Bill 213: Possible relief from asset transfer procedures, IPPs free at last, and demystifying the successor pension plan regime
On October 6, 2020, the Ontario government introduced in the legislature Bill 213, Better for People, Smarter for Business Act, 2020. Billed as part of the government’s plan for recovery and long-term economic growth in the wake of the COVID-19 pandemic, Bill 213 would (among other things) provide greater flexibility in the rules governing transfers of assets between pension plans, conversions of pension plans, and the administration of individual pension plans (“IPPs”) and designated pension plans. The proposed amendments to the Pension Benefits Act (Ontario) (the “PBA”) come into effect on the day Bill 213 receives Royal Assent. As of November 30, 2020, the proposed amendments are not in force.
Asset transfers and pension plan conversions
Under the existing rules, employers and plan administrators who wish to transfer assets between pension plans on account of a sale of business, corporate reorganization or the establishment of a successor pension plan must first obtain the consent of the Chief Executive Officer of the Financial Services Regulatory Authority (the “FSRA CEO”) to the transfer. In order to obtain the FSRA CEO’s consent, the applicant employer or administrator (as applicable) must follow highly prescriptive processes under the PBA and Ontario Regulation 310/13. Among these processes is a requirement for the plan’s administrator to provide a series of notices (within mandated time frames) to members, former members, retired members and others entitled to benefits under the pension plan, as well as to trade unions representing members or retirees and the FSRA CEO. If passed, Bill 213 would grant FSRA authority to waive or vary the application of certain of these regulatory notice requirements to a particular asset transfer. FSRA would also have authority to make and waive its own rules concerning such notice requirements that relate to the proposal to transfer assets and the related application for the FSRA CEO’s consent to the asset transfer.
Similarly, FSRA’s rule-making authority would be expanded such that it could make and waive its own rules related to notice requirements for conversions of single employer pension plans into jointly sponsored pension plans, under sections 80.4 and 80.0.1 of the PBA (“SEPP to JSPP conversions”). This grant of authority builds on FSRA’s existing authority to vary the notice requirements prescribed in the regulation for the purpose of SEPP to JSPP conversions. FSRA’s proposed approach regarding asset transfers affords insight into how FSRA intends to exercise this existing authority in respect of SEPP to JSPP conversions. The proposed approach envisions applicants proactively engaging with FSRA (prior to applying for the FSRA CEO’s consent). As part of proactive engagement, the proposed approach would permit applicants to request a waiver of prescribed notice requirements in connection with SEPP to JSPP conversions on the basis that adequate information about the conversion has been or will be disclosed to affected persons by other means. Given this guidance, it would be reasonable to expect that FSRA may opt to exercise the authority proposed in Bill 213 in a similar fashion in respect of asset transfers under sections 80 and 81 of the PBA.
If exercised, the discretion afforded to FSRA under Bill 213 could translate into flexible, more tailored approaches to processes that are often complex, time consuming and inefficient (insofar as minor infractions of the asset transfer rules have caused applicants to re-start the application process). In light of other FSRA efforts in this area (namely, a consultation on new draft guidance for asset transfers and a simplified process for providing FSRA’s consent to asset transfers), we expect FSRA will be responsive to requests of plan administrators that may arise if Bill 213 is enacted as drafted.
Individual pension plans
IPPs are registered pension plans that have a defined benefit provision and either:
- have fewer than four members (at least one of whom is related to a participating employer), or
- are a “designated plan” and it is reasonable to conclude that one or more persons have rights under the plan in order to avoid the characterization described above.
Designated plans are also registered pension plans with a defined benefit component. Generally, a plan will be “designated” in accordance with section 8515 of the Income Tax Regulations if it is not maintained pursuant to a collective bargaining agreement and the total pension credits of specified individuals under the defined benefit component is more than 50% of the total pension credits of all individuals under the defined benefit component for the plan year.
Under the current rules, the same PBA requirements generally apply to designated plans and IPPs as apply to other single employer defined benefit plans (with a few exceptions, including that the employer and significant shareholder(s) may jointly consent to the reduction of the latter’s pension, pension benefit or ancillary benefits).
Bill 213 is significant for designated plans and IPPs currently registered in Ontario because employers would be able to elect to have these types of pension plans exempted from the PBA (but would still be subject to the Income Tax Act). Once exempted, the PBA’s rules relating to benefits and entitlements accrued under the plan would no longer apply to the pension plan, regardless of when those benefits and entitlements accrued. Notably, the exemption would continue to apply even if a member, former member or retired member ceased to be connected with the employer after the exemption became effective. If passed, these provisions would also apply to newly-created IPPs and designated plans (i.e., they need not be registered with FSRA at all). In our view, the amendments to these rules make sense from the perspective of balancing administrative efficiency with protection of beneficiaries because, in practice, the individual member(s) of an IPP or designated plan will have a say in choosing to waive regulatory requirements (which exist for the protection of beneficiaries) applicable to themselves.
To take advantage of the exemption for an IPP or designated plan currently registered with FSRA, the employer must, among other things:
- obtain consent of every member, former member and retired member, as well as each of their spouses and any other person entitled to pension benefits, to the exemption;
- collect a signed copy of each person’s consent, which must contain certain statements described in the proposed provision;
- collect a declaration from each member, former member and retired member of the plan attesting to his or her relationship status; and
- file an election form with FSRA that contains, among other things, statements from the plan’s administrator and copies of the consents and declarations referred to above.
If passed, Bill 213 may make IPPs a more popular vehicle for retirement savings for business owners, as newly created IPPs - and existing IPPs that elect to become exempt - would no longer have to comply with filing requirements such as to certify the IPP with FSRA upon establishment and to file documents supporting the plan.
Demystifying section 81 of the PBA
Bill 213 also purports to clarify the interpretation and application of section 81 of the PBA, which governs the process for establishing a successor pension plan to provide benefits to employees transferring from a predecessor pension plan. The proposed subsection 81(0.1) reads:
“This section  applies with respect to pension plans in either of the following circumstances:
1. A pension plan is established by an employer to be a successor to an existing pension plan and the employer ceases to make contributions to the original pension plan.
2. A multi-employer pension plan established pursuant to a collective agreement or trust agreement is amended to be a successor to an existing multi-employer pension plan established pursuant to a collective agreement or trust agreement and the participating employers cease to make contributions to the original multi-employer plan.”
While the legislative intent underlying this proposed amendment is not abundantly clear, the incorporation of this provision implies that the successor pension plan rules apply exclusively in the scenarios noted above. It could be inferred, then, that scenarios such as single employer plans transferring assets into an existing multi-employer pension plan or jointly sponsored pension plan – that was not established by the same employer – would be subject to one of the other PBA regimes providing for asset transfers (such as section 80.4) and not section 81.
Please contact Osler’s Pension and Benefits Group for advice on Bill 213, asset transfers, individual pension plans, and successor pension plan arrangements.