Apr 26, 2012

Ontario starts consultations on jointly sponsored pension plans

Government looking to make them more sustainable

Ontario is starting consultations on a new legislative framework for jointly sponsored public sector pension plans. As announced in the 2012 budget, the government is proposing reforms to the framework that governs public sector pension plans to make them more sustainable for members and more affordable for taxpayers.

The proposed framework will include the following:
•In case of a new funding deficit, plans would be required to reduce future benefits or ancillary benefits before increasing employer contributions.
•In exceptional circumstances, a limit would be set on the amount or value of benefit reductions before contribution increases could be considered.
•Where employee contributions are currently less than employer contributions, increased employee contributions would be available as a tool to reduce pension deficits.
•Where plan sponsors cannot agree on benefit reductions through negotiation, a new, third-party dispute-resolution process would be used.

Any benefit reductions would involve future benefits only, not those that have already been accrued. Current retirees would not be affected. A review of the new framework will be conducted after Ontario's budget is balanced.

Most of Ontario's largest public sector pension plans are jointly sponsored, said the government. In a jointly sponsored pension plan, decisions on benefit levels and contributions are shared between an employer and employees. While the model works well, the cost of providing these benefits has increased significantly and is projected to continue to rise so the government is committed to reducing the growth in the cost of providing these benefits, it said.

The government will also consider a variety of tools to enhance the sustainability of single-employer, defined benefit pension plans in the public sector.

It intends to introduce a legislative framework in the fall of 2012 that would pool investment management functions of smaller broader public sector pension plans to help put them on more secure footing.

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