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Ontario plans to ease rules for pension plan funding

In revealing new proposals for how pensions can be funded, Ontario Finance Minister Charles Sousa's office said 'everyone deserves a secure retirement.'

Christopher Katsarov/Canadian Press

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.

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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 retirement. 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.

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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, from $1,000 a month to $1,500 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.

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About the Author
Ontario legislative reporter

Based in Toronto, Justin Giovannetti is The Globe and Mail’s Ontario legislative reporter. He previously worked out of the newspaper’s Edmonton, Toronto and B.C. bureaus. He is a graduate of Montreal’s Concordia University and has also worked for CTV in Quebec. More

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