Ontario pension plans: Overview of recent changes to legislation

Over the last year, several legislative changes have impacted pension plans registered with the Financial Services Commission of Ontario (FSCO). The purpose of this information bulletin is to present the key legislative amendments that recently came into effect in Ontario. It also aims to summarize the bills and regulations that should be introduced in the near future.

• Effective January 1, 2016, plan administrators registered in Ontario will be required to file their SIPP and SIPP amendments with FSCO.
• Administrators must submit their initial SIPP within 60 days after January 1, 2016.
• The SIPP will have to disclose whether environmental, social or governance factors were incorporated into the plan’s investment policies and procedures, and, if so, include a description of how these factors were incorporated.

• Pension plan administrators must produce statements for retired and former members every two years.
• For plans registered on or before January 1, 2015, the first statements must be sent no later than July 1, 2017.
• For plans registered after January 1, 2015, statements must be sent within 18 months after the plan’s first fiscal year end.
• Subsequent statements must be sent within two years of the delivery of the preceding statements, without exceeding six months after the plan’s fiscal year end.

• Effective July 1, 2016, statements distributed to all members must include a statement indicating that the plan administrator must establish a SIPP and information about whether environmental, social and governance factors are incorporated into the SIPP.
• Statements must also indicate that members can view a copy of the SIPP free of charge or receive a copy of it upon written request and payment of applicable fees.

On March 25, 2015, amendments (including amendments to investment rules) to the Pension Benefits Standards Regulations, 1985 (the “federal regulations”) were published in the Canada Gazette. Given that Ontario has incorporated these federal rules into its legislation, administrators of pension plans registered with FSCO are required to comply with these changes (including changes to the 10% investment rule and transactions with a related party) as of July 1, 2016.

For more information on this issue, please refer to our April 2015 bulletin on amendments to the federal regulations.

In addition to the legislative amendments outlined above, it should be noted that the Pooled Registered Pension Plans Act, 2015 was assented to on May 28, 2015. This Act, which will come into force on the date set by the Lieutenant Governor, creates a framework for Ontario businesses to offer PRPPs to their employees, and makes PRPPs available to the self-employed. These plans offer a voluntary, low-cost, tax-assisted option for increasing retirement savings. The implementation of PRPPs is part of the government’s commitment to strengthen retirement income security for Ontario workers.

It should be noted that participation in a PRPP is entirely voluntary for employers. When an employer decides to offer a PRPP, its employees are automatically enrolled into it but they have the right to opt out of the plan within 60 days of receiving notice of membership.

Following the coming into force of new pension plan legislation in Alberta on September 1, 2014 and in British Columbia on September 30, 2015, Ontario pension plans with members in these two provinces have until December 31, 2015 to file with FSCO amendments to their plans in order to comply with these legislative changes. In recognition of the harmonized pension regulatory framework of these two provinces, Alberta has extended its deadline for filing amendments to December 31, 2015. No application is required to benefit from the extension of the filing deadline. Amendments impacting benefits of members of these provinces include:

• The immediate vesting of benefits; and
• Small benefit test is performed when commuted value is less than 20% of the Year’s Maximum Pensionable Earnings (YMPE) instead of annual pension being less than 4% of YMPE.

Our April 2015 bulletin informed you about the features of the ORPP and the issues identified by the Ontario government following the publication of a consultation paper. The government met with a broad range of stakeholders at the start of 2015 to obtain feedback on three key issues concerning the design of the design of the ORPP: the scope of the plan, the minimum earnings threshold and support for the self-employed.

The Ontario Retirement Pension Plan Act, 2015 (Bill 56) received royal assent on May 5, 2015. In addition to laying the foundation for the ORPP, the Act provides for the implementation of the ORPP by the government by January 1, 2017, but does not address the above-mentioned design concerns.

The only difference between the initial bill and the legislation passed pertains to the preparation of a cost-benefit analysis of the ORPP by December 31, 2015. Feedback from the consultation process that began in early 2015 demonstrated the complexity of certain ORPP design elements and the need for a more detailed analysis.

It should be noted that the Ontario Chamber of Commerce and a coalition of large Ontario employers are urging the government to broaden the definition of a comparable workplace pension plan to include capital accumulation plans, including (but not limited to) defined contribution plans (DC plans).

On April 23, 2015, the Ontario government presented its 2015 budget, which included several announcements regarding pension plans. The key announcements can be summarized as follows:

• Establishment of the Ontario Retirement Pension Plan Administration Corporation: This professional and independent organization comprising nine to fifteen members appointed by the Lieutenant Governor will be responsible for operationalizing the ORPP, administering the plan and investing contributions.
• Target Benefit Pension Plans: The government is reaffirming its commitment to develop a regulatory framework for target benefit multi-employer pension plans. The government will soon be publishing a consultation paper on this topic, which will prove useful in the subsequent development of a framework for single-employer target benefit pension plans.
• Payment of variable benefits for DC plans: Proposed changes to the Pension Benefits Act would permit the payment of variable benefits to members and former members directly from DC plans. It should be noted that the federal government already amended the federal regulations for this purpose on March 25, 2015.
• Contribution holidays and benefit improvements: In April 2015, the Ontario government tabled the following proposed amendments for consultation purposes:
  • If a plan has a transfer ratio or a going concern funded ratio of less than 85%:
    • Immediate funding of any amendments to bring the ratio up to 85%; and, if applicable,
    • Funding of the remaining cost of the amendment over no more than five years.
  • If a plan has a transfer ratio or going concern funded ratio of 85% or above:
    • The cost of any amendments must be funded over no more than eight years on a going concern basis and no more than five years on a solvency basis.
  • Contributions can be reduced or suspended if this does not reduce the plan’s transfer ratio below 105%.
• Exemption to the 30% rule limiting pension plans’ capacity to invest in Ontario infrastructure: On November 6, 2014, the Ontario government proposed an amendment to the regulations concerning the exemption to the 30% rule for investments in Ontario infrastructure. This rule limits the capacity to hold a large proportion of the voting shares of an infrastructure corporation. With the consultation period complete, regulations to this effect are being prepared.
• Update of reporting requirements: In the summer of 2014, the government asked several stakeholders for their opinion on a project that would update the reporting requirements to take into account changes made to accounting standards. Following these consultations, the government is considering the following changes:
  • Increase from three to ten million dollars the asset threshold requiring the filing of an auditor’s report on the plans’ financial statements.
  • Find an alternative to the requirement to file audited pension fund financial statements.
  • Require DC plans to file an investment information summary.
  • Relax the requirement to provide detailed information on individual investments greater than 1% of the fair value of the pension fund.
• Pension plan advisory committees: To further enhance transparency for pension plan members, the government will take steps to facilitate the establishment of advisory committees. The role of these committees will involve overseeing plan administration, making recommendations to the administrator concerning the plan and promoting the knowledge and understanding of the plan.
• Public and parapublic sector pension plans:
  • The Ontario government intends to establish a legislative framework permitting single-employer pension plans (SEPPs) from the parapublic sector to be converted to jointly sponsored pension plans (JSPPs) or merged with existing JSPPs under certain conditions.
  • The government published a consultation paper on the proposed criteria for issuing funding and solvency deficit rules for the new public sector JSPPs.

Normandin Beaudry consultants will continue to monitor closely the progress of the legislative changes for pension plans registered in Ontario and will keep you informed of any future developments.