More Details on the Funding of Ontario’s Defined Benefit Pension PlansLinkedIn
There, in black and white
NB Bulletin Vol. 20 No. 23, December 2017
The Ontario government recently unveiled the highly anticipated details of its proposed defined benefit pension plan funding reform, announced on May 19, 2017. Interested stakeholders can submit their comments on the proposals to the Ontario Ministry of Finance until January 29, 2018. Our experts have prepared a summary of the proposed amendments.
New funding rules
The reform will apply to actuarial valuation reports dated on or after December 31, 2017 that will be filed after the new framework comes into force. It will not apply to jointly sponsored pension plans and specified Ontario multi-employer pension plans (SOMEPPs), but will apply to multi-employer pension plans that are not SOMEPPs. Largely inspired by new funding rules introduced in Quebec in 2016, the main funding rules provided by this reform are the following.
Going concern basis
• Future service: increase of the normal cost contribution by a percentage equal to the PfAD
For example, for a plan with 60% of variable income assets, the PfAD would be 8% for an open plan and 12% for a closed plan.
• Amortization of the cost of the improvements over five years
• The PfAD is fully funded
• Gradual increase in contributions over three years if the new legislative framework results in increased funding contributions
Plan sponsors will undoubtedly welcome the new funding rules with open arms. In addition to providing a financial cushion with the introduction of the PfAD, they should greatly help to reduce the volatility of contributions related to actuarial valuations on a solvency basis and thus increase the stabilization of contributions.
The legislator will also table other proposals with respect to certain aspects related to the funding of defined benefit plans, namely:
Draft regulations will follow the publication of these proposals.
Normandin Beaudry consultants are currently analyzing the scope of the bill and would be happy to discuss with you the impact it may have on your plan.
Please feel free to contact us for additional information.
630, René-Lévesque Blvd. West, 30th floor
Montreal, Quebec, H3B 1S6