the Superintendent, including personal information.
• If the Superintendent is satisfied that there are reasonable and probable grounds to believe that a beneficiary is missing, the Superintendent will be required to record details about the beneficiary, the pension plan and the administrator in the registry.
• If the Superintendent receives a request for registry information from an individual, and is satisfied that the individual is either a beneficiary recorded in the registry, or the authorized agent of a beneficiary recorded in the registry, the Superintendent will be required to provide the individual with information in the registry that relates to the beneficiary.
• Upon locating a beneficiary who was missing, an administrator will be required to notify the Superintendent as soon as reasonably possible, and the Superintendent must then remove all information relating to the beneficiary from the registry.

3. FUNDING AND GOVERNANCE POLICIES

The Ontario PBA will be amended to require that the documents that create and support a pension plan shall include a funding policy and a governance policy. Pension plan administrators who have applied for registration before this amendment comes into force must also file a funding policy and a governance policy with the Superintendent. It is expected that the regulations will prescribe the requirements for these policies.

4. DISCHARGE OF ADMINISTRATOR UPON PURCHASE OF ANNUITIES

Bill 177 will add a new section to the Ontario PBA providing for the discharge of the administrator of a single employer pension plan if the administrator complies with specified requirements in respect of the purchase of a pension, deferred pension or ancillary benefits from an insurance company. The discharge also applies to purchases made before this amendment comes into force. In both cases a notice of the purchase must be made to the former member or retired member.

The effect of the discharge is that the former member or retired member in respect of whom the purchase was made is no longer considered a former member or retired member. However, the former member or retired member will still be entitled to the plan surplus upon plan wind up, if the former member or retired member would have been entitled to such surplus had the plan been wound up on the day of the purchase.

5. PENSION BENEFITS GUARANTEE FUND (PBGF)

A number of amendments will be made to the Ontario PBA to expand the guarantee of the PBGF, including:

• In the case of pension plans with a wind up date on or after the amendments come into force, removing the requirements regarding the age and years of employment or membership that members and former members must meet for their benefits to be guaranteed by the PBGF.
• In the case of pension plans with a wind up date on or after the amendments come into force, increasing the amount of a pension or pension benefit, including any bridging supplement, guaranteed by the PBGF from C$1,000 to C$1,500 per month.

6. VARIABLE BENEFITS

The unproclaimed sections of the Ontario PBA relating to variable benefits will also be amended to provide increased rights to those who may have an interest in the variable benefits of a retired member. These rights include:

• Transfers: Subject to the requirements of the Ontario PBA, a specified beneficiary (designated beneficiary of a retired member) will be entitled to transfer amounts out of the retired member's variable benefit account.
• Written Statement to Specified Beneficiary: If a specified beneficiary elects to continue receiving variable benefits, the administrator will be required to provide a written statement containing prescribed information about the pension plan or about the retired member's variable benefit account.
• Death of Specified Beneficiary: If the proper election is made, a specified beneficiary will be allowed to designate a beneficiary to receive the balance remaining in the retired member's variable benefit account upon the death of the specified beneficiary. If a beneficiary is not designated, a personal representative of the specified beneficiary is entitled to receive the balance remaining in the retired member's variable benefit account.

7. TARGET BENEFITS

Bill 177 replaces unproclaimed sections of the Ontario PBA relating to target benefits with new provisions, which will make technical changes to some of the existing criteria and add new criteria that must be satisfied for a benefit to be considered a target benefit, including that the pension plan is a multi-employer pension plan and the plan supporting documents identify the benefit as a target benefit. Further, with respect to plans that were not initially registered as providing target benefits, a conversion to a target benefit must be done in accordance with new conversion to target benefits provisions of the Ontario PBA.

New provisions govern the conversion of benefits provided by a multi-employer pension plan to target benefits, where the conversion is proposed to be implemented by amending the pension plan. Notice of a proposed conversion must be given to: members, former members, retired members and other persons entitled to benefits under the pension plan; participating employers; any trade union that represents members of the plan; and the Superintendent. The pension plan administrator must also consult with any trade union that represents members of the pension plan. In addition, the prior consent of the Superintendent to the conversion is required. The criteria to be considered by the Superintendent are specified, but other criteria may be prescribed.

8. PLAN WIND UP

Section 75 of the Ontario PBA sets out the amounts that an employer must pay into the pension fund when a pension plan is wound up. The Ontario PBA will be amended to exclude multi-employer pension plans established pursuant to a collective agreement or trust agreement from the requirement to pay the amount set out in clause 75(1)(b) into the pension fund upon plan wind up.

9. SPECIAL RULES, ESSAR STEEL ALGOMA INC.

The Ontario PBA will permit the making of regulations that exempt listed pension plans for which Essar Steel Algoma Inc. is the employer (or a successor employer) from subsection 57(3), (4), (5) or (6) of the Ontario PBA relating to the deemed trust property rules.

10. FINANCIAL SERVICES REGULATORY AUTHORITY OF ONTARIO (FSRA)

The amendments to the FSRA Act and the Ontario PBA provide insight into how FSRA will operate. The pension-related objectives of FSRA will be to promote good administration of pension plans and to protect and safeguard the pension benefits and rights of pension plan beneficiaries. Notably, FSRA will have rule-making authority in respect of any matter over which another act of legislation provides such authority. Amendments to the Ontario PBA grant FSRA the authority to make rules in respect of a number of matters, including:

• Prescribing timing requirements for registering a pension plan and filing an annual information return
• Prescribing the records an administrator must make available upon request, and the circumstances in which they are to be made available to a former spouse
• Prescribing conditions that must be met for a pension plan to be deemed to permit payment variation in circumstances of shortened life expectancy
• Certain family law matters

Pursuant to amendments to the FSRA Act, FSRA will also have the authority to make rules governing fees or other charges it imposes, including for filing, applications for licences or registration, in respect of compliance reviews and audits, and in connection with any work done to advance its objectives and pursuant to its duties and powers. However, FSRA will not have the authority to make rules in respect of administrative penalties.

Generally, rules proposed by FSRA must be published in a notice on its website and contain detailed information including a statement of the rule's substance and purpose. Interested persons will have at least 90 days from the date the notice regarding a proposed rule is published to make written submissions with respect to the proposed rule. Proposed rules are subject to the approval of the Minister of Finance. FSRA will be able to collect and enforce amounts owing pursuant to a rule in effect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.