Expert Advisors’ Consensus Recommendations on Technical amd Operational Issues

Table of Contents

Introduction

The Ontario Expert Commission on Pensions received 127 written submissions from individuals and stakeholder organizations. Generally the submissions focused on the major issues in the Commission’s mandate: defined benefit (DB) funding rules; the use of pension surplus; the future of the Pension Benefits Guarantee Fund (PBGF); and how to encourage DB coverage in Ontario. These issues are, of course, at the core of the Commission’s report and the Commission’s recommendations build on those made by individuals and stakeholders in their submissions to the Commission.

As well as dealing with the central issues in the Commission’s mandate, many submissions also addressed specific technical concerns with the Pension Benefits Act (PBA) and its Regulations, including a number that would require amendments to one or both of these.

Many of the specific technical concerns that were raised with the Commission are not dealt with in the Commission’s Report, either explicitly or implicitly. However, it was the view of the Commissioner that while these concerns and issues would not find a clear reflection in the report, they deserved to be addressed in some way.

As a consequence, a number of specific concerns and recommendations of a technical nature relating to the PBA and its Regulations were referred to the four Expert Advisors to the Commission for their consideration. It is difficult to be precise about the number of recommendations referred because those dealing with similar issues were grouped together at an early stage of the advisors’ deliberations. That said, the number can be roughly estimated at 175 to 200. This memorandum provides an account of how the advisors have dealt with the technical issues referred to them by the Commission.

The memorandum organizes the discussion of issues by reference to the section of the PBA (pages 6–15) and Regulations (pages 16–18) at issue. It also deals with issues that would require additional provisions to either the PBA or the Regulations (pages 19–21).

The main body of this memorandum is presented in chart form and it does the following:

  • it groups issues by proposed changes to sections of the Act (s. …) or the Regulations (R. …) or a new addition to one or the other;
  • it describes briefly the problem that has been identified with the section of the Act or Regulation, or the omission from them; and
  • it provides the Expert Advisors’ recommended response to the issue.

In the text that follows, readers will notice that the Expert Advisors make recommendations on 77 technical issues raised with the Commission. The advisors concluded that a significant number of technical issues were effectively addressed in generic form by the Commission’s report and that roughly 25 technical issues urged on the Commission were lacking merit in whole or in part. Moreover, the Commission received three recommendations related to the issue of the treatment of pensions in the context of marriage breakdown. The Commission and the Expert Advisors are of the view that these issues (page 22) should await disposition until the Law Commission of Ontario report on the issue has been released.

The Expert Advisors agree with most of the technical recommendations for change to the PBA and its Regulations that are not addressed in the Commission’s Report, and the recommendations they make in this memorandum represent a consensus.

The Expert Advisors wish to thank the individuals and stakeholder groups that have brought the issues identified below to the attention of the Commission.

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Recommendations on Technical Amendments by the Expert Advisors to the Expert Commission on Pensions

Section(s) Issue Recommendation
s. 1(1) Definitions Amend definition of “designated province,” which will confirm that the definition includes Ontario members governed by the federal Pension Benefits Standards Act (PBSA).
s. 1(4) A pension plan is not a multi-employer pension plan (MEPP) if the contributing employers are “affiliates” within the meaning of the Ontario Business Corporations Act (the “OBCA”). This exception is too narrow. For organizations to be considered affiliates, one must be a subsidiary of the other or both must be subsidiaries of a third corporation or they must be “controlled” by the same person. More than 50% ownership is required for there to be control. This means that, for example, joint ventures cannot be considered affiliates for purposes of the PBA. Remove reference to affiliate as defined in the OBCA. Draft definition of affiliate that takes into account purpose of the PBA (i.e., different corporate structures that may not be related for corporate purposes would be sufficiently related for purposes of participation in a pension plan). Also need to include partnerships.
s. 6
(Also applies to s. 8, 9, 11, 12 and 55)
Registration and Administration: Prohibition of Administration of Unregistered Pension Plan Amend the specified provisions to make it clear that they apply continuously throughout the lifetime of the plan and not just when the plan or amendment is registered/filed.
s. 8
(Also applies to s. 6, 9, 11, 12 and 55)
Registration and Administration: Administrator Amend the specified provisions to make it clear that they apply continuously throughout the lifetime of the plan and not just when the plan or amendment is registered/filed.
s. 8 Registration and Administration: Administrator Roles: Plan Administrator vs. Participating Employer: One of the significant problems with the current regulatory scheme is that it provides inconsistent treatment of plan administrators and employers: certain provisions of the PBA and the General Regulation appear to treat administrators and employers as the same entity, while other provisions may be interpreted to treat administrators as agents of the employer. For MEPPs, these provisions can create confusion and difficulty. The legislation should clarify rights and remedies in the event a participating employer does not fulfil its responsibilities and a more expedited regulatory enforcement process should be adopted. If the plan administrator incurs costs as a result, in the end, the entire plan membership pays.
s. 9
(Also applies to s. 6, 8, 11, 12 and 55)
Application for Registration Amend the specified provisions to make it clear that they apply continuously throughout the lifetime of the plan and not just when the plan or amendment is registered/filed.
s. 9, 10, 12 s. 9: Application for Registration

s. 10: Contents of Pension Plan

s. 12: Application for Registration of Amendment
All of the documents listed to be submitted with an application for registration or amendment may not be required for all classes of pension plans. Provide the Superintendent with the authority to waive some of the listed documents for prescribed classes of pension plans.
s. 11 and 12
(Also applies
to s. 6, 8, 9 and 55)
s. 11: Gradual and Uniform Accrual of Pension Benefits s. 12: Application for Registration of Amendment Amend the specified provisions to make it clear that they apply continuously throughout the lifetime of the plan and not just when the plan or amendment is registered/filed.
s. 22(4) A plan administrator shall not knowingly permit its interests to conflict with its duties in respect of the plan.

It is unclear how this provision interacts with the “related party provisions” of the Federal Investment Rules (s. 15, 16 and 17 of Schedule III).
“Except as provided in the Act or Reg.” should be added to the beginning of s.22(4).
s. 25 Disclosure of Information: Information from Administrator Restructuring of the corporation such as sales, mergers, reorganizations, etc., all of which could expose them to serious risk. Codify that vendor remains liable for accrued benefits after a transfer.
s. 26(1) The Superintendent shall require notice to members of adverse amendments.

In Kerry, the Court held that the plan administrator had a duty to give notice of a potentially adverse amendment.
Notice of all amendments should be required before they will be registered, although they should then be able to be registered with an earlier effective date. The concept of an adverse amendment can then be removed from the Act.
s. 26(4)(c) Notice must be made by a pension plan administrator, to such persons as the Superintendent may specify, of certain proposed amendments to the pension plan except, inter alia, if the agreement is in respect of a MEPP established pursuant to a collective or trust agreement. Amend the PBA to eliminate the exemption for MEPPs from the notice requirements of s. 26.
s. 27 Disclosure of Information: Annual Statement of Pension Benefits The $3,000,000 market value of assets threshold for which an audited financial statement is required should be updated regularly.
s. 27 and 28 Sections 27 and 28 of the PBA state that the obligation for providing statements is solely that of the plan administrator.

There needs to be a corresponding obligation on the plan member regarding confirmation or correction of data that pertains to the member and timely submission of changes.
Plan members should be obligated to confirm and/or correct data that pertains to the member on a timely basis (including changes in marital status and pension splits).
s. 25, 26,
27 and 28
Disclosure of Information: Electronic Notices and Statements The PBA should permit notices and statements to be sent electronically by an administrator to the active, deferred vested and retired members, with their permission.
s. 29 Inspection of Administrator’s Documents Include a new provision prescribing time frames for records retention by plan sponsors. This can be accomplished by scanning and keeping documents electronically rather than in paper form.
s. 29
(Applies also
to s. 30, 98 and 106).
Inspection of Administrator’s Documents. Expressly recognize that commercially sensitive information provided to the Superintendent through special requests under Section 98 and 106 are not documents available for inspection.
s. 29(3) Inspection of Administrator’s Documents: Extracts or Copies Subsections 29(3) and (4) fees should be the same as charged by the Financial Services Commission of Ontario (FSCO).
s. 30
(Applies also
to s. 29, 98 and 106).
Inspection of Filed Documents Expressly recognize that commercially sensitive information provided to the Superintendent through special requests under s. 98 and 106 are not documents available for inspection.
s. 35 Normal Retirement Date

Questions arise about how to treat pension payments that are delayed beyond the pension start date, e.g., whether they must be made retroactively to the pension start date and be paid with interest.
Payments should be made retroactively to the pension start date and be paid with interest.
s. 38(2) Termination by Member: Effect of Termination

Issues arise about the effective date of termination of membership under s. 38.
Expressly provide that the date of termination is the date the member ceases to be a member and not the date contributions cease.
s. 39 Benefits: Value of Deferred Pension

Recovery of Overpayments
Amend the PBA to provide that pension plans, which overpay a plan member due to fraud or a deliberate misrepresentation by the member, may apply to the Superintendent of Financial Services, with notice to the member, for permission to reduce the commuted value of that member’s accrued benefits in order to recover the overpayment.
s. 39(4)
(Applies also
to s. 50(1), (2), 63(2), (3), (4)
and (5))
Entitlement to Excess Amount

Questions arise about the authority to transfer lump sum amounts to prescribed retirement savings arrangements.
Expressly provide that the option to transfer the lump sum payments to a prescribed retirement savings arrangement is available only for qualified amounts.
s. 44 Joint and Survivor
Pension Benefits
Amend the PBA to provide for the commuted value of a survivor benefit if the annual benefit payable is not more than 2% of the year’s maximum pensionable earnings (YMPE) in the year of commencement.

Consideration should also be given to reviewing the small benefit commutation limits for DB plans with a view to increasing them from the current limit of 2% of YMPE (which is currently $898).
s. 44(3) Joint and Survivor Pension Benefits: Amount of Survivor Benefit

The minimum legislative requirement is based on the first death of the member or the spouse.
“Upon the death of pension plan member” should be added to the beginning of s. 44(3) as a clarification.
s. 46(2) Waiver of Joint and Survivor Pension Benefit

Confusion exists as to whether a waiver that is filed earlier than 12 months preceding commencement of payment is effective.
Clarify that for a waiver of a joint and survivor benefit, the requirement that the waiver be “delivered to the administrator or insurance company” means that the waiver must be signed, dated and delivered within 12 months preceding commencement of payment.
s. 48 Pre-retirement Death Benefit

Section 51(5) gives the former spouse the same options as are available to the member. However, on death it is the options available to the spouse that need to be provided to the former spouse.
Clarify that a former spouse of the member who is entitled to a death benefit is entitled to the same options as the spouse.
s. 48 Pre-retirement Death Benefit Expressly provide that a refund of pre-1987 contributions with interest is required to be paid on the death of the member prior to retirement.
s. 50(1), (2) Commuted Value Consideration could be given to reviewing the small benefit commutation limits for DB plans with a view to increasing them from the current limit of 2% of YMPE (which is currently $898).
s. 50(1), (2)
(Applies also
to s. 39(4), 63(2), (3), (4) and (5))
Commuted Value

Questions arise about the authority to transfer lump sum amounts to prescribed retirement savings arrangements.
Expressly provide that the option to transfer the lump sum payments to a prescribed retirement savings arrangement is available for qualified amounts.
s. 55
(Also applies
to s. 84)
Contributions: Funding Consideration should be given to establishing terms and conditions that apply when a pension plan is converted from a single employer to a MEPP and vice versa, including, but not limited to, the ability to reduce benefits accrued prior to the date of the transfer and the application of the PBGF, etc.
s. 55 Contributions: Funding Amend the PBA to explicitly provide that:

  1. employers participating in a collectively bargained MEPP (i.e., one in which contribution rates are set by collective agreement and that is administered by a Board of Trustees no fewer than half of whom are representatives of plan members) are only responsible for making the contributions required by their collective agreements and providing the information required to administer the plan; and
  2. employers participating in a collectively bargained. MEPP are not responsible for eliminating any funding deficit that may exist upon wind-up, unless otherwise provided in pension plan documents.
s. 55 Contributions: Funding

Actuarial Valuation Filings:

The actuarial filing for plan amendments under FSCO Policy A400-100 requires an update of the financial status of the plan on both a going concern valuation and solvency basis when the scheduled benefit increase becomes effective.
To achieve a better matching of funding to the promised benefits, at a reasonable cost, plans should be permitted to file a single current valuation that projects future liability increases based on the current economic conditions, and disclose in the report the projected liability impact of those increases. The report should predict the applicable solvency amortization period for each such benefit increase (depending on the projected solvency ratio at each increase).

The report should also predict the solvency ratio at each scheduled benefit increase, and disclose the date by which the next full valuation must be carried out. If a particular increase is projected to cause the solvency ratio to drop below the threshold that requires annual valuations, the report should disclose that the next full valuation must be conducted effective no later than that projected date.
s .55
(Also applies
to s. 6, 8, 9,
11 and 12)
Contributions: Funding Amend the specified provisions to make
it clear that they apply continuously throughout the lifetime of the plan and
not just when the plan or amendment is registered/filed.
s. 63(2), (3),
(4), and (5)
(Applies also
to s. 39(4) and 50(1), (2))
Locking In: Refunds

Questions arise about the authority to transfer lump sum amounts to prescribed retirement savings arrangements.
Expressly provide that the option to transfer the lump sum payments to a prescribed retirement savings arrangement is available for qualified amounts.
s. 66(6) Locking In: Exemption from Execution, Seizure or Attachment Life Income Funds (LIFs) and Locked-in Retirement Income Funds (LRIFs) should be excluded from income or assets for the purpose of applications under other Acts (currently only Locked-in Retirement Accounts (LIRAs) are excluded).
s. 67 Locking In: Commutation or Surrender

Issues have arisen in situations where the financial institution has paid monies from a locked-in account without proper authorization.
Require the institution to reimburse the monies to the account.
s. 78 Contributions made post-wind-up Excessive current service employer contributions made after a wind-up
occurs should be explicitly recognized
in the PBA as overpayments that can
be refunded to the employer.
s. 78(4) Section 78(4) requires
that contributions made
in error can be returned.
Remove the one-year time requirement.
s. 80(8), (9) Sales, Transfers and
New Plans
Change verb from “are” to “is.”
s. 80(8), (9) Sales, Transfers and New Plans: Multi-employer Pension Plan Expressly provide that the transfer in this situation is subject to the consent of the Superintendent, which would be on the same basis as other transfers between plans.
s. 81 No defined terms exist relating to Reciprocal Transfer Agreements The terms of Reciprocal Transfer Agreements should be defined and include at least the following issues:

  • Rights of spouses
  • What reciprocity is required
  • Canada Revenue Agency service credits
  • What happens if transfer is to a jurisdiction without registration

Consultation and discussion are required to establish the requirements.
s. 95(1) FSCO: Reciprocal
Agreements
Replace “Commission” with “Superintendent.”
s. 98
(Applies also
to s. 29, 30 and 106).
FSCO: Information Expressly recognize that commercially sensitive information provided to the Superintendent through special requests under s. 98 and 106 are not
documents available for inspection.
s.106
(Applies also
to s. 29, 30 and 98).
Examinations, Investigations and Inquiries Expressly recognize that commercially sensitive information provided to the Superintendent through special requests under s. 98 and 106 are not
documents available for inspection.
s. 113 There is currently no time limit on the Superintendent to take actions. The Superintendent should be required to take an action under the Act or Regulations within a prescribed period of time.

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Recommendations tied to specific Pension Benefits Act Regulations

Regulation(s) Issue Recommendation
R. 1(1) Legislative Reference Replace reference to Unconditional Grants Act with Municipal Act 2001.
R. 19 Conversions Identify terms and conditions for pension plans that have converted from DB to defined contributions (DC) and from DC to DB.
R. 19 Annuity Purchases Provide that a pension plan can only annuitize the portion of any liability to the extent that it is funded.
R. 23(1) PBSA Add to the designated provinces section the separate bi-lateral agreement with the federal government for purposes of the application of the federal PBSA.
R. 24 Interest Interest on late pension payments to retired members should be required.
R. 28 Election Terms

Option statements may be issued prior to the approval of the wind-up report and before full information is known.
Establish criteria when an administrator issues options form before the wind-up report is approved or provide FSCO the power to prescribe such conditions.
R. 32 The ability to monitor a plan is affected as the normal filing requirements are suspended at wind-up. Require the administrator to continue to file annual information returns, filing assessments and PBGF assessments until the assets of the plan are distributed.
R. 41 Legislate policy that requires funding of shortfall on conversion. Establish minimum funding requirements for the DB plan on a plan conversion to a DC plan and priorities on wind-up.
R. 28, 41, 42,
43 and 44
Time Lines The time frames for providing statements, the period for the election and the period for payment should be consistent with other pension regulators across the country. The following time lines are suggested:

60 days for statements from Administrator

90 days for member election

60 days for administrator to provide settlement
R. 37(2) PBGF Assessment Date

There is an inconsistency between filing dates for a regular filing and for a final assessment when a plan winds up.
Provide that the PBGF assessment date for payment is six months after the last day of the fiscal year and not the current nine months.
R. 44 Late Payment A late payment of pension payments should be subject to the payment of interest.
R. 45(1) Elections Provide that a member who makes an election under regulation 42 or is entitled to elect under regulation 51 shall deliver a completed direction to the administrator within 90 days after receipt of notice of termination.
R. 47 Plans may move into an exempt status i.e., from a registered pension plan to a retirement compensation arrangement and, as such, there need to be transition rules related to the benefits accrued while the plan was subject to the PBA. Prescribe transition rules for plans that move from a registered to an exempt status.
R. 47(1) Registration Numbers To assist in identifying the correct plan if the sponsor has multiple plans, add a seven-digit FSCO registration number to specified plans.
R. 47(3) Change to Reference Replace reference to s. 98 of the Municipal Act as the section has been repealed.
R. 51.1 Shortened Life Expectancy There is a question with respect to whether the criteria prescribed here with respect to shortened life expectancy under PBA s.49(1) should also be applied to s.49(2). This matter should be fully considered. If the criteria are the same, then there is a question as to whether the sections can be merged.
R. 51.1 Qualifying Annuity Clarify the application of shortened life expectancy to former members for whom an annuity has been purchased.
R. 76 Financial Statements Address conflict as a result of a current requirement that provides that financial statements must be filed in accordance with generally accepted accounting principles (GAAP) by restricting the GAAP requirement to the plan assets.
R. 78 Statement of Investment Policies and Procedures The regulations should expressly require the administrator to administer the investments of the pension fund in accordance with the Statement of Investment Policies and Procedures established for the plan.
New Regulation to be added Notice on Asset Transfers The requirements to be included in the notice to members for asset transfers in the PBA should be prescribed.
R. 713/92 Fee Regulation Revoke R. 713/92 regarding charging fees as the Superintendent now has power to charge fees.

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Recommendations Organized by Issue

Regulation(s) Issue Recommendation
New Access to Death Registry:

One of the ongoing monitoring efforts that pension plans should undertake on a regular basis is to verify that the right people are receiving payments. As survivors of deceased pensioners do not always notify the plan administrator, it would be useful and more cost efficient if pension plans could have access to the provincial government death registry. This access is currently denied to virtually all pension plans. Removing this governmental restriction would improve the accuracy of ensuring the proper amount is paid to the proper recipient and will result as well in more efficient service such as less retroactive recovery of overpayments to survivors of pensioners.
Pension plans should have access to the provincial government death registry to ensure the accuracy of their beneficiaries list.
Table of Contents PBA Act and Regulations Improve Table of Contents to the PBA Act and Regulations.
New Wind-up Commuted Values

There is a concern there can be a mismatch between the percentage change in commuted values and the rate of return on plan assets post wind-up.
Freeze commuted value at wind-up date and pay interest at plan rate of return thereafter until payment out.
New MEPPs If contributions to a MEPP are mandated by a collective agreement, participation agreements should be required to be negotiated and filed by a specified date in the future. The essential terms of the participation agreement should be set out in the Regulation.
New MEPPs Introduce (a) a requirement that MEPPs explicitly address the consequences of the withdrawal
of an employer (including by reason of insolvency), in circumstances of both surplus and deficiency; and
(b) a requirement that MEPPs elect to treat all employees (i) as normal course terminations without requiring members to wait up to
24 months in order to process termination options, or (ii) continue the current rule that requires that members wait 24 months in order to process termination options.
New MEPPs If plans are funded only on a going concern basis, the basis for commuted value payouts should be considered.
Specified Ontario Multi-Employer
Pension Plan (SOMEPP)
Regulations
MEPPs Amend the SOMEPP regulation, s.6.02(1), condition 4, to change the current requirement that:

“4. All employers make contributions to the Plan pursuant to one of more collective agreements.” to:

“4. All or substantially all of the participating members are employed by employers who make contributions to the Plan pursuant to one or more collective agreements.”
Act and Regulations Checkerboarding/Final Location

Whether checkerboarding or final location applies, i.e., whether plan members who have pensionable service in more than one Canadian jurisdiction should apply the relevant provincial minimum standards to each portion of pensionable service earned in that jurisdiction or apply the provincial minimum standards of the province in which the member retires to all service.
Ontario should specifically ensure that all issues are expressly stated to be based on checkerboarding or final location. However, immediate vesting earned by way of Ontario service should not be subject to forfeiture.

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Technical Amendments that should be considered by the Law Ccommission of Ontario

Section(s) Issue Recommendation
s. 44(4)(b)
(Applies also to s. 48(3))
Joint and Survivor Pension Benefits

There is confusion about what is meant by living separate and apart when there is no relationship breakdown, i.e., one spouse is in a nursing home or the spouses live in different cities, etc.
Recognizing it is a family law issue, there are numerous questions arising around the meaning of living separate and apart. Consider whether or not the PBA can help address the questions.
s. 48(3)
(Applies also to s. 44(4)(b))
Pre-retirement Death Benefit

There is confusion about what is meant by living separate and apart when there is no relationship breakdown, i.e., one spouse is in a nursing home or the spouses live in different cities, etc.
Recognizing it is a family law issue there are numerous questions arising around the meaning of living separate and apart. Consider whether or not the PBA can help address the questions.
s. 65(3) Describes void transactions as including those that purport to assign, charge, anticipate or give as security money payable under a pension plan. However, this does not apply to prevent the assignment of an interest in money payable under a pension plan or money payable as a result of a purchase or transfer under certain sections of the PBA by an order under the Family Law Act or by a domestic contract.

Administrative Issues Relating to Marriage Breakdown: Assignment for Support:

Current wording appears to permit 100% of a member’s pension to be assigned for support given that s.65(3) of the PBA only makes reference to an “order under the Family Law Act.” As such, there is no other provision that clearly limits an assignment on account of support to a certain percentage.
Amend the PBA to clarify the cited issue.