Ontario initiates pension surplus reform

Interested parties are invited to respond to consultation paper

Jim Flaherty, Ontario minister of finance, has announced that the province will consult with interested parties to ensure that pension surplus sharing arrangements “find a balance between employers and employees.”

The province has taken the first step in the process by releasing a consultation paper, Surplus Distribution from Defined Benefit Pension Plans. The paper is available from the Ontario Government Bookstore or the Ministry of Finance web site at www.gov.on.ca/FIN.

In the consultation paper, the government makes suggestions for reform. Interested parties are invited to make submissions to the ministry by Sept. 14.

The paper identifies the goals of surplus reform as follows:

•fairly balance the interests of employer sponsors, plan members and former members in surplus and the withdrawal process;

•facilitate surplus distribution while safeguarding the security of pension benefits;

•avoid lengthy, expensive “win/lose” litigation regarding surplus entitlement;

•provide more certainty in the surplus distribution process and outcomes for employer sponsors, plan members and former members;

•resolve inconsistencies and problems between the Pension Benefits Act (the PBA) and Regulation 909 (the surplus regulation), and between the PBA and court decisions;

•encourage the creation and maintenance of defined benefit employment pension plans; and,

•facilitate negotiations between employers and employees.

To accomplish these goals, the government has suggested the following reforms:

Full plan wind up

•An employer would be allowed to apply to the superintendent of financial services to withdraw surplus if it is able to secure the requisite level of consent of plan members and former members, even if the pension plan does not expressly entitle the employer to surplus.

•If the pension plan clearly entitles the employer to the surplus, the employer would be able to withdraw it with the superintendent’s approval, even without the consent of members and former members.

•In either case, the employer would be required to notify plan members and former members of its intention to withdraw surplus.

Partial plan wind up

•An employer would be permitted (but not required) to withdraw a share of surplus in proportion to the actuarial liabilities associated with the affected members on partial wind up, if it is able to secure the requisite consent of the affected members, even if the plan does not specifically entitle the employer to surplus.

•A surplus distribution on partial wind up would extinguish the rights of the affected members to participate in any future surplus distribution. In cases where surplus is not distributed on partial wind up, affected members would retain the right to consent to a future surplus distribution.

Surplus withdrawals from continuing plans

•Employers would be able to withdraw surplus in the same manner as permitted from plans on wind up, except that the employer would be required to leave a specified contingency reserve in the pension plan.

•Restrictions in the surplus regulation on the types of benefits which must be provided on the withdrawal of surplus would be removed.

Contribution holidays

•Contribution holidays would be permitted if the plan has a surplus, unless the plan expressly states otherwise.

Consent for withdrawals

•The collective bargaining agent would have to consent to all surplus withdrawals. If there were no collective bargaining agent, two-thirds of plan members would be required to consent.

•The consent of former plan members and others (i.e., spouses or dependants) entitled to payments from the pension fund would be required in such levels as the superintendent considers appropriate.

Dispute resolution

•An employer would be allowed to bring a surplus distribution matter to arbitration when the level of consent to a surplus sharing agreement is less than the level of consent required for an agreement but greater than 50 per cent of those members and former members who voted.

Mandatory surplus distribution on full wind up

•If surplus remains undistributed in a pension plan after a prescribed period of time following full wind up, the superintendent would be able to issue an order for the final settlement of all remaining plan assets.

Surplus attribution to employer/member contributions

•All references to the concept of surplus attribution to particular contributions in the PBA and the surplus regulation would be removed.

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