Ontario proposes pension changes

In mid-December last year, the Ontario government introduced legislation to update the Pension Benefits Act. The proposals are the first of what the government says are two sets of legislation, tabled as a follow up to the 2008 report of the Expert Commission on Pensions.

The changes, although they cover a number of issues, will have a limited impact on our Plan. It would seem that the second set of proposals, scheduled for later in 2010, will address broader issues, such as funding, and will be of more interest to jointly sponsored plans such as ours.

The government stated that the proposals will strengthen and modernize the pension system, while clarifying benefit entitlements for plan members and balancing with this the need for benefit security. We will not know the details of the changes, and which ones apply to our type of plan, until detailed regulations are issued sometime later this year.

Here's a summary of the major proposals:

Immediate vesting - People joining a defined benefit plan such as ours currently have to wait for two years of membership to become "vested", that is, to be eligible for a pension benefit. (Before the two years have passed, members are entitled to a refund of contributions plus interest if they leave the Plan before reaching retirement age.) The proposal is to eliminate the two-year period, so that all members would immediately be eligible for a pension benefit. This would affect a few members in our Plan. We had 119 members who terminated employment before being vested in 2009.

Small benefit increase - Plan members who leave with a "small benefit" - an entitlement that falls below a defined percentage of the earnings that qualify under the Canada Pension Plan - can take the whole value of the benefit away with them in a lump sum, rather than collecting a very small monthly pension. The proposal is to increase the small benefit amount that qualifies for this option. This would affect very few members in our Plan. We had 37 members with a small benefit payout in 2009.

Access to information - New rules would provide a right for retired members to form pension advisory committees, and require plan administrators to help such committees by providing names and addresses of plan members, and other assistance. This proposal will likely have limited impact on pension plans that have joint governance, as our Plan does.

It is proposed that all members should have increased access to information about their plan and its funding. Such information could be mailed to retired members, or sent electronically.

Plans are currently required to advise members about changes to the plan's rules only when the changes are "adverse" - certain or likely to result in reduced future benefits. It is proposed that all future changes be subject to this disclosure rule.

Plans are currently required to disclose some basic information about funding on the annual statements that members receive. It is proposed that additional information requirements be spelled out.

This would have little impact on the CAAT Plan and its members, as the Plan already provides most of the information covered in these proposals.

Eliminating partial windups - current law requires the sponsor of a pension plan to conduct a "partial windup" if a significant number of members lose their jobs. A partial windup valuation must be done to determine the state of plan funding at the time, and if there is surplus in the fund, a part of it must be distributed to the departing members. The government is proposing to eliminate this provision, effective in 2012. This is unlikely to have any impact on our Plan, given our structure.

Extending grow-in benefits - this is connected to the partial windup change. "Grow in benefits" may provide additional entitlements to workers who lose their job when they have age and years of service that total 55, but have not yet qualified for early retirement benefits. Currently, grow-in benefits apply only to those who are laid off in significant numbers. The proposal is that such benefits be available to all laid off workers. This is unlikely to have any impact on our Plan, given our plan design.

Support for restructuring of plans - there would be new provisions to make it easier for workers to transfer the value of their pension to a new plan when companies restructure parts of their businesses. There would also be new arrangements for altering pension benefits when a company declares bankruptcy. This would not have any impact on our Plan.

A slow approach

Reaction to the government's package of proposals was mixed. It seems the plan was to cover the topics less likely to be controversial in the first round of changes, while saving some broader, more critical topics for later.

Federal and provincial finance ministers met in Whitehorse in December to discuss the state of pensions in Canada. According to media reports, the meeting produced no action plan, beyond continued consultations and a further meeting in May. The research paper produced by the federal government for the meeting indicates that Canada's retirement system does well in producing an adequate level of retirement income for a majority of Canadians.

Next time?

Possible topics that were left until the next round of proposed changes in Ontario include adjustments to the Pension Benefits Guarantee Fund (in which the CAAT Plan does not participate), rules for funding and reporting on funding, and proposals to expand pension coverage for those who do not have a workplace plan.

The government stated when it introduced the legislation that these changes are one part of a plan to modernize pension law, together with the temporary solvency funding relief introduced early in 2009, and some proposed changes to simplify the rules for dividing a pension in a marriage breakdown. For our Plan, the principal change we would like to see relates to the requirement to file solvency valuations.