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

Following the release on May 19, 2017 of the broad outline of its reform on the funding of defined benefit pension plans (see Normandin Beaudry’s May 2017 bulletin), the Ontario government filed a regulation on June 29, 2017 introducing transitional measures which came into force on July 1, 2017. These measures are only applicable for the first actuarial valuation filed with a valuation date on or after December 31, 2016 and before December 31, 2017, since a draft legislation for the permanent measures is expected in the fall of 2017.

The regulation introduces a new relief option to the existing relief measures for the funding of the solvency deficiency. Administrators of pension plans can therefore decide to defer the beginning of special payments to fund any new solvency deficiency for up to 24 months. As a reminder, current permanent funding measures allow to defer any new special amortization payments required to fund a deficit for a period of up to 12 months.

However, administrators who elect to use this new measure will not be allowed to fund this new solvency deficiency over a 10-year period (already existing relief measure that is subject to the consent of the members). The amortization period for the solvency deficiency will remain over 5 years should the new measure be chosen.

Many questions remain regarding the permanent measures to come, namely:

• the level of the solvency deficiency that needs to be funded should the solvency ratio of a plan be less than 85%
• the level of the reserve that plans will have to maintain to manage future risks and provide protection to members

Plan sponsors may therefore consider this new measure with a reserved enthusiasm. Although the measure prevents an increase of special payments on a solvency basis for 2017, it does not eliminate nor reduce special payments required to be made on a solvency basis. Plan sponsors will therefore have to wait until the release of the permanent measures for which the content is expected in the fall of 2017.

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.