Ontario’s New Pension Changes

Ontario Pension Reform – Changes Effective July 1, 2012

In the March 2012 Budget, the Ontario government announced its intention to proclaim a number of changes to the Pension Benefits Act. For plan sponsors, this means pension plans will need to be amended to bring them into compliance. On June 26th, Ontario officially filed regulations that implement changes that will impact pension plan provisions and administration processes.

How These Changes Could Impact Your Business

Two key changes have noteworthy impacts on pension plans.

Immediate Vesting

Although the direct costs are relatively minor, immediate vesting will eliminate any plan gains or forfeitures associated with those plan members who terminate from a pension plan prior to two years of plan membership.

To help reduce the costs associated with enrolling and terminating short-service employees, Plan Sponsors may want to consider lengthening the eligibility provisions. Employment law and collective agreement considerations should be taken into account. Note, there is no change to the minimum standards in the Pension Benefits Act – the maximum waiting period for eligibility is 24 months of continuous employment. Also, where applicable, plan sponsors should consider the impact of immediate vesting to Supplemental Executive Retirement Plans (SERPs).

In the interest of administrative simplicity for those pension plans with member across many provinces, plan sponsors may wish to consider the merits of implementing a uniform immediate vesting provision for members across all jurisdictions as this change is already in place for some provinces, like Quebec and Manitoba.

Grow-in Benefits

For employers who sponsor defined benefit plans, your actuarial valuation report currently accounts for grow-in benefits in determining solvency liabilities on plan windup. Therefore, there should be little change to your current pension plan funding requirements. However, to reduce costs, you should still review your plan design by possibly reducing or eliminating benefits which generate grow-in entitlements (i.e. early retirement subsidies and bridge benefits). Void amendment rules will need to be considered along with legal constraints, commitments in employee booklets and collective agreements. Loss of grow-in entitlements may also cause older employees to lose incentive to retire.

Human resources staff and plan administrators will need to evaluate the impact to the pension plan whether an employment termination is characterized as a resignation, a termination for cause, or any other termination prescribed by the Regulations.

Summary

As we commence preparation of the required pension plan amendments, your CBA consultant will contact you to discuss the impact the July 1, 2012 changes will have on your pension program(s). We will provide additional support to keep you abreast of our process to incorporate changes to plan administration practices and forms for those pension plans where CBA provides defined benefit third-party administration services.

Background:

With the passing of the Ontario Budget and the proclamations issued on June 21, 2012, changes relating to the following items became effective July 1, 2012:

  1. Immediate vesting and locking-in of pension benefits
  2. Extension of grow-in benefits to all eligible members involuntarily terminated from employment, other than for cause, plus the ability for multi-employer pension plans (MEPPs) and jointly sponsored pension plans (JSPPs) to elect not to provide grow-in benefits
  3. Elimination of all future partial pension plan wind-ups
  4. Disclosure to members and accessing pension records
  5. Crediting of interest on contributions and payments
  6. Commuted value transfers
  7. Transfers of unlocked amounts to RRSPs or to RRIFs
  8. Individual pension plans
  9. Retired members
  10. Solvency funding relief measures
  11. Survivor pension small amounts
  12. Surplus Withdrawals

Changes that do not require new Regulations, and that also became effective July 1, 2012, are:

  • Allowance for plan administrators and the Superintendent of Finance Services to use electronic means to send notices, statements and other records with the consent of the recipient, and
  • An increase in the limit for small pension payments in order to ease the administration associated with locked-in transfer payments on member termination

 Additional Information Relating to Grow-in Benefits:

  • Defined benefit pension plans will be required to provide grow-in benefits for members whose age plus service equal or exceeds 55 years and whose employment is ended by their employer, other than for cause. Grow-in benefits are those benefits where, at termination, a member is entitled to the value of a favourable ancillary benefit, such as an unreduced pension payable at an age earlier that age 65, assuming the member would have received that favourable benefit had they stayed employed. There is no change in the requirement to provide grow-in benefits for eligible members under a full pension plan wind-up. Provisions have been granted to MEPPs and JSPPs to allow employers, members and administrators of these plans to elect to opt out of providing grow-in benefits for their plan members.
  • Amendments to the Pension Benefits Act also allow additional “activating events” that could trigger grow-in benefits. An “activating event” would include the circumstances where an employer has given notice of termination of employment to an employee and that person decides to end his or her employment at any time in advance of the termination date. The intent is to ensure the member does not lose grow-in benefits by leaving a job shortly in advance of the termination date (i.e. for the pursuit of employment elsewhere).

Circumstances in which termination is not an “activating event” include:

  • Where the member is a construction employee as defined in O. Reg. 285/01 made under the Employment Standards Act, 2000
  • 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.