Adoption of new funding rules for Ontario’s defined benefit pension plans

The regulation under the Ontario Pension Benefits Act was filed on April 20, 2018, comes into force on May 1, 2018. This means the new funding rules for defined benefit pension plans are now official.

Little changes have been made to the funding rules proposed in the consultation document published in December 2017. Our December 2017 bulletin outlined the main components.

The following are the main changes that have been made in the final version of the regulation versus the consultation document:

• Benefit improvements
  • The threshold for which a lump sum contribution is required to fund benefit improvements is reduced to 80%, for both the going concern funded ratio and solvency ratio (down from 90% for the going concern funded ratio and 85% for the solvency ratio in the initial proposed measures).
  • In general, the cost of benefit improvements on a going concern basis would be funded over an eight-year period instead of a five-year period as in the initial proposed measures.
• Contribution holiday: The 20% available surplus limit that could be used to take a contribution holiday has been eliminated. All available surplus can now be used. A surplus is available when:
  • The PfAD is fully funded
  • The transfer ratio is at least 105%
• Provision for adverse deviations (PfAD): While the proposed formula remains unchanged, the regulation now specifies that a closed plan is a pension plan at least one portion of which does not permit new members to join and accrue defined benefits.

The regulation also formalizes the changes to the PBGF contribution formula proposed by the Ontario government on January 19, 2018 (see our January 2018 bulletin on the proposed changes). The new contribution formula will come into force on January 1, 2019.

Normandin Beaudry consultants are currently analyzing the scope of the regulation
and would be happy to discuss with you the impact it may have on your plan.

For additonal information, feel free to contact Normandin Beaudry’s consultants.