Ontario Tables Fall Budget 2020
Date: November 9, 2020
On November 5, 2020, the Ontario government tabled its 2020 Budget, Ontario’s Action Plan: Protect, Support, Recover (Budget), and introduced supporting implementation legislation, Bill 229, Protect, Support and Recover from COVID-19 Act (Budget Measures), 2020(Bill 229).
In this FTR Now, we highlight certain aspects of the Budget that are of broad interest to employers, pension plan administrators and human resource professionals.
Pension-Related Changes and the Employer Health Tax
Amendments to the Ontario Pension Benefits Act (Ontario)– Preserving the Target Benefit Framework
Similar to the 2019 Budget, Protecting What Matters Most, the Budget addresses the government’s ongoing commitment to develop a target benefit framework under the Pension Benefits Act (PBA) and has taken steps to preserve the previously enacted but not-yet-in force framework from automatic repeal.
The PBA’s target benefit framework was first enacted a decade ago by Bill 120, Securing Pension Benefits Now and for the Future Act, 2010. Under Ontario’s Legislation Act, 2006, these provisions were subject to repeal on December 31, 2020 because they had not been proclaimed in force during the 10 years following the original enactment date in 2010. In order to avoid this, the not-yet-in force provisions related to target benefits have been re-enacted by Bill 229 largely in the same form as they were originally enacted.
The re-enacted target benefit changes to the PBA will only come into effect on a future date to be proclaimed by the Lieutenant Governor of Ontario. Should the government proceed to release the target benefit plan framework for unionized employees in 2021, the Firm’s Pension, Benefits, and Executive Compensation Group will be supporting employers through bargaining and potential implementation of target benefit plans.
Other Provisions of the PBA Yet to be Proclaimed
While the steps taken to preserve the target benefit framework are a welcome development for plan sponsors, it should be noted that there are other significant not-yet-in force provisions of the PBA that could be subject to automatic repeal that have not been addressed by Bill 229.
Bill 236, Pension Benefits Amendment Act, 2010, substantially reformed the PBA when the majority of its provisions came into force on July 1, 2012. Similar to the target benefit provisions of Bill 120, the provisions of Bill 236 were also originally enacted in 2010, and, as a result, those provisions that have not yet been proclaimed in force are subject to repeal under the Legislation Act. However, the remaining not-proclaimed provisions of Bill 236 were largely not addressed by Bill 229 except to amend a number of PBA sections to strike out references to partial wind ups, which was required following the earlier PBA reform amendment that largely eliminated partial wind ups with an effective date on or after July 1, 2012. Please note that while Bill 229 amends Bill 236 to repeal the not-yet-in force provision that would have required reciprocal transfer agreements between plans to meet the requirements of prescribed regulations, it re-enacts this provision through an amendment to the PBA.
Significantly, no legislative steps have been taken to preserve the following two changes of note from Bill 236:
- Phased Retirement: Bill 236 enacted provisions that would permit defined benefit plans to offer phased retirement to members who are under the normal retirement age (as defined by the plan) who have not yet terminated employment. Under the existing rules, early retirement options are limited to those who have terminated employment and are within 10 years of the normal retirement age, regardless of whether the member is eligible for an unreduced pension.
- Advance Notice of Amendment: Bill 236 introduced a significant change to section 26 of the PBA to require advance notice of all plan amendments to all members, including former and retired members, subject to exceptions that would be prescribed by regulation.
These potential changes to the PBA have been closely watched by many plan sponsors and administrators since their enactment in 2010. We will continue to monitor whether the above-noted provisions will be subject to automatic repeal.
Pension Benefits Guarantee Fund (PBGF)
The Budget acknowledges that, under the requirements of the PBA, the PBGF must be reviewed by May 2021, and indicates that the review will focus on the ability of the PBGF to continue to protect defined benefit pensions, particularly in the context of economic uncertainty created by the COVID-19 pandemic. The government has stated that it will report on the outcome of the review in next year’s budget, and we will continue to monitor for any significant updates arising out of the government’s review.
Sustainability Measures Related to Public Sector Pension Plans
In the public sector, the government has highlighted its commitment to consolidate smaller public sector pension plans with larger pension plans to implement its strategy of supporting the sustainability and affordability of public sector pension plans. The Budget provides a recent example of two smaller agency pension plans that were consolidated into the Public Sector Pension Plan (PSPP). The Budget further notes that consolidations produce substantial savings by increasing efficiencies, reducing agency pension administration costs, and leveraging cost-effective asset management through the Investment Management Corporation of Ontario (IMCO).
Employer Health Tax – Extension of $1 Million Dollar Exemption
Earlier this spring, the government announced Employer Health Tax (EHT) relief measures to address the special circumstances created by the COVID-19 pandemic. As of March 25, 2020, the exemption threshold applicable to most Ontario employers with a payroll of less than $5 million was increased to the first $1 million dollars of Ontario payroll in 2020. At that time, the exemption was expected to return to its prior level of $490,000 on January 1, 2021. However, Bill 229 proposes to amend the Employer Health Tax Act, 1990 (EHT Act)to increase the exemption amount to $1 million until the end of 2028. After that, the exemption amount will be adjusted for inflation every five years using the existing formula under the EHT Act. Many employers will welcome this change, and the Budget notes that it is expected that this change will result in 90% or more of private Ontario employers to be exempt from the EHT in the following year.
Along with the changes to the exemption, the EHT has also been amended to address the requirement for employers to pay instalments on account of tax. Currently, an employer is required to pay instalments if their total Ontario remuneration exceeds $600,000. This amount is increased to $1,200,000 for tax years beginning after December 31, 2020. As a result, in 2021, private sector employers who claim the full exemption will be required to remit EHT in installments if they owe more than $3,900 in EHT for the year.
Other Issues of Broad Interest to Employers
Public Sector Compensation Restraint
Bill 229 will enact amendments to Bill 124, the Protecting a Sustainable Public Sector for Future Generations Act, 2019 to address a perceived gap in the existing legislation. In this respect, the current legislation does not expressly address how to apply the 3-year moderation period to a group of non-union employees who are certified by a trade union after June 5, 2019. Similarly, Bill 124 does not address how to apply the 3-year moderation period to a group of unionized employees who decertify.
The proposed changes to Bill 124 provide detailed rules to address these situations, consistent with two basic principles. In brief, if the employees have already commenced their moderation period before their change in status, they will get credit for the time spent under the moderation period. If the employees have not commenced their moderation period before their change in status, they will need to serve the full 3-year moderation period under their new status.
Section 25 of Bill 124 permits the Management Board of Cabinet to issue directives to employers and employers’ organizations requiring them to provide information related to collective bargaining compensation to ensure compliance with the legislation. Bill 229 would amend the legislation to permit the government to withhold funds from the employer or employers’ organization if a directive is not complied with, and contains measures that might result in the forfeiture of the withheld funds.
These changes to Bill 124 reinforce the notion that the “government means it” in respect of the application of Bill 124. The Budget signals caution to parties exploring consent awards at interest arbitration and reiterates that the government is going to be monitoring compliance with the requirements of the legislation.
Health and Safety
The Budget states that the government will be hiring an additional 98 health and safety inspectors to bring the number of inspectors to 507, the highest number of active inspectors at any time in the province’s history. It notes that ministry inspectors have conducted over 20,000 field visits since March 2020.
Ontario’s occupational health and safety strategy for 2021 to 2026 will also be renewed. A key part of the strategy will be to prevent workplace fatalities, injuries and illnesses including infectious diseases such as COVID‑19.
The increase in the number of inspectors is one more reason for employers to review their health and safety policies and procedures to ensure they are in full compliance with the Occupational Health and Safety Act. Hicks Morley is uniquely situated to conduct audits of health and safety policies. Should you require assistance, please contact us.
Training and Skills Development. The government has committed $180.5 million over 3 years for workers most affected by the pandemic (e.g. workers in hospitality, tourism and others) for training and skills development. For 2020-21, $100 million will be made available through Employment Ontario for workers most affected by COVID-19.
Fall Preparedness Plan – COVID-19. The government has reiterated its ongoing investment of $2.8 billion as set out in its Fall Preparedness Plan to support the response efforts to a second wave of COVID-19.
Justice Sector. The government is considering modernizing the justice system by investing in new technology and “reimagining how courthouse space is used….The demands on the justice sector throughout COVID‑19 have highlighted that Ontario requires a more accessible, responsive and resilient justice system in order to deliver services remotely, in person and online.”
We are continuing to monitor developments announced in the Budget and the progress of Bill 229. We will provide further updates as they become available.
Note as well that in the coming days, we will be providing further communications on the Budget which relate to specific sectors.
Should you have any questions or require further information about the Budget, please contact your regular Hicks Morley lawyer.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©