Final Funding Regulations, Effective May 1, 2018
Ontario’s new funding framework for defined benefit pension plans (excluding certain jointly sponsored pension plans and specified Ontario multi-employer pension plans) is set out in O. Reg. 250/18, which will apply to valuation reports that have a valuation date on or after December 31, 2017 and are filed on or after May 1, 2018. Highlights include:
-
A decrease in the solvency funding threshold to 85% of solvency liabilities (but the period to amortize a shortfall remains at five years, starting one year from the valuation date).
-
The Letter of Credit (LOC) limit remains at 15% of solvency liabilities, and the lower solvency funding target of 85% becomes the threshold for reducing existing LOCs without a cash contribution.
-
The amortization period for any going concern unfunded liabilities is shortened, from 15 to 10 years, with special payments consolidated each valuation into a new 10-year schedule that begins after the valuation date.
-
An explicit margin, or provision for adverse deviations (PfAD) is introduced and will be added to going concern and annual normal cost when determining minimum contributions, but not to any portion of liabilities and normal cost for future indexation; the PfAD for a particular plan will depend on whether it is closed or open, and on the plan’s asset mix.
-
Future benefit improvements will be allowed if the plan’s solvency ratio and going concern funded ratio (without PfAD) after the improvement are both at least 80% (instead of a solvency ratio of 85% and a going concern funded ratio of 90%, as originally proposed); alternatively, benefit improvements will be allowed if a top-up contribution is made.
-
“Available actuarial surplus” (defined differently for private sector plans and those in the broader public sector) can be used to take contribution holidays or applied to PBGF assessments.
-
Notice of any contribution holidays must be provided to members, and unions or plan advisory committee (if applicable) and can be included in the annual or biennial statements if they are sent within the same fiscal year.
-
A description of the funding rule changes must be provided in the first annual and biennial statements sent after the filing of the first valuation report with a valuation date on or after December 31, 2017.
-
Any increase in contributions caused by application of the new rules can be phased-in over the three-year period following the first report filed under the new framework, with no requirement for an increase in the first year.
Also included in O. Reg. 2015/18 are the final amendments to the PBGF assessment formula. Effective January 1, 2019:
-
The $5 per-member basic assessment, and the minimum $250 plan assessment will both be eliminated.
-
All three tiers of the risk-based assessment structure will increase, by 50%
-
A new component will be added, equal to 0.015 times a plan’s PBGF liabilities.
-
The maximum per-member assessment will double, to $600.
Finally, funding rule changes for specific plans are set out in the following companion regulations:
Proposed Funding Rules for Multi-employer Pension Plans Offering Target Benefits
The Ministry of Finance has released a Regulatory Proposal setting out the funding rules for target benefit multi-employer pension plans (TB MEPPs). Highlights include:
-
A permanent exemption from solvency funding
-
Triennial valuation reports for disclosure purposes, together with the plan’s transfer ratio
-
Extension of the amortization period for going concern unfunded liabilities, from 12 to 15 years, with a one-time opportunity to consolidate existing special payments into a new 15-year payment schedule, and deferral of special payments by up to 12 months after the valuation date
-
A provision for adverse deviations (PfAD) and new contribution sufficiency test
-
Restrictions on benefit improvements
-
New rules for calculating commuted values
-
Transition measures permitting contribution increases to be phased in over three to four years following conversion, provided certain conditions are met, allowing time to complete collective bargaining and negotiate higher contributions if necessary
Other matters related to the target benefit framework, including funding and governance policies, eligibility requirements, the process to reduce accrued benefits, and conversion rules, will be addressed in a later regulatory proposal.
To provide time for the TB MEPP rules to be implemented and current specified Ontario multi-employer pension plans (SOMEPPs) to transition to the new rules, the government has also filed O. Reg. 192/18, which extends the current SOMEPP funding rules until the later of one year after the TB MEPP provisions under the PBA comes into force and January 1, 2024.
Also of Interest – Pay Transparency
Bill 3, Pay Transparency Act, 2018, has been passed and will take effect on January 1, 2019. Employers (including Crown employers) with 100 or more employees will have to include, in publicly advertised job postings, information on the position’s expected compensation or range of expected compensation, including pay and benefits.
The first pay transparency reports must be submitted by May 15, 2020, for employers with 250 or more employees. Smaller employers, with between 100 and 249 employees, must submit their first reports by May 15, 2021.
Also of Interest – 2018 Federal Budget Bill Introduced
Bill C-74, Budget Implementation Act, 2018, No.1, has been introduced and is currently at second reading in the House of Commons. If passed in its current form, Bill C-74 will amend the Canada Pension Plan to:
-
Eliminate age-based restrictions on the survivor’s pension
-
Fix the amount of the death benefit at $2,500
-
Provide a benefit to disabled retirement pension beneficiaries under the age of 65
-
Protect retirement and survivor’s pension amounts under the additional Canada Pension Plan for disabled individuals
-
Protect benefit amounts under the enhanced CPP for parents with lower earnings during child-rearing years
-
Maintain portability between the CPP and QPP
-
Authorize the making of regulations to support the sustainability of the enhanced CPP