In today’s budget, the Ontario government announced that it is continuing with its pension reform agenda, but it is not all “old news”. Perhaps of most interest to employers and plan administrators will be the government’s intention to review the implications of the recent Carrigan case and its expanded interest in alternative plan designs.
As many are aware, the Ontario Court of Appeal’s decision in Carrigan went against the pension industry’s long held understanding regarding the priority scheme for the payment of pre-retirement death benefits. Prior to the Carrigan case, it was commonly accepted that if a pension plan member died prior to retirement, then the member’s spouse on the date of death – whether married or common law – was entitled to the pre-retirement death benefit, unless the member and spouse were living separate and apart or the spouse had waived entitlement to the benefit.
In Carrigan, the Court read the Ontario Pension Benefits Act (PBA) in a very technical manner to conclude that a common law spouse who was living with the plan member at the time of his death was not entitled to the pre-retirement death benefit, because the plan member was previously married and was living separate and apart from his first spouse, but had not divorced the first spouse. (See our prior post for further discussion of this case.)
The budget indicates that the government intends to review the case and propose amendments to the PBA and, if necessary, the regulations.
Alternative Plan Designs
The government announced its intention to proceed with the following new plan designs:
Target Benefit Plans (TBP): While previous pension reform bills included amendments related to TBPs, these were limited to multi-employer plans. Today’s budget announced that the government would also be developing a framework for single-employer TBPs, while continuing to move forward with TBPs for multiple employers. The framework for single employer TBPs will include rules regarding funding, plan governance, the timing of necessary benefit reductions, permitted benefit improvements and notice to members and retired members.
Pooled Registered Pension Plans (PRPPs): Following the lead of other provinces (i.e., Alberta, B.C., Quebec and Saskatchewan) the government will be consulting with interested parties to see how PRPPs – a framework for “large-scale and low-cost” defined contribution pension plans developed by the federal government – should be implemented in Ontario. The budget indicates that participation in PRPPs will be optional for employers and self-employed individuals.
The budget also indicates the government’s continued interest in seeking enhancements to the Canada Pension Plan.
Public Sector Pension Plans
The budget reiterates past announcements regarding reducing the cost of public sector pension plans through: (i) negotiated plan changes that improve sustainability and affordability; and (ii) pooled asset management structures. With respect to the latter, the government indicates that it intends to establish a technical working group to advise on the design, governance and transition issues associated with implementing a new pooled asset management entity.
The budget also emphasizes the governments continued interest in jointly sponsored pension plans (JSPP), including a plan to develop a framework for enabling the transfer of assets from single employer pension plans (SEPPs) to JSPPs and the conversion of SEPPs into JSPPs.
Ongoing Pension Reform
The budget also lists a number of additional pension reforms which are underway, including:
implementing the rules that would apply to asset transfers between public sector and private sector pension plans;
streamlining the financial hardship unlocking process for locked-in accounts;
implementing a new “funding concerns test” that would determine when plans that are not obliged to satisfy solvency funding requirements are required to file annual valuations;
establishing a framework for contribution holidays that sets out eligibility requirements and ensures affected parties are properly informed;
updating the regulatory requirements to reflect changes to standards issued by professional bodies; and
establishing rules for disclosure of plan documents and statements to former and retired members.
Based on this year’s budget, it looks like pension reform will continue to be a significant agenda item for the Ontario government. We will report on the government’s efforts to implement this agenda through future amendments to the PBA and the regulations.