Recommendation

Position

Comments

Funding

Recommendation 4-1 — The Superintendent should work with the Canadian Institute of Actuaries to ensure that actuarial standards and practices continue to evolve in the direction of greater transparency and more structured discretion. For example, actuarial valuations should reveal the reasons behind the assumptions used in valuations to set discount rates and to select the mortality trends used to calculate plan liabilities. They should also reveal whether the sponsor intends to take a contribution holiday.

N

• Any disclosure of intent with respect to contribution holidays should come from the plan sponsor, not the actuary.

Recommendation 4-2 — The Superintendent should have the power to require that plans cease using assumptions that are unreasonable or that depart materially from accepted actuarial practice, and to order an independent valuation or peer review of a report, at the expense of the plan, if there are grounds to believe that the actuarial valuation misrepresents a material factor in its funding.

N

Recommendation 4-3 — Going concern valuations should no longer permit the exclusion of promised indexation benefits. Solvency valuations should no longer permit the use of smoothing practices or the exclusion of benefits. A special exception should be made for those plans that continue to provide plant closure benefits pursuant to a specific, longstanding commitment to continue their non-funded status. Potential increases in sponsor contributions attributable to these enhanced transparency measures should be offset so far as possible by the extension of amortization periods, by selective relief from contribution increases for well-funded plans or by other means.

PA

• We support funding of promised benefits, but this needs to be accompanied by reasonable rules on surplus entitlement for legacy plans.
• These recommendations will result in significant increases in funding costs, so transitional rules will be needed.

Recommendation 4-4 — The current requirement for an actuarial valuation every three years should be maintained. The time for filing the valuation after it is due should be reduced from nine to six months. Extensions should be given only in exceptional circumstances.

D

• We note that a six-month window conflicts with timing for filing audited financial statements.
• This recommendation would increase sponsors’ administrative burden with little added benefit security.

Recommendation 4-5 — Plans whose triennial valuation shows that their funding has fallen below a threshold to be specified by regulation should continue to be required to perform and file an annual valuation.

A

• No change from current practice.

Recommendation 4-6 — The Superintendent should develop the capacity to monitor the pension system, and individual plans, more closely, and should have the power to order an interim valuation at any time if there are reasonable grounds to believe that a particular plan is at risk of failure.

D

• Regulatory powers to address funding concerns should be clearly delineated, along with the criteria for concluding that a plan is at “risk of failure”.
• “Risk of failure” should focus on a plan’s funded status and investment policy, not the financial status of the sponsor.

Recommendation 4-7 — The Superintendent should more aggressively discourage and more predictably sanction late filings, and develop a capacity to scrutinize filings to the extent necessary to improve the likelihood that inaccuracies will be detected.

N

Recommendation 4-8 — MEPPs, JSPPs and SEPPs should have separate funding rules related to their distinctive characteristics. In general, MEPPs and JSPPs should be allowed more flexibility in funding, while SEPPs should be subject to stricter rules than other plans.

D

• SEPP funding rules should accommodate jointly-sponsored (risk-shared) arrangements.
• SEPPs should be permitted to have risk-shared funding arrangements and/or provide target benefits. This suggests that some SEPPs should be funded similarly to JSPPs and MEPPs, i.e. on a going-concern basis.

Recommendation 4-9 — Following consultation with Ontario’s multi-employer pension plans, special legislation and regulations should be developed relating to all aspects of their funding, regulation and governance. The basis for such legislation and regulations should be the Specified Ontario Multi-employer Pension Plan regulation of 2007. After five years, the practical effects of these arrangements should be assessed.

A

• MEPPs are a sufficiently large component of the Ontario pension system to merit special rules for funding and governance.
• SEPP funding rules should accommodate jointly-sponsored (risk-shared) arrangements.

Recommendation 4-10 — Multi-employer pension plans should be required to fund only according to going concern valuations, but should continue to provide solvency valuations for the information of the regulator as well as their active and retired members.

A

• We agree that MEPPs in which all risk is pooled among participants should be permitted to fund on a going-concern basis, provided that annual statements disclose to members the benefits they would receive if the plan had wound up on the statement date.

Recommendation 4-11 — Jointly sponsored pension plans should be required to fund only according to going concern valuations on the same basis as Specified Ontario Multi-employer Pension Plans, but should continue to provide solvency valuations for the information of the regulator as well as their active and retired members. The comprehensive legislation and regulations governing the funding of multi-employer pension plans, to be developed pursuant to Recommendation 4-9, should apply, perhaps with appropriate modifications, to jointly sponsored pension plans.

A

• Please refer to comment for Recommendation 4-10.

Recommendation 4-12 — Jointly governed target benefit pension plans that are based on an agreement between one or more sponsors and one or more unions, that have established explicit arrangements for joint governance, and that permit accrued benefit reduction in an ongoing plan in order to deal with funding deficiencies, should be funded in a manner similar to jointly sponsored pension plans, as provided in Recommendation 4-11.

A

• There is no reason why target benefit plans should be limited to a joint governance model. With appropriate statutory standards, other governance models could also work:
  • Governance by an employer acting alone
  • Governance by a professional, trade or member association
  • Governance by a private sector service provider offering pension plan membership on a subscription basis (as some jurisdictions now permit for simplified pension plans)

Recommendation 4-13 — Single employer pension plans should continue to fund according to both going concern and solvency valuations.

A

• Subject to our comments in Recommendation 4-8, we agree with this Recommendation.

Recommendation 4-14 — Single employer pension plans should be required to maintain a security margin (or provision for adverse deviation) of 5% of solvency liabilities. This margin should be amortized over an eight-year period. The security margin should be deemed to be part of the plan surplus on wind-up, but not for other purposes.

D

• A security margin should be plan-specific and linked to investment policy.
• We recommend a separate, employer-owned account for solvency funding, as recommended in both the Towers Perrin submission to the OECP and the Alberta/BC JEPPS report.
• Letter of credit funding should be available in lieu of solvency contributions.

Recommendation 4-15 — For plans that have achieved 95% of solvency funding, the normal amortization period for achieving the new required funding level, inclusive of the security margin, should be extended from five to eight years. For plans funded below 95%, the current amortization period of five years should continue to apply until such time as they become eligible for the extended amortization period.

D

• Please refer to our comments regarding 10-year solvency funding in our cover letter.

Recommendation 4-16 — If a single employer pension plan is in surplus on being wound up, the surplus should be distributed in accordance with the plan documents unless the parties agree, or the proposed Pension Tribunal of Ontario rules, that the documents are not clear. In the event of such an acknowledgement or ruling, the sponsor may propose a scheme for the distribution of surplus, which would take effect if approved in one of two ways:

(a) if plan members are not represented by a union, the proposal should be submitted to a vote by secret ballot of the plan members and retirees, and would take effect if approved by two-thirds of those voting; or

(b) if plan members are represented by a union or other organization, the sponsor should submit its proposal to representatives of the active members and retirees with a view to concluding a surplus distribution agreement.

If the sponsor and the representative negotiators cannot reach agreement, they should submit the matter for determination to a dispute resolution procedure of their own choosing. If they cannot agree on such a procedure, or if it does not resolve the matter within a reasonable time, any party may apply to the Superintendent to refer the matter to the Pension Tribunal of Ontario, which would then establish the terms of the surplus distribution agreement. Any scheme approved by secret ballot, any surplus distribution agreement reached by representative negotiators, and any determination by the Tribunal or an agreed dispute resolution procedure would be final and binding on the Superintendent and on all persons claiming to be entitled.

PA

• In an employer-funded plan, surplus entitlement should be determined by plan documents and clear statutory rules; and plan documents should be required to state clearly who owns surplus.
• The recommendation provides no help with historical documentation problems. Employers should be able to “ring-fence” old plans with undesirable surplus language, as the Alberta/BC JEPPS recommends, and start new plans.
• The PBA should provide that for all new plans, only current, validly-enacted plan documents have any legal effect.

Recommendation 4-17 — Plan sponsors should be entitled to reduce or omit their contributions to a plan in any year in which it is funded at 105% or more of its solvency liabilities. However if — based on benchmarks to be developed by the regulator — a plan administrator knows, or ought reasonably to know, that funding has fallen below 95%, the administrator should immediately notify the sponsor to resume contributions until the plan is again funded at 105% of solvency liabilities. The pension regulator should develop benchmarks based on the plan’s annual financial statements that will enable plan administrators to determine when contributions should be resumed.

If the regulator finds that a contribution holiday was improperly taken or continued, any contributions withheld from the plan should become immediately due and payable, together with interest, regardless of the plan’s present funded status, and the sponsor should be subject to an administrative fine of up to $1 million, or double the amount withheld during the improper contribution holiday, whichever is less. The improper use of plan surplus to pay the expenses of the plan, including PBGF premiums, should be treated in similar fashion. The parties to a collective agreement should be free to negotiate other arrangements for the use of surplus in an ongoing plan. These arrangements should prevail notwithstanding those proposed in this recommendation or established in the plan documents.

D

• We acknowledge that a clear right to take contribution holidays is positive, but there are too many variables here.
• How can an administrator “know or ought to know” that plan funding has fallen below 95% without doing some kind of interim valuation or financial update?
• We would encourage the regulator to consult with industry to obtain input on appropriate benchmarks.
• Better to have a regulatory discretion to prohibit -- or an explicit rule that prohibits -- contribution holidays or to require a new valuation where a plan’s funding policy provides for significant capital market exposure and capital market indices have declined by a specified percentage over a specified period of time.
• The proposed $1 million fine is far too punitive. Fines at this level should be reserved for instances of bad faith, willful misconduct, or gross negligence.
• We do not understand what is meant by “improper use” of surplus to pay plan expenses. Expenses should always be payable from a plan fund where plan documents allow, provided that funding valuations make appropriate provision for such expenses.

Recommendation 4-18 — Sponsors may apply to withdraw surplus from an ongoing plan pursuant to the procedures set out in Recommendation 4-16, provided that the plan remains funded subsequent to withdrawal at 125% of full solvency funding, or 105% of full solvency funding plus two years of current service costs, whichever is greater.

D

• Please refer to comments for Recommendation 4-16.
• Ability to withdraw above 125% threshold without 100% member consent is positive.
• The security margin should be linked to a plan’s investment policy.

Recommendation 4-19 — Ontario should investigate strategies for reducing the cost of annuities and the influence of the annuities market.

N

Recommendation 4-20 — Every plan should contain a clause stating explicitly what provision, if any, has been made for the indexation of benefits and for the funding of indexation. Each triennial valuation and each annual statement provided to the regulator, active plan members and retirees should provide the same information.

A

• Disclosure about the benefit promise is always good.

Recommendation 4-21 — The government should proclaim in force the provisions of the Pension Benefits Act that allow it to require that pensions be inflation-adjusted in accordance with a formula to be prescribed. That formula should be restricted to “inflation emergencies.”

D

• Forced indexing by regulatory fiat is inconsistent with the principle of clarifying the benefit promise and would strongly discourage employers from sponsoring DB plans.
• Clarity is needed with respect to how this recommendation would apply to JSPPs, MEPPs, and JGTBPPs.

Recommendation 4-22 — Irrevocable letters of credit should be permitted as security for a fixed proportion of contributions owing to a plan, and for a maximum period of time, provided they are enforceable by the plan and immune from inclusion in the sponsor’s estate in the event of insolvency. The Superintendent should have no power to relieve against these requirements either before or after the fact. After five years, experience with letters of credit should be reviewed by the regulator. If no difficulties are found, they should be made available as a permanent feature of pension funding in Ontario.

A

• Ontario should leverage other jurisdictions’ experience with letters of credit.

Recommendation 4-23 — Ontario ought to investigate the possibility of permitting the use of asset pledges to provide security for unpaid contributions to pension funds, and to define the purposes for which, and the conditions under which, such pledges might be used. If asset pledges seem useful for sponsors, safe for pension plans and capable of being overseen by the regulator, their use ought to be allowed for an initial period of five years, subject to renewal on a permanent basis if experience warrants.

A

• Additional funding flexibility is desirable. We would support asset pledges if the results of this investigation suggest that asset pledges can be implemented in a workable manner.

Recommendation 4-24 — The Ontario government should endeavour to persuade the federal government to increase benefit and contribution levels for registered pension plans under the Income Tax Act, and to consider policies that encourage participation by workers and employers in DB plans or their functional equivalents.

A

• Federal income tax rules for retirement saving are unnecessarily complex and inequitable to most retirement savers.
• A comprehensive reform is long overdue.

Recommendation 4-25 — The Ontario government should endeavour to persuade the federal government to reform the federal investment rules and, in particular, to remove or amend particular quantitative restrictions that no longer make sense, such as those involving prohibitions on Canadian, but not foreign, investments. However, if the federal government does not do so within a reasonable time frame, the Ontario government should cease to rely on the federal regulations and establish its own investment rules, tracking the federal rules only to the extent that doing so is deemed good public policy in Ontario.

A

• A review of the federal investment rules is long overdue.
• A shift to a more principle-based approach is generally agreed to be preferable to the current combination approach.
• It is preferable that reformed federal investment rules continue to apply because this is a good example of uniformity in pension regulation.

Pension Plans in a Changing Economy

Recommendation 5-1 — The pension regulator should immediately investigate the causes of extreme delays in approving transactions, including splits, mergers, asset transfers and conversions, and provide a report that can be used to facilitate the processing of such transactions in accordance with the recommendations of this Commission.

A

Recommendation 5-2 — The Lieutenant Governor in Council should establish an Ontario Pension Agency to receive, pool, administer, invest and disburse stranded pensions in an efficient manner.

A

• The Ontario Pension Agency will be particularly helpful to settle benefits for missing members.

Recommendation 5-3 — Sponsors should be required to develop a standard policy for dealing with newly hired employees who seek pension credit for service during employment with a previous employer. The policy should state whether such credit will be given and, if so, on what terms, and should be made available to all such employees.

N

Recommendation 5-4 — When individual or group transfers from one plan to another are contemplated, the importing plan should provide a detailed statement of the benefits to be provided. Each transferee should be given four options:

1. as a default option, to accept the asset transfer and begin future accruals in the importing plan, provided it offers benefits of comparable aggregate value to those provided under the exporting plan;

2. to remain as a deferred member of the exporting plan;

3. to transfer the value of the first pension to the Ontario Pension Agency; or

4. to transfer the value to a locked-in account.

If active plan members are represented by a union or similar organization, it may accept one option on behalf of all members, or allow each member to exercise one or more of the options provided. The value of benefits provided by an “importing” plan should be deemed to be “comparable” to those provided by an “exporting” plan for purposes of the default option, if

(a) approved by the Superintendent as approximating the aggregate collective value of such benefits, notwithstanding differences in the nature, value or terms of individual benefits, or

(b) agreed to by a union representing active plan members affected by the transfer.

PA

• We agree with this recommendation provided that there are no restrictions with respect to the level of accrual in the importing plan.
• Sponsors should be able to force terminated DC plan members to transfer their benefits out.
• Transfers to the Ontario Pension Agency should be limited to transfers in respect of missing pension plan members and settlement on marriage breakdown.

Recommendation 5-5 — The government should promptly address the pension arrangements for groups of public service employees affected by past divestments and transfers, whether by allowing these groups to use the group asset transfer process proposed in Recommendation 5-4, or by other means, including negotiations with their representatives.

N

Recommendation 5-6 — When a pension plan is being wholly or partially wound up, when a transaction provides the opportunity for a pension asset transfer, or when an active plan member leaves a job in which she or he has earned pension credits, active plan members and retirees should be given the choice of depositing the value of any pension accruals standing to their credit with the Ontario Pension Agency. Sponsors and unions negotiating the consequences of corporate or government restructuring should, by mutual consent, also be able to transfer plan assets to the Ontario Pension Agency in respect of some or all of the members affected.

D

• See comments in our letter relating to the Ontario Pension Agency.

Recommendation 5-7 — The Ontario Pension Agency should receive and administer funds payable to pension beneficiaries who cannot be located. Plan sponsors should be obliged to file with the Ontario Pension Agency a list of all beneficiaries who cannot be located, and of all deferred members whose assets remain under the control of their plan. Plan members seeking to trace their stranded or deferred pensions should have access to this list.

A

• The proposed Ontario Pension Agency, if structured appropriately and managed at arm’s length from government, could be very helpful in dealing with funds for missing beneficiaries.

Recommendation 5-8 — Existing “grow-in” rights that provide access to early retirement benefits for all qualifying single-employer pension plan members in the event of a full or partial plan wind-up should be extended to all such members who are involuntarily terminated. “Qualifying members” should continue to be those whose age and years of service add up to 55.

D

• Please see the comments in our letter regarding grow-in.

Recommendation 5-9 — Multi-employer plans, jointly sponsored plans, and the proposed jointly governed target benefit plans should not be required to provide grow-in benefits.

D

• To the extent that early retirement subsidies and bridging benefits are provided, such benefits should vest equally in all plans and for all plan participants.
• Please see the comments in our letter regarding grow-in.

Recommendation 5-10 — The Pension Benefits Act should be amended to provide for phased retirement as contemplated by the Income Tax Act.

A

Recommendation 5-11 — All active plan members should be immediately vested for all accrued pension benefits. However, as at present, the plan administrator should retain the discretion to authorize the payment out of small amounts in specified circumstances.

A

Recommendation 5-12 — Active plan members who are involuntarily terminated, whether in groups or individually, while a plan is ongoing, should not be entitled to an immediate distribution of surplus. However, those who leave their pension assets in the plan should retain the right to participate in any subsequent surplus distribution.

A

Recommendation 5-13 — Involuntarily terminated members may have their benefits annuitized at the option of the sponsor.

A

• DC sponsors should be permitted to force transfers for terminated members, whether or not the termination is involuntary.

Recommendation 5-14 — Partial wind-ups of single employer plans should be declared by the Superintendent only when 40% of the active members of the employer are terminated within a two-year period. In such circumstances, administrators should file a plan reduction report, which would enable the Superintendent to ensure that plan funding is secure.

A

• Given other recommended changes, partial wind ups should not be necessary.

Recommendation 5-15 — When 90% of the active members of a single employer plan are terminated within a two-year period, the Superintendent should have the power to require that the plan be wound up or reconfigured. This power should be used only if the Superintendent concludes that either (a) the sponsor is not acting bona fide, or (b) the plan in its reduced state is unable to meet its obligations.

N

• We don’t know what “reconfigured” or “bona fide” mean here. It’s not possible to comment on this recommendation without more information about what is being contemplated.

Recommendation 5-16 — If a multi-employer or jointly sponsored pension plan experiences a reduction of 40% of its active members, or of sponsors providing 40% of its contributions, or if the sponsoring union splits, the administrator should prepare a plan reduction report and file it with the regulator. The regulator may require the administrator to prepare such a report if there are reasonable grounds to believe that the plan may no longer be viable.

N

• See comments for 5-14. If an under-funded multi-employer, jointly-sponsored or target benefit plan is substantially reduced or split, a key challenge will be to ensure that there are no subsidies as between terminating and ongoing members.

Recommendation 5-17 — Any surplus in a plan that is to be split (the “original plan”) can be allocated to any of the new plans derived from it, provided that the liabilities associated with the original plan and all of the derivative plans remain fully funded (including the 5% security margin) as of the date of completion of the transaction.

A

Recommendation 5-18 — Any surplus in a plan that is to be merged with another plan can be assigned to the merged plan, provided that the members of the original plan remain in the new merged plan, and that the merged plan itself is fully funded (including the 5% security margin) as of the date of completion of the transaction.

A

Recommendation 5-19 — A sponsor considering a plan split or merger must give notice of the proposed transaction to active plan members and retirees, and any union or other organization representing them. The notice should be accompanied by an accurate, readily understood explanation of its implications, as well as technical data relating to the new plan in a form approved by the regulator. If the union or representative organization approves of the proposed transaction or, in the absence of such an organization, if the transaction is approved by two-thirds of the active members and retirees voting in a secret ballot, the approval shall be filed with the regulator. Upon receiving the approval and ensuring that the transaction is otherwise in accordance with Recommendations 5-17 and 5-18, the regulator may, without further delay, issue an advance ruling approving the transaction. In the absence of approval from the union, organization or plan beneficiaries, the sponsor must give 90 days’ notice to all interested parties and to the regulator. After expiry of the 90-day notice, the regulator should process the proposed transaction in the normal manner. Where a split or merger is proposed by any plan on whose governing body at least 50% of the members are nominated by active plan members and/or retirees, approval by that governing body should serve in lieu of the approval process set out in this recommendation.

D

• The proposed approval process for plan restructuring is not workable. It will be difficult or impossible to obtain approval in advance from members for a plan merger or split. Communicating the information required for members to make an informed decision would present significant challenges.
• The only restrictions or conditions on plan merger and split transactions should relate to preserving security of accrued benefits and ensuring reasonable equity as between transferring and continuing plan members. Recommendations 5-17 and 5-18 partially address this. For under-funded plans, rules are needed to ensure that pre- and post-transaction funded ratios are appropriate.

Recommendation 5-20 — Notwithstanding Recommendations 5-18 and 5-19, a sponsor may, with the consent of the Superintendent, use surplus from the original plan to fund a new plan into which it has been merged, or from which it is derived, provided that

(a) if the original plan continues in force, its security margin is maintained;

(b) the new plan is funded at not less than 100% from its inception by sponsor contributions, if necessary; and

(c) the security margin in the new plan is funded within five years.

A

Recommendation 5-21 — Following conversion from a defined benefit to a defined contribution plan, or to a hybrid plan with elements of both, surplus carried over from the original plan should first be used to provide the required security margin for defined benefits earned under either plan. If additional surplus remains, it should be available to fund contribution holidays or other expenses of the converted plan.

A

Recommendation 5-22 — A sponsor considering the conversion of a defined benefit plan to a defined contribution or other type of plan must give notice of the proposed conversion to active and retired plan members and to any union or other organization representing them. The notice should be accompanied by an accurate, readily understood explanation of its implications, as well as technical data relating to the new plan in a form approved by the regulator.

A

• No change from current practice.

Recommendation 5-23 — The regulator should have the power to review the effects of a plan split, merger, asset transfer or other pension transaction involving related corporate entities in order to ensure that the plan’s financial prospects have not been compromised by being assigned to a less solvent corporate entity. The regulator’s powers should be exercised in accordance with specified criteria, and should include the power to (a) require a plan to be brought up to its previous funding level, or 105% of full funding, whichever is the lesser, (b) require the previous sponsor to provide guarantees that the new sponsor will meet its obligations to the plan, and (c) rescind the transaction.

A

• Clarity regarding what “less solvent” will mean is needed.

When Plans Fail

D

• Plan sponsors should not be exposed to unpredictable contribution requirements at the discretion of a regulator.
• The conditions according to which the regulator can order valuations should be clearly prescribed.
• More clarity is needed in terms of what “at risk of failure” means.
• While monitoring may take the financial status of the sponsor into account, remedies should be clearly defined and relate only the funded status of a pension plan and its investment policy.
• Remedies should be clearly defined in regulation so that there will be clarity as to what kinds of regulatory action may be expected.

Recommendation 6-2 — The Superintendent should have the power to (a) approve arrangements to reset the funding obligations of single-employer plans at risk of failure, including contributions, payment schedules, amortization periods and premiums to be paid to the Pension Benefits Guarantee Fund, and

(b) authorize the provision of additional forms of security, to ensure that the plan does not fail and/or that the interests of plan members are better protected in the event that failure does occur. The Superintendent may exercise this power notwithstanding the provisions of plan documents.

D

• Refer to comments for Recommendation 6-1.
• The role and remedies contemplated here are more properly within the jurisdiction of a court supervising a restructuring.
• The discretion contemplated to reduce/increase contributions, suspend (presumably) PBGF premiums and approve alternate forms of funding is far too broad.

Recommendation 6-3 — The Superintendent should have the power to initiate, facilitate and approve arrangements relating to all aspects of multi-employer plans at risk of failure or of significant benefit reduction. The Superintendent may exercise this power notwithstanding the provisions of plan documents. Arrangements submitted to the Superintendent for approval must be agreed to by the plan sponsors and by a union or other organization authorized to represent active plan members and retirees. In the absence of a union or other authorized organization, the arrangements must be approved by a two-thirds majority of active and retired plan members voting by secret ballot.

D

• See comments for Recommendation 6-1 above. The contemplated powers seem somewhat too broad.
• It is not clear what “risk of failure” means.
• In a MEPP, one of the key risks is a drop in the number of hours worked (which affects contributions). It would be important to ensure that the Superintendent has the necessary information and expertise to assess this risk.

Recommendation 6-4 — When a pension plan has been identified as “at risk,” the Superintendent should have power to approve the arrangements identified in Recommendations 6-2 and 6-3, conditional upon the suspension or cancellation of any agreement to improve plan benefits, and/or a prohibition on plan benefit improvements, until funding is restored to a specified level.

D

• See comments for Recommendation 6-1.

Recommendation 6-5 — When a plan fails and is being wound up, payments attributable to benefit improvements initiated up to five years prior to the date of the wind-up should be paid only after all pre-existing benefits are paid in full.

A

• The sponsor should retain an obligation to fund all benefits.

Recommendation 6-6 — The regulator should create an office of compliance to deal with the failure of sponsors to remit contributions and other violations of the Pension Benefits Act that imperil the security of pension plans and impede regulatory oversight of the pension system. That office should also maintain, for its own purposes and for the benefit of interested parties, an on-line register of delinquent sponsors and other offenders, and the measures taken to deal with them.

D

• Presumably, the regulator is and will be “an office of compliance” so it should not be necessary to create a new one.
• It’s hard to see how a public “blacklist” will enhance benefit security or pension administration.
• The regulator already publishes Notices of Proposal and other records of regulatory action taken.

Recommendation 6-7 — The government of Ontario should support recent federal legislation that gives priority to unpaid current pension service costs in the event of bankruptcy. It should also initiate discussions with the federal government concerning the possibility of extending similar priority to all special payments to fund both solvency deficiencies and unfunded liabilities owing to the plan by the sponsor at the time of insolvency.

A

• A pension benefit promise may reasonably be regarded as deferred wages.
• Pension contributions due and payable on the date of insolvency should have the same creditor status as unpaid wages.

Recommendation 6-8 — The Pension Benefits Act should be amended to permit the Superintendent to approve arrangements and changes in arrangements that involve the claims of pension plans under federal bankruptcy legislation.

D

• See comment for Recommendation 6-1. An administrator of a pension plan of an insolvent employer appointed by the Superintendent should have standing in bankruptcy and insolvency court proceedings. The Superintendent should not have powers to review the orders or decisions of a court.

Recommendation 6-9 — Plan assets should be distributed on a pro rata basis. However, benefit improvements introduced within the last five years should be postponed until after other benefits are paid, in accordance with Recommendation 6-5, above.

A

• Distribution of assets in respect of pension benefits should be on a pro rata basis.
• Surplus need not be distributed on this basis. Reference should be made to plan documents.

Recommendation 6-10 — The Ontario government should seek to persuade the federal government to amend its bankruptcy and insolvency legislation to give the pension regulator the right to intervene in proceedings under that legislation to defend the interests of any pension fund and its members. Provincial law should allow the pension regulator to act on behalf of, and to assert all the rights and powers of, the plan administrator in the context of bankruptcy and insolvency proceedings, if the regulator believes such action is warranted.

D

• It is the pension plan administrator who should act on behalf of pension plan members.

Recommendation 6-11 — The regulator should be specifically empowered to replace the administrator of a plan whose sponsor is involved, or is deemed at risk of being involved, in bankruptcy or insolvency proceedings. The Ontario government should ask the federal government to amend the relevant legislation to ensure that the new administrator so appointed can participate in all proceedings on behalf of the plan.

PA

• Where a sponsor who is also an administrator is insolvent, this is appropriate. If the administrator is a separate, unrelated entity, it may not be appropriate.
• How will the regulator determine if a sponsor is “at risk” of insolvency or bankruptcy?

Recommendation 6-12 — The Ontario government should explore with the federal government the amendment of relevant federal legislation so as to ensure that pension plans, beneficiaries and organizations representing them can participate as of right in bankruptcy and insolvency proceedings. It should also explore ways to facilitate the collective participation of pension litigants in such proceedings by means of representation orders or otherwise. And it should amend the Pension Benefits Act so as to enable courts to order pension plans to reimburse beneficiaries and representative organizations for successfully defending the interests of the plan.

PA

• It’s reasonable that members and beneficiaries have standing in bankruptcy and insolvency proceedings, but it must be acknowledged that they often have conflicting interests (e.g. members and retirees)
• Payment of litigants’ costs from the plan will increase the incidence of litigation. Clear rules are needed to establish when litigation has been reasonably undertaken in the interests of plan beneficiaries.

Recommendation 6-13 — The Pension Benefits Guarantee Fund should be continued in its present form, but with the improvements proposed in Recommendations 6-14 to 6-17 for at least five years or until completion of the review proposed in Recommendation 6-18, whichever is later. On the basis of the findings of that review, the government should determine whether to continue, amend, replace or discontinue the PBGF.

D

• A PBGF is not necessary if appropriate funding rules are established and enforced, and particularly if a plan-specific security margin is adopted.
• Consideration should be given to giving pension plan deficits secured creditor claims on insolvency. This would reduce the need for a PBGF.
• The PBGF should be eliminated or the guarantee allowed to erode though the effect of inflation.
• If the PBGF continues, it should operate at arms’ length from government, on a cost-recovery basis using insurance principles and assumptions, and without any possibility of taxpayer subsidies.

Recommendation 6-14 — The Pension Benefits Guarantee Fund should be administered, preferably at arm’s length from the pension regulator, by an agency with a mandate to:

• manage the Fund so as to enhance its capacity to evaluate the individual and collective risks of plans whose performance is guaranteed by the Fund;
• fix levies, subject to the approval of the Minister, in amounts sufficient to meet claims arising from those risks;
• collect such levies and hold and invest them on behalf of the Fund; and
• undertake systemic analysis to assist the regulator in reducing the number and aggregate value of claims on the Fund.

The regulator’s mandate should be extended to include protection of the Pension Benefits Guarantee Fund, and the mandate of the Fund should include specific reference to its obligation to assist the regulator.

N

Recommendation 6-15 — Benefit improvements agreed to within five years prior to the failure of a plan should be ineligible for payment out of the Pension Benefits Guarantee Fund.

A

Recommendation 6-16 — The risk assessment protocol by which levies are established for the Pension Benefits Guarantee Fund should be studied and revised to include not only the funding status of plans but other risk-generating factors such as the asset/liability match within the plan and the sponsor’s financial health.

PA

• Gathering current data on asset/liability mismatch in all pension plans and developing a credible model to determine PBGF levies based on that data could be difficult, but a simplified structure could be adopted.
• Plan sponsors’ “financial health” is difficult for a regulator to evaluate and can change quickly due to market and economic factors, mergers/acquisitions, etc. It will be difficult to measure with sufficient accuracy and sufficiently often.
• Credit ratings could be used as a measure of financial health, but there is probably insufficient rating coverage and ratings may not be updated sufficiently often.

Recommendation 6-17 — The level of monthly pension benefits eligible for protection by the Pension Benefits Guarantee Fund should be increased to a maximum of $2,500 to reflect the effect of inflation on the original maximum of $1,000. The Superintendent (or other agency responsible for the administration of the Pension Benefits Guarantee Fund) should recommend to the Minister of Finance within one year: • the formula by which benefit levels should be determined on a going-forward basis;

• the basis on which the levy paid by sponsors should be calculated;
• procedures for ensuring that both the benefits and the levy are adjusted at regular intervals; and
• any other matter relevant to the implementation of this recommendation.

The recommendations should be accompanied by a statement concerning the anticipated effects of any such adjustment. The Minister should act promptly upon receipt of these recommendations and the accompanying statement.

D

• Increased PBGF levies would be needed to fund the additional guarantee. The cost of continuing and expanding the PBGF will have negative impact on pension coverage and pension income adequacy for Ontarians.
• We do not believe that the PBGF is appropriate in a voluntary pension system.
• Refer to comments for Recommendation 6-13.

Recommendation 6-18 — The Ministry of Finance or some other agency, either alone or in cooperation with other Canadian pension authorities, should initiate a study of possible alternatives to the Pension Benefits Guarantee Fund. Unless and until such an alternative that provides comparable or better protection for active plan members and retirees can be identified, the Pension Benefits Guarantee Fund should continue to exist in the form proposed in Recommendations 6-14 to 6-17.

D

• See comments above.
• The best protection for benefit security is establishment and enforcement of appropriate funding rules, potentially with secured creditor status for all pension liabilities.
• It must be explicitly recognized that benefit security can never be perfect and that there is a trade-off between ensuring benefit security and expanding benefit coverage.
• With appropriate funding rules and proper enforcement, there can be reasonable assurance that promised benefits will be paid with the fewest possible disincentives to expanded coverage.

Recommendation 6-19 — The Pension Benefits Guarantee Fund should be governed by the following principles:

• The Fund should be self-financing.
• It should not receive government grants or subsidies in order to meet its obligations.
• It should be allowed to borrow funds from the government on a commercial basis, for defined purposes and at defined times.
• The terms on which the Fund itself should be deemed insolvent, and the effects of such insolvency, should be clearly set out in the Pension Benefits Act.

N

Regulation

Recommendation 7-1 — So far as possible, substantive rules intended to define the rights and responsibilities of participants in the pension system should be set out in the Pension Benefits Act or rules and regulations made pursuant to it. If feasible as a matter of statutory drafting, the Act should convey the intention of the legislature that the Act should be treated as the exclusive source of pension law.

A

• The role of common-law rules, especially classic trust rules, should be reduced or entirely eliminated.

Recommendation 7-2 — As a medium-term project, the PBA and regulations should be re-drafted so as to clearly articulate both (a) general principles applicable to all types of pension plans, and (b) comprehensive codes applicable to specific plan types.

A

Recommendation 7-3 — Revisions to the Pension Benefits Act should be drafted to provide both rules-based and principles-based approaches, as appropriate. In particular, minimum standards with respect to benefits should generally be rules-based; some aspects of investment, plan governance and innovation are more appropriately regulated by a principles based approach; and funding requirements should likely involve a mixture of the two.

A

Recommendation 7-4 — The government should accept ultimate responsibility for ensuring that all standards governing the conduct of professional and other participants in the pension system are appropriate and in the public interest. The Pension Benefits Act and regulations should make clear provision for the adoption by reference of standards established by professional governing bodies such as the Canadian Institute of Actuaries. In addition, the pension regulator should work closely with professional governing bodies to ensure that the standards they establish, amend and apply to their own members from time to time are consistent with Ontario’s pension law and policy. To the extent that they are not, they should be replaced with more appropriate standards laid down in the Act or by regulation.

D

• Professions such as law, actuarial science and accountancy are already regulated by existing, independent bodies that have a mandate to establish standards and monitor their membership in the public interest. These bodies may consult with the government in developing ethical and professional standards, but it is in the public interest that their decisions remain independent.

Recommendation 7-5 — Legislation should provide standard-form or template plans, particularly for the use of small- and medium-sized enterprises, and the regulator should develop simplified registration and filing requirements for such plans.

A

Recommendation 7-6 — Simplified registration and filing requirements should be adopted for designated or individual pension plans for senior executives. In addition, a protocol should be developed to identify a minimum membership threshold for plans below which the regulator should react to complaints, but not provide its normal level of regulatory oversight.

A

Recommendation 7-7 — The pension regulator should develop filing requirements, processes and review procedures that enable it to better discharge its compliance, risk assessment and data-gathering mandate. It should develop an electronic system for the timely review of filings and for the development of useful interrelated databases and reports.

A

Recommendation 7-8 — The present Notice of Proposal procedures should be repealed. Applications seeking approval for major plan transactions should be dealt with in accordance with Recommendations 5-17 to 5-22. Applications involving routine processing of other matters should be dealt with on the basis of a file review by the Superintendent. Other, more important matters should be dealt with pursuant to the procedures proposed in Recommendation 7-15. The Superintendent should have power to approve, disapprove or issue directives concerning the matter at hand. Decisions of the Superintendent should be subject to appeal to and enforceable by the proposed Pension Tribunal of Ontario.

N

• The regulator should have power to approve all transactions and applications validly made that comply with the PBA, Regulation and administrative policy.
• For major transactions (mergers, splits, conversions, wind ups), it may be appropriate that plan members be notified and have time (e.g. 45 days) to make comments to the regulator. Please refer to comments for Recommendation 5-19.

Recommendation 7-9 — The pension regulator should issue policy statements indicating how it views and intends to process all standard pension transactions. Before doing so, it should give notice of its intention to issue such statements, and provide stakeholders with an opportunity to submit comments. After doing so, while not bound by such statements, the regulator should depart from them only for good reason and, preferably, by way of an amending statement rather than in the context of a particular proceeding.

A

Recommendation 7-10 — The pension regulator should have power to provide opinion letters and advance rulings in connection with proposed or pending transactions. The regulator should feel free to disregard such letters or rulings in subsequent proceedings if the applicant has not made full disclosure of relevant facts; if they adversely affect other parties who have not had a prior opportunity to be heard; or if they contravene legal rules or regulatory policies that were not in force when the letter or ruling was issued.

A

• CRA has a workable advance rulings service. The Ontario government should leverage this experience in establishing an advance rulings service for pension regulation.

Recommendation 7-11 — The regulator should:

• develop a program of proactive monitoring, auditing, inspections and investigations directed especially at plans whose profiles, sponsors’ profiles or sectoral location suggest that they may be at risk of failure or of significant under-funding;
• expand and update its existing systems for monitoring risks, ensure that these systems are designed and administered by expert staff, and supplement them with other strategies for detecting plans at risk; and
• be empowered to undertake remedial measures based on the results of its proactive monitoring.

A

• Risk-based auditing is effective only to the extent that the selection criteria are appropriate, i.e. that appropriate measures are used to evaluate risk.
• There needs to be an appropriate balance between theoretical perfection and simplicity in developing risk-based selection criteria. The current criteria seem to err on the side of simplicity.

Recommendation 7-12 — The regulator should develop a set of internal controls to better understand the provenance, track the processing and evaluate the outcome of inquiries and complaints; use the results of this process to improve its performance; and communicate those results to stakeholders.

A

Recommendation 7-13 — The regulator should appoint a Complaints Officer with a mandate and supporting staff to assist complainants and persons making inquiries to secure the information they seek and the recourse to which they are entitled; to ensure the timely and responsive processing of inquiries and complaints; and to advocate on behalf of complainants within the regulatory process, where appropriate.

A

Recommendation 7-14 — The Pension Benefits Act should clearly establish the right of unions and other representative organizations to participate in regulatory proceedings on behalf of individuals whom they represent, and of individuals to represent themselves. The Pension Tribunal of Ontario should be given discretion to order the sponsor or the plan to reimburse all legal and other costs necessarily incurred in the course of such participation in appropriate cases when claims or complaints are meritorious.

PA

• Our agreement with this recommendation is based on the understanding that “meritorious” means “successful”.
• We do not support payment of costs by a plan sponsor or a pension plan fund in any situation where a plan participant is unsuccessful in a claim.
• The principle that losing litigants pay costs is well-established and can reasonably be extended to pension disputes.
• Members and their representatives should have standing in proceedings related to a plan that affect their rights or benefits.

Recommendation 7-15 — The Pension Benefits Act should grant the Superintendent power to:

• hold hearings, require the production of documents and the giving of testimony, receive and rely on valuations and reports submitted in the regular course of his or her oversight functions, and order the preparation of and rely upon special valuations and reports;
• make interim orders with effect for not more than 30 days — unless extended by the proposed Pension Tribunal of Ontario — on the basis of written documents, valuations, reports and submissions, where necessary to preserve the assets of a pension plan; and
• make any final order necessary to secure compliance with the Act or with regulations and rules made pursuant to the Act.

The Superintendent should provide all affected parties with as full a right to be heard as is feasible given the urgency of the situation. Orders of the Superintendent should be enforceable by the Pension Tribunal of Ontario. All decisions and orders of the Superintendent should be subject to appeal to the Tribunal.

A

Recommendation 7-16 — The regulator should improve its internal and external data collection and reporting activities and implement a program of rigorous self-evaluation that will contribute to the identification of possible improvements in its regulatory functions. It should make the results of this self-evaluation publicly available. The regulator should be given the human and material resources necessary to pursue this approach.

A

• The regulator should also operate on a cost-recovery basis and should be explicitly accountable for its budget and spending.
• The regulator should be subject to periodic external audit and review.

Recommendation 7-17 — The Pension Benefits Act should include a “purpose clause” that will provide guidance to its interpretation and implementation. That clause should include reference to the need to maintain a balance among stakeholder interests, to keep pensions both secure and affordable, to both protect and promote the pension system, and to encourage innovation within the system.

PA

• The “purpose clause” should include a statement of principle that pension regulation should facilitate expanded pension coverage.

Recommendation 7-18 — An independent pension regulator — the Ontario Pension Regulator — should be established with budgetary, staffing and other powers of self management comparable to those of the Ontario Securities Commission.

A

• See comment for Recommendation 7-16.

Recommendation 7-19 — The Ontario Pension Regulator should comprise five commissioners — the Superintendent of Pensions and four independent, part-time commissioners with extensive experience in pensions regulation or policy. The commissioners should act as a board of directors with general power to:

• oversee and direct the functions of the Ontario Pension Regulator;
• approve its budget and administration;
• approve policies and issue policy statements relating to regulatory approaches;
• adopt procedural rules; and
• report annually to the Minister of Finance concerning the operations of the Regulator.

The commissioners should not perform operational regulatory functions involving individual plans.

PA

While we support a pension-specific focus for the regulator, we are concerned about the significant potential for increased costs.

Recommendation 7-20 — The Ontario Pension Regulator and the Superintendent of Pensions should exercise all pension-related functions now exercised by the Financial Services Commission of Ontario and the Superintendent of Financial Services, respectively, together with the additional functions recommended in this report.

PA

• See comment for Recommendation 7-19.

Recommendation 7-21 — The new Ontario Pension Regulator should assist in the development of pension policy by collecting data, contributing its experienced-based insights into the operation of the regulatory system and refining and reflecting on the exercise of its statutory powers. However, it should not be assigned primary responsibility for overall pension policy development.

A

• The regulator should be able to make non-binding policy recommendations.

Recommendation 7-22 — The Ontario Pension Regulator should have greater control over its budget and hiring practices so that it can recruit, train and retain the professional and expert staff it needs to discharge its enhanced regulatory functions. With the approval of the Lieutenant Governor in Council, the Regulator should be able to fix levies on plans according to plan size or type, to charge user fees for particular regulatory transactions and to retain for its own purposes administrative fines levied by the new Pension Tribunal of Ontario.

A

• The regulator should be accountable for its budget and spending and should operate on a cost-recovery basis.

Recommendation 7-23 — The Ministry of Finance should supplement the budget of the Ontario Pension Regulator to enable it to perform functions such as data collection and analysis, which support policy-making and other non-regulatory functions.

A

• Spending by the regulator on non-regulatory functions should be accounted for separately.

Recommendation 7-24 — The pension regulator should facilitate the introduction of a program of enhanced risk-based regulation by consulting closely with stakeholder groups concerning the collection and analysis of standard data on which risk assessment can be based, and it should subject its own risk-assessment systems to rigorous self-evaluation and to critical comment by stakeholders.

A

• The regulator should consider adopting and implementing continuous-improvement processes.

Recommendation 7-25 — The new Ontario Pension Regulator should have power to make rules in order to define and lend greater specificity and clarity to its governing statute and regulations. It should exercise this power only after giving stakeholders notice of, and an opportunity to comment on, proposed rules. Rules adopted pursuant to the use of this power should have the force of law so long as they are made in accordance with the statute and regulations and do not purport to contradict or derogate from them.

A

Recommendation 7-26 — The pension jurisdiction of the Financial Services Tribunal should be transferred to a new Pension Tribunal of Ontario. The Tribunal should have power to hear and decide specified matters at first instance, and to hear and decide all appeals from orders made by the Superintendent.

A

Recommendation 7-27 — The Pension Tribunal of Ontario should comprise a Chair who is a jurist of stature, two members with a background in law (or equivalent), and two members with a background in actuarial science (or equivalent). Appointments to the Tribunal should be recommended by a bipartisan nominating committee with a view to ensuring that the Tribunal enjoys the confidence of both sponsor-side and member-side stakeholders and is perceived to be balanced and neutral. The Chair and members of the Tribunal should be allowed to serve part-time, but not to hold concurrent employment that might involve, or be seen to involve, them in a conflict of interest. All members of the Tribunal should possess expertise in pensions or some closely related field.

A

• We support a pension-specific tribunal. Cost constraints may be better met if this is established within the current FSCO structure.

Recommendation 7-28 — The Chair of the Pension Tribunal of Ontario should be allowed to sit alone to hear and decide cases relating to specific provisions, such as the enforcement of orders made by the Superintendent. In more complex matters that may require specialized actuarial or legal knowledge, the Chair may designate the two members with backgrounds in those fields to serve on a hearing panel. If in the opinion of the Chair both types of knowledge are required, all four members may be designated to serve.

A

Recommendation 7-29 — The Pension Tribunal of Ontario ought to have all powers necessary to dispose of matters before it.

A

Recommendation 7-30 — The Pension Tribunal of Ontario should exercise exclusive and ultimate jurisdiction over all matters arising out of or incidental to the interpretation of the Pension Benefits Act. Decisions of the Tribunal should be final and binding, subject to appeal to the Divisional Court only if they involve a denial of natural justice, a misinterpretation of the applicable law so serious as to amount to jurisdictional error, or a violation of the constitutional rights of a party.

A

Recommendation 7-31 — The Tribunal should have plenary power, upon enforcing or hearing an appeal from any order made by the Superintendent, to make any order required to secure compliance with the Pension Benefits Act, including but without limiting its general power, the power to:

• require the doing of any act required by the statute and the cessation of any act forbidden by it;
• order the payment of contributions, benefits or premiums wrongly withheld, together with interest thereon;
• require the disclosure of information and the provision of documents to the regulator, active and retired plan members, unions and representative organizations and others entitled to such information or documents; and
• impose administrative fines for non-compliance with the Pension Benefits Act.

A

• In bankruptcy and insolvency situations, potential for conflict arises between the Tribunal’s powers and the powers of an insolvency court or trustee in bankruptcy.
• The orders of an insolvency court should take precedence over any orders made by the Tribunal.

Governance

Recommendation 8-1 — The regulator should establish benchmarks or performance indicators covering the broadest possible range of governance issues, including funding, benefits, expense ratios, administrative costs and service to members and retirees. Plan administrators should provide, and the regulator should collect and analyse, data relevant to these indicators. The results of this exercise should be made publicly available so that sponsors, administrators and beneficiaries can evaluate the performance of their plans as against the performance of specific comparator groups and of the whole system.

PA

• Statutory governance standards should be established, and the regulator should periodically review compliance with those standards. The regulator should not have discretion to establish or change governance benchmarks at will.
• The proposed data collection and evaluation activities would likely involve significant cost for the regulator and for plan sponsors.

Recommendation 8-2 — Unions should be encouraged to negotiate both the major substantive elements of pension plans arising out of collective agreements and the governing structures of such plans. The regulator should accord plans with joint governing structures a greater margin of regulatory discretion than would be available to plans lacking such structures.

D

• Unions have a role in negotiating pension benefits and can play a role in joint governance, but they do not necessarily represent the interests of retirees.
• Experience does not suggest that plans with joint governance are necessarily better governed. All plans should be subject to the same regulatory requirements.

Recommendation 8-3 — Unions that seek and accept a role in plan governance should be encouraged to ensure that both active and retired members have a voice in decisions that affect them. Unions should also develop the technical and analytical capacities necessary to support effective member participation in plan governance.

A

Recommendation 8-4 — Multi-employer and jointly sponsored pension plans should develop governance policies that ensure participation of representatives of both active and retired members in their governance, establish the means of selection of those representatives, fix their remuneration and lay down rules governing their conduct in office.

A

Recommendation 8-5 — Multi-employer and jointly sponsored pension plans should provide annual statements to all active, deferred and retired plan members, which include:

• a statement of the plan’s current funded status;
• a reminder that benefits provided under the plan are not defined or guaranteed but subject to reduction while the plan is ongoing (in the case of multi-employer plans) or on wind-up (in the case of jointly sponsored plans);
• disclosure of any known events likely to lead to a reduction in benefits; and
• an indication of any procedure or formula specified by law or in the plan documents by which benefit reduction may be determined.

A

• Disclosure should be consistent with plain-language standards.

Recommendation 8-6 — Multi-employer and jointly sponsored plans should develop and abide by investment rules that prevent self-dealing either by the union that has negotiated them or by plan trustees.

A

Recommendation 8-7 — All policies, statements or reminders required by current law or provided by multi-employer and jointly sponsored plans pursuant to these recommendations should be communicated to plan members and beneficiaries and filed with the regulator. The regulator should have the power to sanction violations of both statutory requirements and plan policies.

A

Recommendation 8-8 — Any plan with some recognized form of joint governance and with the requisite capacity to make complex investment decisions (as defined by regulations) should be allowed to adopt a resolution claiming an exemption from the 30% investment rule. The resolution should be filed with the pension regulator and have effect upon filing, unless and until it is successfully challenged.

PA

• Joint governance should not be a pre-condition to exemption from the 30% investment rule.
• The prudent investor standard should apply to investment decisions.
• We question whether it is practical to define criteria for determining whether an administrator has the requisite capacity to make complex investment decisions.

Recommendation 8-9 — Plan sponsors who administer their own plan should be encouraged to reduce or eliminate inherent conflicts of interest by:

• ensuring, so far as possible, that those assigned to the role are given an unequivocal mandate to act in the best interests of the plan;
• providing representation for members and/or retirees and/or independent members on the plan’s highest decision-making body; or
• retaining arm’s-length professional advisors to administer the plan on their behalf.

D

• This recommendation implies that employer-administered plan governance has suffered due to conflicts of interest. The report cites little if any evidence of this.
• Statutory governance rules should require (and generally do require) that those charged with plan administration act as fiduciaries.
• Members/retirees do not always want to have any involvement in plan governance.
• Plan sponsors should not be forced to increase their costs by outsourcing administrative tasks that can be effectively discharged in-house.

Recommendation 8-10 — Plans that appoint active or retired members to serve on their governing bodies should be encouraged to resolve potential conflicts of interest in advance by:

• adopting clear policy statements in the plan documents;
• ensuring the significant representation on those bodies of groups with divergent interests; or
• appointing some trustees or governors unaffiliated with any group whose members are covered by the plan.

N

Recommendation 8-11 — The Pension Champion, proposed in Recommendation 10-5, should work with stakeholders to identify approaches to the resolution of conflicts of interest appropriate to their particular circumstances.

N

Recommendation 8-12 — The pension regulator and/or the proposed Pension Champion should initiate consultations with stakeholders and with representatives of the relevant professional governing bodies in order to ensure that their members provide services in the pension context in a manner consistent with the good governance and proper regulation of pension plans. These consultations should focus on rules governing the conduct of professionals in pension practice, and on the redesign of regulatory and governance structures and processes — in both cases, with a view to ensuring the honest and transparent administration of pension plans.

N

Recommendation 8-13 — The pension regulator and/or the proposed Pension Champion should initiate consultations with stakeholders and with representatives of the relevant professional governing bodies in order to clarify:

• which participants in the governance of pension plans are bound by fiduciary duties;
• the scope of such duties;
• whether such duties can be assigned to professional advisors and agents;
• whether advisors and agents are themselves bound by the same duties; and
• whether fiduciaries, their advisors and agents can enter into exculpatory contracts and indemnification agreements in order to limit their liability to the client or third persons.

N

• The Ontario government should leverage work of CAPSA in this area.

Recommendation 8-14 — Following such consultations, the pension regulator should draw up codes of best practice for the guidance of all participants in the governance process. The regulator should urge the governing bodies of professions whose members are involved in the pension field to:

• adapt this code to the particular circumstances confronted by their members;
• implement the code, as adapted, through revision of their own professional standards, if required; and
• educate — and if necessary, discipline — their members in order to ensure compliance with the new standards.

N

Recommendation 8-15 — All persons responsible for providing valuations, reports or other documents that are filed with the regulator, or provided to active and retired plan members, should be required to certify that all such documents have been prepared in accordance with the law and with relevant professional standards.

D

• What would this apply to? Plan documents? Amendments? Valuation reports?
• Currently, professional advisors of various kinds have a professional obligation to deliver work product that is legally and professionally compliant. As a result, this certification requirement seems unnecessary.
• Not all service providers are in a position to certify that a document complies with law. This is particularly true with respect to plan documents, which often are not prepared by legal advisors.

Recommendation 8-16 — An early task for the proposed Pension Champion should be to consult with pension stakeholders, relevant professional bodies, educational institutions and the pension regulator with a view to determining what lay and professional participants in plan governance ought to know about pension plans and the pension system, how they might best acquire such knowledge, and to what extent its acquisition should be a necessary qualification for service as a trustee or administrator of, or advisor or service provider to, a pension plan.

D

• See comments under Recommendation 10-5.

Recommendation 8-17 — Following the consultations outlined in Recommendation 8-16, the Pension Champion ought to develop standards for educational programs for all participants in pension governance. The Pension Champion ought also to determine how educational programs should be provided and at whose expense, and whether acquisition of appropriate educational qualifications should be mandatory and, if so, for the performance of what functions.

D

• See comments under Recommendation 10-5.

Recommendation 8-18 — The regulator should develop codes of best practice to guide plan governors, administrators and their agents. These codes of best practice should be based on the experience of successful plans, disseminated across the pension system and used to give meaning to the general statutory requirements for “prudence,” “care,” “diligence” and “skill.”

A

• The regulator should leverage work done by CAPSA on governance.

Recommendation 8-19 — The regulator should make available on-line to active and retired plan members and their authorized representatives — without charge but subject to security arrangements — all plan documents as well as triennial, annual or other valuations and reports required to be filed with the regulator.

D

• This could involve significant costs. Most members aren’t interested in seeing plan documents and if they are they can ask the administrator or the regulator. There is little to be gained by incurring substantial cost to make documents broadly and electronically available.
• The regulator should make documents available in electronic form only if it makes sense from an operational perspective.

Recommendation 8-20 — The regulator should develop guidelines and codes of best practice with regard to the provision of plan information to active and retired members in accessible form.

A

Recommendation 8-21 — Plan administrators should provide an annual information statement to active and retired plan members in easily understood language or languages. The statement should include:

• a simple description of how pensions are funded and benefits are calculated under the plan;
• information on the plan’s funded status (including whether it is in surplus or deficit and whether a contribution holiday is in progress or contemplated);
• the potential impact of its funded status on active and retired members’ pensions; and
• a telephone number and/or website address where further information can be obtained from the administrator or the sponsor, and similar coordinates for the pension regulator.

A

Recommendation 8-22 — Plan board members, governors or trustees should prepare, file with the regulator and make available to active and retired members at three-year intervals (or more often, if material changes have occurred) the plan’s detailed governance, funding and investment policies. Particulars of the matters to be addressed by these policies should be developed by the pension regulator in consultation with the stakeholders. Template policy statements should be developed for the assistance of smaller plans.

PA

• Standards for governance, funding and investment policies should be prescribed in legislation or regulation and compliance should be periodically monitored in the normal course. There should be no requirement to file policies that the regulator is unlikely to review. To the extent that a risk-based approach to pension regulation is adopted (as the OECP recommends), it would be unnecessary to file these policies given that the regulator could require they be made available in the course of a risk-based review of a pension plan. If members want to review the policies, they could be made available by the plan administrator, as Ontario’s current rules require.
• Template policy statements would be helpful.

Recommendation 8-23 — Plan statements of investment policy should reveal whether, and if so, how, socially responsible investment practices are reflected in the plan’s approach to investment decisions.

A

Recommendation 8-24 — Except as provided in Recommendation 8-26, every pension plan should be required to establish a pension advisory committee (PAC). A PAC should comprise at least five members, including one representative selected by retired members and one by each class or group of active members.

D

• PACs should be permitted, but not required.
• Where there is a risk sharing arrangement, a joint governance model would make a PAC unnecessary.
• Pension committees have not proven to be successful in Quebec.

Recommendation 8-25 — The PAC should:

• be provided with effective means of communicating with all plan members, including retired members;
• have access to all information distributed to plan members or filed with the regulator;
• receive notice of all amendments, applications, proceedings or transactions involving the plan; and
• be informed of all votes or consultations designed to solicit the views of plan members.

D

• The suggested requirements will be costly, and should apply only if a PAC is established
• PACs should be optional.
• Section 24 of the PBA currently allows a PAC to be established by vote of a simple majority of members. The fact that many plans don’t have a PAC suggests that members do not want them, or that they are not aware of their right to establish one.
• To ensure that members are aware of their right to establish a PAC, one approach may be to require that annual statements remind members of this right.

Recommendation 8-26 — No PAC need be formed when

(a) a plan provides for the participation of active and retired member representatives on its governing body,

(b) a collective agreement provides for a joint sponsor–member–retiree advisory committee, or

(c) a majority of active and retired members vote in a secret ballot not to establish a PAC.

D

• See comments for Recommendation 8-25.

Recommendation 8-27 — The sponsor of a single-employer pension plan may enter into an agreement with a trade union, or other union-like organization that represents plan members, to establish a jointly governed target benefit pension plan. Such plans should

(a) be governed by a board of trustees or comparable body on which representatives of plan members and retirees should comprise not less than one-half of its members,

(b) offer target benefits, and

(c) be funded on the same going concern basis as multi-employer and jointly sponsored plans.

D

• A target-benefit plan can be effectively managed without joint governance, so joint governance should not be a pre-condition to establishing a target-benefit plan or indeed, any plan.
• The existence of a union or union-like organization should not be a prerequisite for establishment of a target benefit plan.
• Reform must accommodate continuation and viability of traditional employer-governed, single-employer, DB pension plans.

Recommendation 8-28 — The Pension Benefits Act should be amended to describe pensioners as “retired” rather than “former” plan members.

N

Recommendation 8-29 — Retired and deferred plan members should be assured effective access to all plan information available to active plan members.

A

Recommendation 8-30 — Retired plan members should be eligible to participate in any plan governance process in which active plan members are eligible to participate. The extent of their representation and participation in governance should be determined by the governing body of each plan, but must be sufficient to ensure that their voice is heard and their interests protected.

A

Innovation in Plan Design

Recommendation 9-1 — Innovation in plan designs should be promoted and facilitated by the proposed Pension Champion (see Recommendation 10-5).

D

• See comments under Recommendation 10-5.

Recommendation 9-2 — Pension policy and legislation ought to facilitate the growth and operation of large-scale pension plans or to enable and encourage cooperation among small- and medium-sized plans.

A

Recommendation 9-3 — Legislation and regulations should be enacted to enable and promote large commingled target benefit plans that might provide affordable pension coverage to Ontarians who do not presently have pensions or for whom the costs of obtaining a pension are unnecessarily high.

A

• Commingling should not be limited to target benefit plans. Asset pooling without risk pooling could lower investment-management costs for many plans and improve access to high-quality asset management services.

Recommendation 9-4 — The government of Ontario should investigate the advantages and disadvantages of expanding the mandate of the Canada Pension Plan, or creating a comparable provincial plan, so as to enhance pension coverage, control costs and improve benefit portability.

N

Recommendation 9-5 — The government of Ontario should support the call for a national pension summit whose agenda should extend to all ideas for significantly expanding pension coverage, including the innovative proposals contained in this report.

A

The Future of Defined Benefit Pensions and Pension Policy in Ontario

Recommendation 10-1 — The government should:

• considerably improve the collection of data concerning all aspects of the pension system;
• regularly produce analyses of pension coverage, the funding status of pension plans, the contribution of pension plans to capital and labour markets, the performance of the pension regulator and other indicators of how Ontario’s pension system is working;
• use such analyses to support periodic and ongoing review of pension policy and the regulation of the pension system; and
• make pension data and analysis readily available to stakeholder, professional and academic users.

A

• There exist serious deficiencies in data collection regarding pension plan membership, pension plan coverage, retirement-savings behaviour and retirement savings accumulations of Ontario residents.
• Lack of adequate statistical information about pension coverage and retirement savings sufficiency continues to be a serious impediment to developing pension policy and legislation targeted toward improving retirement income adequacy for Ontario workers.
• Cooperation with federal government entities – particularly the Canada Revenue Agency and Statistics Canada – could substantially improve the collection and analysis of pension-related data.

Recommendation 10-2 — A Pension Community Advisory Council should be formed comprising representatives of all significant stakeholder groups together with other interested parties such as professionals, service providers, academic researchers and business and social advocacy groups. It should be provided with access to data and interpretative studies on Ontario’s pension system, invited to advise on significant policy initiatives, and used as a forum to promote an informed and ongoing exchange of views on pension issues.

D

• These roles currently exist with the FSCO advisory bodies. These bodies should be utilized for input on both pension supervision (as currently used) and pension policy.

Recommendation 10-3 — The Pension Benefits Act and regulations should be drafted in such a way that changes can be made with all deliberate speed to facilitate the introduction of new types of pension plans, to enable rapid regulatory responses to significant changes in the social and economic environment, and to safeguard the interests of sponsors and plan members. Significant changes in pension law should be accomplished through regulation-making. Except in emergencies, the process of regulation-making should provide for timely notice to and comment by stakeholders and other interested parties, and for advice by the proposed Pension Community Advisory Council.

A

Recommendation 10-4 — Ontario’s pension policy, legislation and performance should be comprehensively reviewed every eight years.

A

Recommendation 10-5 — Ontario should identify an agency or unit of government as its Pension Champion with responsibility for conducting research into the pension system, for working closely with the stakeholders and the proposed Pension Community Advisory Council, for promoting and facilitating innovation in the pension system and for leading policy development efforts in the pension field.

D

• We question the creation of yet another body with its concomitant costs.
• Research can be conducted directly by the government or by the regulator and paid for by the government.
• Policy development can continue to be led by the Minister of Finance.
• See comments on Recommendation 10-2 regarding stakeholder input.

Recommendation 10-6 — The new Pension Champion should be provided with highly qualified and sufficient staff and resources adequate to undertake its assigned functions.

D

• See comment on Recommendation 10-5.

Recommendation 10-7 — The Minister of Finance for Ontario should promote and support a meeting, at the earliest feasible date, of provincial and federal ministers responsible for pension issues with a view to discussing:

• the possible implications of further divergence in provincial pension policies, legislation and regulatory arrangements if, as and when the recommendations in this report, and in the reports of other provincial pension commissions, come forward for consideration, enactment and implementation by the governments involved;
• the need for the provinces to act collectively in order to secure changes in federal legislation, particularly the raising of pension contribution limits under the Income Tax Act and the more favourable treatment of pension plans and members under federal bankruptcy and insolvency legislation; and the potential for some greater standardization of procedural and technical requirements in provincial pension legislation, in light of recommendations contained in the reports of the three current pension commissions and an anticipated report from the Canadian Association of Pension Supervisory Authorities.

A

• A move toward uniform regulatory standards and better pension tax rules is long overdue.

Recommendation 10-8 — The government should maintain momentum in pension reform by moving as rapidly as possible to determine whether or to what extent it wishes to implement the recommendations in this report. Having established its basic direction, the government should then identify issues for priority treatment. An early priority for the government should be to put in place appropriate agencies and officials who can carry forward the ongoing work of reform.

A

• Please refer to our letter for a discussion of our priority recommendations.

Recommendation 10-9 — The government should identify recommendations that will require phased implementation as well as transitional measures to allow stakeholders to bring themselves into compliance with the new regulatory regime over some reasonable period of time. However, it should be vigilant to ensure that arguments favouring phased implementation and transitional measures are not used to obstruct reforms that the government believes to be necessary and appropriate.

A