: Solvency Funding Review

In recent years, low long-term interest rates have placed funding pressures on pension plan sponsors of single-employer defined benefit pension plans. Recognizing this situation, the government has initiated a review of the current solvency funding framework, with a view to developing a balanced set of solvency funding reforms that would focus on plan sustainability, affordability and benefit security, and take into account the interests of pension stakeholders – including sponsors, unions, members and retirees.

In the 2016 Ontario Budget, the government announced the appointment of David Marshall, former president and CEO of the WSIB, to lead the solvency funding review. 

A New Funding Framework for Defined Benefit Pension Plans in Ontario

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

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

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

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

This new funding regime will help keep defined benefit pension plans healthy and sustainable. Employers will continue to be required to ensure pension funds are appropriately funded and will need to pay into a reserve to protect benefits for their workers and retirees. Employers will have greater flexibility in managing their pension contributions, allowing them to budget for their pension costs more easily. There will be no impact on the pensions that retirees now receive as a result of these changes.

Further Details

Strengthening and Modernizing Workplace Pensions

Consultation Process

Stakeholder Reference Group

As announced in the 2016 Ontario Budget, a stakeholder reference group (SRG) was established to ensure that any reforms to the existing solvency funding framework are informed by a broad range of stakeholder opinions. Consistent with this goal, SRG members represent a diverse set of views.

Membership (affiliations for identification purposes only):
Simon Archer, Associate, Koskie Minsky LLP
Elizabeth Brown, Partner, Hicks Morley LLP
Louis Erlichman, former Research Director, International Association of Machinists and Aerospace Workers
Robert Farmer, President, Canadian Federation of Pensioners
Caroline Hughes, VP Government Relations, Ford Canada
Allan Shapira, Partner, Aon Hewitt
Winston Woo, Director, Tax, Pension & Government Programs, AGS Automotive Systems
Corey Vermey, Director, Pensions & Benefits Department, Unifor

On-going Consultations

In addition, roundtable discussions have been held with representatives of:

  • Employers;
  • Labour;
  • Retirees;
  • Broader public sector employers; and
  • Public sector JSPP administrators.

Consultation Paper

The 2016 Ontario Budget made a commitment to release a consultation paper outlining possible reform measures.

The consultation paper was released on July 26, 2016. The consultation period ended September 30, 2016.

Timelines and Transition

The government intends to introduce legislation in the fall to enable these changes and will be consulting on the details of new regulations.
Measures to support transition to the new framework will be implemented in the coming weeks.  These measures will allow plans to elect to defer the start of new solvency special payments for one year beyond the date on which they are normally required to start.

  • The transition measures will be available for reports dated on or after December 31, 2016 and before December 31, 2017.
  • They ensure that employers will not have their contributions increased because of solvency funding requirements for a report dated in that time frame.