On­tario eyes new rules for pen­sion fund­ing


On­tario is plan­ning to ease the rules around how some pen­sions are funded and how of­fi­cials judge the long-term health of those plans.

The changes would af­fect how de­fined ben­e­fit plans pro­vided by sin­gle em­ploy­ers are funded in On­tario and would re­duce the amount of money that they need to in­vest in plans that are cur­rently un­der­cap­i­tal­ized. The ex­pected leg­is­la­tion fol­lows a decade of low in­ter­est rates and poor re­turns in which the pro­vin­cial gov­ern­ment has twice been re­quired to help pri­vate-sec­tor plans that have failed strength tests.

The new rules, un­veiled by the Fi­nance Min­istry on Fri­day, would re­duce the sol­vency fund­ing re­quire­ment.

» The re­quire­ment is a stress test where a pen­sion fund needs to cal­cu­late how much would be avail­able in the plan im­me­di­ately to meet all fu­ture obli­ga­tions. Plans that cur­rently can’t pay 100 per cent of obli­ga­tions need to make spe­cial pay­ments over five years to fully cap­i­tal­ize a plan. Of­fi­cials say they will now al­low plans to have only enough to cover 85 cents for every dol­lar owed in the fu­ture.

Plans that are cap­i­tal­ized over the 85-per-cent thresh­old would get im­me­di­ate re­lief from pay­ments when the leg­is­la­tion takes ef­fect, ex­pected in the 2018 elec­tion year. Strug­gling plans that are fi­nanced be­low 85 per cent would need to pay only up to the new bench­mark, mak­ing it eas­ier and faster for them to pass the sol­vency test.

“Ev­ery­one de­serves a se­cure re-

tire­ment. By pro­vid­ing more flex­i­bil­ity, de­fined ben­e­fit pen­sion plans will re­main a vi­tal part of our re­tire­ment in­come sys­tem in On­tario,” Fi­nance Min­is­ter Charles Sousa said in a state­ment re­leased by his of­fice.

The changes, which cover about one mil­lion cur­rent and fu­ture re­tirees, won’t af­fect the ben­e­fits that will be paid. While the shift will touch large plans cov­ered by a sin­gle em­ployer, pen­sion gi­ants such as the On­tario Teach­ers’ Pen­sion Plan will be unaf­fected by the changes.

But Corey Ver­mey, the di­rec­tor of pen­sions for Uni­for, said that the gov­ern­ment did not pro­vide enough for re­tirees fac­ing an un­cer­tain fu­ture if their plans lack funds.

“A sin­gle-em­ployer de­fined ben­e­fit pen­sion plan has be­come a very leaky boat in the sea of pen­sion plans. The risk of in­sol­vency is real to you as a re­tiree. We think that the bal­ance should be to a view of en­hanc­ing a re­tiree’s ben­e­fit as op­posed to of­fer­ing a lesser obli­ga­tion to the em­ployer,” Mr. Ver­mey said.

But Toronto’s St. Michael’s Hos­pi­tal wel­comed the news: “Money we were go­ing to have to put aside to meet pen­sion sol­vency obli­ga­tions now can be in­vested in pa­tient care,” the hos­pi­tal said in a tweet.

To bal­ance the re­lief, the gov­ern­ment will in­crease the re­quire­ments of a sec­ond test pen­sion plans must un­dergo. Pen­sions must prove they have enough money to fund all cur­rent obli­ga­tions un­der some­thing known as the “go­ing con­cern” test. If they fail that test, the plans cur­rently have 15 years to get back to full fund­ing, but Mr. Sousa’s of­fice would cut that back to only 10 years.

As the num­ber of re­tirees con­tin­ues to in­crease in fu­ture years and fewer young work­ers are added, some plans could strug­gle to re­turn to 100-per-cent fund­ing. Many large em­ploy­ers in On­tario have moved away in re­cent years from de­fined ben­e­fit plans, which com­mit em­ploy­ers to pro­vid­ing em­ploy­ees with a cer­tain monthly pay­ment in re­tire­ment. Many young work­ers are now on de­fined con­tri­bu­tion plans, where em­ploy­ers pledge only to in­vest a cer­tain amount.

The gov­ern­ment’s plan will also in­crease the max­i­mum guar­an­teed pay­ment a re­tiree can get from the prov­ince’s Pen­sion Ben­e­fits Guar­an­tee Fund, to $1,500 a month from $1,000 a month. The fund, which is fi­nanced through em­ployer con­tri­bu­tions, ex­ists to help re­tirees in case a com­pany fal­ters into bank­ruptcy with an un­der­funded plan. The fund tops up an em­ployee’s pen­sion when it falls short. Em­ployer con­tri­bu­tions will rise to cover the in­crease.

The av­er­age pri­vate-sec­tor pen­sion in On­tario is $1,300 a month.

By pro­vid­ing more flex­i­bil­ity, de­fined ben­e­fit pen­sion plans will re­main a vi­tal part of our re­tire­ment in­come sys­tem in On­tario. Charles Sousa On­tario Fi­nance Min­is­ter

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