Modification to the funding framework for defined benefit pension plans in Ontario

On May 19, 2017, the Ontario government released the broad outline of its reform on the funding of defined benefit pension plans. Several measures were inspired by the changes made in 2016 to the Quebec defined benefit pension plans.

As the centerpiece of this announcement, the Ontario government will be eliminating the solvency funding requirements, but only with regard to plans having a solvency ratio above 85%.

• The going concern unfunded liability amortization period will be reduced from 15 to 10 years, and the amortization payments will be consolidated at every valuation *
• Every pension plan will need to fund a reserve to manage future risk and increase benefit security *
• The maximum monthly guarantee provided by the Pension Benefits Guarantee Fund will be increased from $1,000 to $1,500
• A discharge of liabilities will now be possible with an annuity purchase *
• Stricter rules will be implemented for contribution holidays and benefit improvements *
• Funding and governance policies will need to be established *

* Identical or similar to measures introduced by the Quebec government in 2016.

• The government intends to publish the new funding framework in the fall and will carry out a consultation on the details of new regulations.
• Temporary measures will be released in the next few weeks for actuarial valuations required between December 31, 2016 and December 30, 2017.
• The government also intends to review the wind-up rules of defined benefit pension plans and study the possibility of creating an agency to administer these plans.

This announcement was the missing piece in the pension plan reform undertaken since the election of Kathleen Wynne back in 2013. The ORPP implementation project followed by the rallying for the CPP enhancement introduced by the Trudeau government have constituted the basis of this reform.

In Quebec, the public consultation led by the government regarding the QPP is about to be completed. The imminent announcement as to the decision regarding its enhancement should be the final step in the reform which began in 2013.

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.

Please feel free to contact us for additional information.