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Making Workplace Pension Plans More Sustainable in Ontario

Province Helping Businesses Compete While Protecting Retirement Security

Ontario is moving forward with changes that will help ensure workers' retirement benefits are protected and maintained, while enabling business to grow and be more competitive.

"It is critically important that people working hard today know they will have financial security in the future when they retire," said Cambridge MPP Kathryn McGarry.

Changes will help keep defined benefit pension plans healthy and sustainable. Employers will continue to be required to ensure pension funds are appropriately funded and to pay into a reserve to protect benefits for workers and retirees. In addition, employers will also be required to make additional contributions should the plan's funded status fall below a certain level. Employers will have greater flexibility in managing their pension contributions, allowing them to plan for their pension costs more easily. There will be no impact on the pensions that retirees now receive as a result of these changes.

Along with new funding requirements, additional measures will protect benefit security for plan members and retirees. The monthly guarantee provided by the Pension Benefits Guarantee Fund will be increased by 50 per cent, from $1,000 a month to $1,500 a month.

The government intends to introduce legislation in the fall to enable these changes and will be consulting on the details of new regulations. 

Helping businesses maintain their workplace pension plans while protecting benefit security for workers and retirees is part of our plan to create jobs, grow our economy and help people in their everyday lives.

" Everyone deserves a secure retirement. By providing more flexibility, defined benefit pension plans will remain a vital part of our retirement income system in Ontario. With these changes, we are also ensuring that pension plans are affordable for businesses and benefit security for workers and retirees is protected," said Charles Sousa, Minister of Finance

The Canadian Association of Retired Persons "commends the Ontario government for its continued focus on improving financial security for retirees," said Wanda Morris
Vice-President, Advocacy and COO, Canadian Association of Retired Persons.

"With unprecedented gains in longevity and historically low interest rates, defined benefit pension plans have experienced significant challenges in recent years. We are pleased to see that the government has taken a balanced approach to funding reform by providing welcome relief to plan sponsors while also improving plan security for pension recipients." 

The changes will also help Ontario businesses.

" With these modernized pension rules, the government is directly helping Ontario's business community stay competitive. The changes provide employers with greater flexibility within the funding rules without impacting the current benefits earned by workers and received by retirees, or the security of these benefits‎," said Winston Woo, Chair of the Finance & Tax Committee, Canadian Manufacturers and Exporters.

QUICK FACTS

  • These reforms will help protect the almost one million Ontarians that rely on defined benefit pension plans for income in their retirement.
  • Defined benefit pension plans provide retirees with regular payments calculated based on factors such as length of service and salary levels.
  • The Pension Benefits Guarantee Fund is unique among Canadian jurisdictions and requires employers to make regular contributions to the fund to protect pension benefits in the rare event an employer goes bankrupt and its pension plan is underfunded.
  • In 2016, the government consulted on how Ontario should modernize the funding framework for defined benefit pension plans, and received more than 90 submissions.

BACKGROUND INFORMATION

The government is implementing a new framework for defined benefit pension plans. The changes will help ensure retirement income security for workers and retirees is protected while helping keep workplace pension plans affordable, enabling Ontario businesses to grow and compete.

Highlights of the new funding framework for defined benefit pension plans include:

  • Requiring funding on enhanced going concern basis; changes to the going concern funding rules include shortening the amortization period from 15 years to 10 years for funding a shortfall in the plan and consolidating special payment requirements into a single schedule.
  • Requiring funding of a reserve within the plan, called a Provision for Adverse Deviation or PfAD. This reserve will help manage future risk and help ensure benefits are secure.
  • Requiring funding on a solvency basis in the event that a plan's funded status falls below 85 per cent (based on the Financial Services Commission of Ontario's most recent estimates, 15 per cent of plans would still need to fund on this basis under the new regime).

To help ensure benefit security in the event that a pension plan is not fully funded and the employer is bankrupt, the government will be increasing the monthly guarantee provided by the Pension Benefits Guarantee Fund for a plan member's pension by 50 per cent, to $1,500 from $1,000.

Additional complementary changes include:

  • Providing a discharge of liabilities when annuities are purchased for retirees or deferred plan members, providing greater income security for individuals.
  • Providing funding rules for benefit improvements and restricting contribution holidays to improve benefit security.
  • Increasing transparency by requiring plans to develop funding and governance policies and ensuring beneficiaries receive updated information on the status of their plan.

The government will be moving forward with a review of the rules governing the wind-up of defined benefit pension plans and studying a proposal to establish an agency to administer pension benefits of wound-up plans on an ongoing basis.

As an interim step, measures will be implemented in the coming weeks to assist defined benefit plans that are required to file valuation reports dated on or after December 31, 2016 and before December 31, 2017. These measures will assist plans that would otherwise face new solvency funding requirements due to those filings. 

 

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