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Ontario loosening solvency requirements for defined benefit pensions

Last Updated May 19, 2017 at 3:40 pm EDT

TORONTO – Ontario is changing rules on workplace defined benefit pensions, including considering them to be solvent when they are 85 per cent funded.

The provincial Liberal government announced today that it would introduce legislation in the fall to make that change and others that it says will help keep defined benefit pension plans sustainable.

Single-employer defined benefit plans currently require funding on a solvency basis if they are anything less than 100 per cent funded, but the government is planning to lower that level to 85 per cent.

That means if a pension plan is 85 per cent funded and is forced to wind up immediately, there would only be enough to pay 85 cents on the dollar to meet the plan’s obligations.

Employers would have five years to make special solvency payments to get back to 85 per cent if their plan falls below that threshold.

That move would give employers relief as defined benefit plans face challenges including historically low interest rates, but at the same time the government is also strengthening other employer pension obligations.

If plans can’t meet a going concern test of being able to fully fund their present obligations, they will have 10 years to make special payments to get to the appropriate funding, down from the current 15 years.

The government will also be requiring employers to fund a reserve within their plans in order to manage risk and keep benefits secure.

Canadian Manufacturers and Exporters, a trade and industry association, called the announcement a balanced approach.

“(It) is a positive development that will go a long way in preserving single employer DB plans, in enhancing competitiveness for Ontario companies and in preserving jobs,” Ontario vice-president Ian Howcroft wrote in a statement. “It will level the playing field with the U.S., that doesn’t have solvency requirements and Quebec, that eliminated solvency funding altogether.”

Seniors’ advocacy group CARP said the changes improve plan security for pension recipients and provide relief to plan sponsors.