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The Ontario government recently posted, for technical review, the draft regulations which will support the permanent regulatory framework for target benefit pension plans (“TBPs”).  Further, the Ontario government has announced that it intends for the permanent target benefit regulatory framework to come into effect on January 1, 2025. 

As such, it looks like we are reaching the final stages in what has been a long process to establish a target benefit pension plan model as a permanent part in Ontario’s pension landscape.

Recap and Latest Developments

For those of you who have been following the development of this regulatory framework closely, you will recall that the Ontario government issued two consultation documents on the proposed permanent target benefit framework last year – which were summarized and discussed in our blogs here and here. 

To recap, the permanent target benefit framework has three key pillars:

1. Pillar One: Strengthening Governance Through Minimum Standards in Policies – requiring TBPs to develop a funding and benefits policy and a governance policy;
2. Pillar Two: Enhanced Communications to Members with Required Disclosures – requiring TBPs to develop a communications policy; and
3. Pillar Three: Enhanced Funding Requirements – which will support the sustainability of TBPs with prescribed funding rules.

The draft regulations which were recently released largely reflect the proposals in those consultation documents.  Nevertheless, the Ontario government noted that they made some changes to the regulatory framework based on the feedback received from their most recent consultation, such as:

• Loosening the restrictions that were originally proposed surrounding the use of surplus to fund the normal cost benefit accruals for current and future members (specifically, the original proposal limited the amount of surplus that could be used in a given year and restricted its use in the first valuation after a new collective agreement was implemented – conditions which have now been removed);

• Allowing more flexibility in the adjustments that can be made to the existing special payment schedules when reflecting an experience gain in a new valuation (specifically, experience gains can now be used to reduce the monthly rate of special payments over the remaining period, as well as to maintain the monthly rate of special payments and shorten the payment schedule);

• Clarifying the disclosure requirements so that new members are provided with a summary of the plan’s funding and benefit objectives (as opposed to being provided with a summary of the plan’s funding and benefit policy); and

• Clarifying that, for multi-employer pension plans with both a defined benefit and defined contribution component, that the defined contribution component may be no greater than 5% of the assets for the defined benefit/target benefit component at the time of conversion, and as an ongoing requirement.

For the most part, these changes are largely reasonable and not materially different from the versions of the rules which were originally proposed.  However, this could be problematic for any multi-employer pension plan wishing to convert to a target benefit plan if they have a defined contribution component that has assets that are, or are expected to become, greater than 5% of the assets in the defined benefit/target benefit component.

Next Steps

For those of you who are deeply interested in this area of practice, I wish to note that the Ontario government is accepting technical review feedback on the draft regulations and has a comment deadline of August 12^th.

Nevertheless, with a planned effective date of January 1, 2025, multi-employer pension plans may wish to start reviewing these rules in greater detail.  In particular, multi-employer pension plans should start to more seriously consider if they will be transitioning to a target benefit plan, and if so, start to develop a transition and conversion process action plan, and putting pen to paper to create their policies on funding and benefits, governance, and communications.