Reminder: Plan-Related Document Changes Arising from New Funding Rules for Ontario DB Pension Plans

This bulletin provides a reminder with respect to the new funding rules for Ontario defined benefit (DB) pension plans that came into effect on May 1, 2018. These new rules under the Ontario Pension Benefits Act (PBA) necessitate changes to certain plan-related documents, including the pension plan text, annual and biennial member statements, and the Statement of Investment Policies and Procedures (SIPP).

These changes were discussed at our previous client seminars and are briefly discussed again below.

Pension Plan Text

The new funding rules provide that a DB pension plan text must set out the obligation of the employer (and members, in the context of a jointly sponsored pension plan) to contribute in respect of the Provision for Adverse Deviation (PfAD) in respect of the normal cost, any additional going concern liabilities associated with a benefit improvement and any reduced solvency deficiency under the plan.

If a pension plan does not include this obligation in its plan text, then the plan must be amended. The amendment must be made within 12 months after the date the first valuation report with a valuation date on or after December 31, 2017, is filed with the Financial Services Commission of Ontario (FSCO).

Annual and Biennial Statements

The new funding rules also provide for additional disclosure to members, former members and retired members. The first annual or biennial statements for a DB plan issued after an actuarial report with a valuation date on or after December 31, 2017 is filed must include new information, including a description of the new funding rules. 

In addition, effective January 1, 2019, annual and biennial statements must include an estimated transfer ratio for the pension plan up to the end of the period covered by the statement. FSCO guidance indicates that plan administrators must include the new disclosure requirements with respect to the estimated transfer ratio in statements (both annual and biennial) issued on or after January 1, 2019, even in respect of a statement for a plan year ending in 2018.

SIPP

The new funding rules require that all SIPPs (except certain jointly sponsored pension plans) identify a target asset allocation for assets in respect of defined benefits for every asset class specified in the regulations under the PBA. If a SIPP does not already include a target asset allocation for each prescribed asset class, then it must be amended.  FSCO guidance indicates that this must be done as soon as practical, but in any event, the SIPP must contain required asset allocation information on or before the valuation date of a report based on that information (i.e., December 31, 2019, or earlier).

For further information, please contact any member of our Pensions, Benefits & Executive Compensation group.