Long-Awaited Grow-In, Regulatory Pension Reforms Released
On Monday, April 30, 2012, the Ontario Ministry of Finance published long-awaited, proposed regulatory amendments under the Pension Benefits Act (“Act”), including additional, proposed prescribed “activating events” for the purposes of grow-in benefits that come into force on July 1, 2012, for public commentary.
A number of key amendments to O. Reg. 909 (General) will:
- enable the proclamation of the “retired member” provisions in the Act (all references to “members and former members” throughout O. Reg. 909 will be clarified to refer to “members, former members or retired members”);
- implement immediate vesting for plan members and increase the threshold for the small pension payout rule (sections relating to refunds and transfers of pension benefits will be amended to reflect that all benefits are immediately vested and the requirements for prescribed statements will be adjusted to require statements that all benefits are vested, with exceptions for small benefits);
- further clarify the surplus payment rules (the provisions will be amended, consistent with the Act, to remove the requirement that the employer establish a contractual entitlement to surplus, and eliminate the requirement that an application include a contribution attribution analysis); and
- reflect changes to the Income Tax Act (Canada) regarding Individual Pension Plans (“IPPs”) (the Regulations will clarify that IPPs will be treated similarly to designated plans).
O. Reg. 909 will also be amended to 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 value, and to revise the provisions governing the crediting of interest on contributions made by members to clarify the basis for the interest to be credited and the timing for crediting of interest. A number of other housekeeping amendments to O. Reg. 909 have been proposed, including the removal of historical provisions relating to solvency funding relief for specified plans.
A second series of proposals would, among other matters, provide details relating to the ability to “grow-in” to enhanced early retirement benefits for most involuntarily terminated plan members. As previously reported in our FTR Now of May 19, 2010, “Implementing Phase One Of Ontario Pension Reform: A Roadmap For Plan Sponsors And Administrators,” Bill 236 amended the Act to, in part, extend so-called “grow-in” benefits to all involuntary “without cause” terminations for plan members who have 55 age plus service points, effective July 1, 2012.
The new proposals prescribe additional “activating events” or circumstances that would trigger grow-in benefits for the purpose of s. 74 (1), paragraph 3 of the Act, including where an employer has given notice of termination of employment to an employee and that person decides to end his or her employment within 60 days in advance of the termination date.
Under the Act, when amended, termination will not be an “activating event” if 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. The new proposals identify additional circumstances in which a termination will not be an activating event, including:
- where the member is an employee who was hired on the basis that the employment would end on expiry of a definite term or contract or on the completion of a specific task;
- where the member is a construction employee, as defined in O. Reg. 285/01 of the Employment Standards Act, 2000; and
- where the member is an employee who is on a temporary lay-off, as defined in subsection 56(2) of the Employment Standards Act, 2000.
The proposals further establish how and when jointly-sponsored pension plans (“JSPPs”) and multi-employer pension plans (“MEPPs”) may elect to “opt-out” of providing grow-in benefits, or rescind an election. Specifically, within one calendar year of section 74.1 coming into force, existing MEPPs and JSPPs may elect to opt-out of providing grow-in benefits. Newly established MEPPs and JSPPs will be able to file an election within one calendar year of the date of registration or certification, respectively. A MEPP or JSPP may rescind the election at any time, on a prospective basis, by filing a notice with the Superintendent.
Finally, the proposal would amend the Act to clarify that the Superintendent may still be allowed to order a wind up of a plan if:
- the plan has no members (i.e. it has only former members, retired members and beneficiaries who are not members); or
- 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 under section 31 of the Act.
Stakeholders are invited to submit feedback on these proposals by June 1, 2012. It is anticipated that additional regulatory amendments will be published in the coming months to give effect to ongoing pension reforms.
We are in the process of reviewing the proposed amendments, and a more detailed FTR Now discussing the implications of these changes for employers and plan administrators will be available shortly on our website.