Ontario to allow administrator discharge upon annuity purchaseLinkedIn
There, in black and white
NB Bulletin Vol. 21 No. 9, May 2018
On April 3, the Ontario government filed a regulation amending the Pension Benefits Act, which will allow a complete discharge to the administrator of a single employer pension plan following an annuity purchase. The modifications will come into force on July 1, 2018.
Elimination of the boomerang risk
While buy-out annuity purchases are allowed under current Ontario legislation, they do not allow for the complete discharge of liabilities for plan sponsors, except if the plan is terminated. These annuity purchases do not constitute a final settlement of the rights of members affected, as the legislation does not provide for severing the link between the member and the plan. Therefore, should the insurer go bankrupt, the risk that the plan sponsor would be responsible for paying the portion of pensions not covered by Assuris, the non-profit organization that protects Canadian policyholders, remains. This is commonly known as the boomerang risk.
With these latest changes, the Ontario government eliminates the boomerang risk. Ontario is following the lead of British Columbia and Quebec, two provinces that recently amended their legislation to remove this risk.
Requirements for an administrator discharge upon annuity purchase
Administrators who purchase annuities and that wish to obtain a discharge will have to comply with certain requirements, notably:
Special contribution examples
The following charts illustrate examples of this special contribution.
Comparing Ontario and Quebec requirements
Quebec has recently modified its legislation to allow a complete discharge to the sponsor of a pension plan following an annuity purchase, with some conditions. Modifications to Ontario’s legislation are different in some aspects. For instance, Ontario will permit a discharge for the rights of former plan members through the purchase of deferred annuities, which is not allowed in Quebec. Also, there is no possibility of a benefit reduction upon plan termination following the sponsor’s bankruptcy, and rights to surplus distributions upon plan termination are maintained for members affected by an annuity purchase in Ontario.
The following table compares some of Ontario’s and Quebec’s requirements for an administrator discharge upon annuity purchase.
As mentioned previously, modifications will come into force on July 1, 2018. However, the regulation provides that a discharge can also apply to annuity purchases made prior to that date, subject to certain conditions.
These changes are part of the Ontario pension plan funding reform. Normandin Beaudry’s consultants will continue to closely monitor the progress of legislative changes concerning pension plans and will keep you informed of future developments.
For more information on this topic, contact Normandin Beaudry’s consultants.
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