Pension Law 2020: A Clear Look at the Latest Pension Law Reforms
Date: January 21, 2020
In Fall 2019, the Ontario government introduced legislation to reduce regulatory burdens across a wide range a sectors, and the pension sector was no exception. On December 10, 2019, amendments to the Ontario Pension Benefits Act (PBA) came into force when the Better for People, Smarter for Business Act, 2019 (Bill 132) and the Plan to Build Ontario Together Act, 2019 (Bill 138) each received Royal Assent. Coincident with these Bills receiving Royal Assent, the government also filed several important amendments to the Regulations under the PBA.
In this FTR Now, we highlight the new pension rules that are of particular interest to employers and pension plan administrators.
Embracing Electronic Communication
As we previously reported, the Ontario government’s 2019 Budget, Protecting What Matters Most, indicated that the government was considering amending the PBA to permit plan administrators to use electronic methods as the default method of sending prescribed communications to members and others. The amendments to the PBA in Bill 132 set out the conditions an administrator must meet in order to use electronic communications.
The administrator is first required to send a notice by regular mail to the member or former member. The notice must set out the following information:
- the date on which the administrator will begin to utilize electronic communications;
- the recipient’s last known email address;
- an explanation that the recipient may decide to opt out from electronic communications at any time; and
- any other prescribed information.
A member or former member to whom such a notice is provided is deemed to have consented to electronic communications, unless he or she instructs the administrator otherwise (i.e. opts out). This method appears not to be available to existing retired members.
When the amendments were first proposed, they provided that deemed consent would expire upon retirement and needs to be renewed in order to continue to apply. However, in response to industry comments on the proposals, the amendments in Bill 132 permit deemed consent for electronic communications to continue into retirement, provided that a new notice is sent to the member at that time. The administrator must send another notice (electronically and by regular mail) setting out the retired member’s last known email address and reiterating that the retired member may opt out at any time. The new notice must also contain any prescribed information that is required.
Another important element of the new electronic communication rules is that documents containing personal information or any other prescribed information may not be sent electronically unless they are delivered through a secure information system that requires recipients to identify themselves, and complies with any other prescribed requirements. This requirement is anticipated to pose difficulty for small to mid-size defined benefit pension plan administrators who do not have or cannot afford such a secure system. Large defined benefit plan and defined contribution plan administrators may already have access to or utilize such a system.
The new electronic communication rules came into effect on December 10, 2019 when Bill 132 received Royal Assent.
Missing Pension Beneficiaries
Upon Royal Assent, Bill 132 also amended the PBA with respect to the discretion of the Chief Executive Officer (CEO) of the Financial Services Regulatory Authority (FSRA) to waive the requirement for pension plan administrators to provide biennial statements to former and retired members. Specifically, Bill 132 amended the PBA to make such waiver contingent on the CEO being satisfied that the plan administrator is unable to locate the former member or retired member after making reasonable efforts to do so.
Recognizing that locating former and retired members can be costly, the amendments to the PBA now set out the following factors that the CEO must consider in determining whether the administrator has made reasonable efforts to locate the former or retired member:
- the amount of commuted value of the former member’s deferred pension or the retired member’s pension.
- the searches that were undertaken by the administrator, including the search methods that were used.
- the costs of the searches that were undertaken and the anticipated costs for additional searches.
Upon receiving the former or retired member’s contact information, the waiver is automatically revoked, and the administrator must promptly notify the CEO that the individual has been located.
The calculation of a commuted value is not something that is required on an annual or biennial statement and the requirement to calculate the commuted value for purposes of disclosure to the CEO is therefore a new requirement that may add costs to the process of obtaining the waiver.
Family Law Matters
Bill 132 made various amendments to the PBA, which will be effective on a date to be proclaimed, with respect to the division of pension benefits upon marriage breakdown:
- the PBA will require the rules applicable to pension valuation and division to be interpreted in a manner that takes into account any changes in a member’s status after the date of the marriage breakdown (such as a subsequent retirement);
- the PBA will provide FSRA with the authority to make rules altering the provisions applicable to the valuation of pensions for family law purposes in circumstances where the assets attributable to a member’s pension benefits have been transferred out of the plan, or otherwise cease to be available in prescribed circumstances; and
- additional changes will permit the settlement of spousal claims where the assets in respect of a member’s pension have been transferred to a successor pension plan.
FSRA’s Rule-Making Authority
Bill 132 has further expanded FSRA’s rule-making authority, including authority to prescribe:
- information that is required to be sent by way of a secure information system if the information is sent electronically, and prescribe the applicable conditions, requirements, limitations or prohibitions for a secure information system;
- information to include in a notice to a member or former member regarding electronic delivery of documents;
- conditions, requirements, limitations or prohibitions with respect to sending documents electronically; and
- circumstances and requirements governing applications related to various family law matters.
The changes listed above regarding FSRA’s rule-making authority respecting electronic communication and delivery of documents came into force on Royal Assent (i.e. December 10, 2019), while the majority of the changes related to family law matters will come into force on a date to be proclaimed.
Amendments to Ontario Regulation 909 to Reduce Regulatory Burdens
The Ontario government also enacted the following important changes to Ontario Regulation 909 under the PBA, effective on December 11, 2019:
- Audited Financial Statements: In an effort to reduce the costs of regulatory compliance for small and mid-size plans, Regulation 909 has been amended to change the requirement for administrators of pension plans with assets of $3 million or more to file annual audited financial statements. The threshold has increased from $3 million to $10 million in assets for all financial statements prepared after December 11, 2019.
- Keeping Accounting and Actuarial Standards Up-to-Date: The Ontario government also amended Regulation 909 to automatically incorporate up-to-date standards adopted by the Actuarial Standards Board, including standards for determining a commuted value for defined benefit plans, into the PBA Regulations. These changes are expected to enable defined benefit plans to adopt new standards more quickly when changes to these key standards are made by the Canadian Institute of Actuaries. Currently, changes to actuarial standards could not be adopted without regulatory changes unless the new standards resulted in higher commuted value calculations.
Regulation 909 has also been amended to update the name of the Canadian accounting standards professional body to the current professional body, Chartered Professional Accountants of Canada (CPA Canada). Current accounting references in Regulation 909 refer to a professional body that no longer exists.
Flexibility for Jointly Sponsored Pension Plans
Bill 132 and Bill 138 contained changes to support the conversion and transfer of assets from single employer pension plans (SEPPs) to jointly-sponsored pension plan (JSPPs).
Bill 132, in particular, made several amendments to the PBA to support JSPP transfers and conversions:
- empowering the CEO with the discretion to vary or waive certain prescribed requirements that otherwise apply to an application for consent to convert into or transfer assets to a JSPP.
- allowing an employer to apply for the CEO’s consent to the transfer of assets from a SEPP to a newly-created JSPP before the JSPP is registered under the PBA. However, if the CEO does not receive the application for JSPP registration within 90 days after the application for consent is made, the application for consent to the transfer will be deemed not to have been made.
These changes are intended to allow some SEPP conversions to a JSPP to be completed more quickly and efficiently.
Bill 132 also amended the definition of permissible pension plan administrators. Previously, the PBA only contemplated that multi-employer pension plans could be administered by a board of trustees, which is a common type of administrator for JSPPs. The PBA has been amended to expressly allow a single employer JSPP to be administered by a board of trustees appointed pursuant to the pension plan or supporting trust agreement.
A JSPP that is administered by a board of trustees must set out the powers and duties of the board in the plan documents. While this is standard for most JSPPs, the sponsors of existing JSPPs should review their documents to ensure that the powers and duties of its board of trustees are appropriately described.
Bill 138 contained additional amendments to facilitate transfers from SEPPs to JSPPs. In particular, there has been some uncertainty regarding the rules applicable to SEPPs that have both defined benefit and defined contribution components and that wish to merge with JSPPs. Section 80.4 of the PBA, which governs JSPP transfers, provided that if the SEPP provides defined contribution benefits as well as defined benefits, the transfer in respect of the defined contribution benefits must comply with the prescribed requirements, if any. No prescribed requirements were published and there was little guidance regarding whether the SEPP could proceed with the transfer. Bill 138 amends the PBA to clearly permit the employer of the SEPP to elect to transfer the assets in respect of the defined contribution benefits to the JSPP, if applicable, and if the employer so elects, the transfer must comply with the prescribed requirements, if any. It is our understanding that no regulations containing prescribed conditions should be expected.
All amendments to support JSPP transfers and conversions were effective on Royal Assent.
Broader Public Sector Wage Restraint – Exemptions for Pension Contribution Offsets
As previously reported, the Ontario government passed Bill 124, Protecting a Sustainable Public Sector for Future Generations Act, 2019, on November 9, 2019. The version of Bill 124 that passed and received Royal Assent contained a notable change that relates to broader public sector employers who are transferring into or converting their SEPPs into JSPPs. Bill 124 provides that where an employer is transferring into or converting into a JSPP, an increase to a salary rate, incremental increase to existing compensation entitlements or new compensation entitlements that are provided in exchange for increases to member-required pension contributions as a result of the transfer or conversion are exempt from the wage restraint that is otherwise applicable. This update to Bill 124 is consistent with the Ontario government’s overall support for facilitating such transfers and conversions.
Continuing to Monitor Developments
With this round of amendments largely completed, the Ontario government is expected to tackle the rules that will be applicable to multi-employer target benefit plans in the coming months. We will continue to monitor for and report on pension regulatory and legislative developments affecting employers and pension plan administrators, including FSRA’s use of expanded rule-making powers. Should you have any questions or require further information about the new rules discussed above, please contact any member of our PBEC group or your regular Hicks Morley lawyer.
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