As Ontario’s puts forward a second wave of pension reforms, tougher regulations on pension funding will have implications for the work of in-house legal teams as they review agreements and ensure compliance.
The new proposals recently released by the Ontario government, which are part of the province’s larger pension reform framework, will affect the work of legal teams at Ontario companies, says Mitch Frazer, a partner at Torys LLP with a focus on pension matters.
“While we are still awaiting more detail on these proposals in the form of legislation and regulations, legal counsel should consider reviewing pension plan texts, funding agreements, and investments policies — both to ensure compliance with some of the new rules, and to take advantages of some the changes with respect to use of surplus and plan investments,” says Frazer.
Another top aim for the provincial government is to build a more sustainable Pension Benefits Guarantee Fund by increasing reserves and revenues and limiting current exposure and reduce risk to taxpayers in the future. Ontario uses the fund to offer backup in case of an employer going into insolvency and leaving behind a pension plan with inadequate funding.
“While the PBGF already received a $500-million government grant earlier this year, the government also plans to increase PBGF revenue by increasing employer premiums,” says Frazer.
Dealing with pensions has been increasingly part of the corporate counsel’s work as lawsuits over pension surpluses, liabilities, and expenses can come up as part of operations or as a result of mergers and acquisitions.
Ontario Finance Minister Dwight Duncan says the changes aim to make sure the provincial government won’t have to shore up any failing pension funds.
“These rules will help reduce, hopefully eliminate, the kind of moral hazard I would associate with companies and employee groups agreeing to benefits without properly funding them,” Duncan said in a press conference. “For over 20 years, governments have neglected addressing these challenges because these challenges are real and difficult.”
There hadn’t been any major pension reforms in Ontario for decades until Bill 236, the revised Ontario Pensions Benefits Act, was approved in May. These latest proposals further complete the reforms and they are considered to be a second phase of the same framework, said Duncan.
They have the support of pension managers and labour groups, although there is some disagreement about how far the government should go in protecting pension funds.
“While this second phase of reform announcements contains some much-needed improvements to the current legislation, additional work is needed to provide clarity to the proposals,” says Scott Perkin, president of the Association of Canadian Pension Management.
The Canadian Auto Workers union says it sees the changes as a positive step in securing retirement income for workers, but adds it falls short of instituting the full package of reforms needed to sufficiently strengthen the province’s pension system.
“These reforms are a clear acknowledgment that our pension framework is in desperate need of repair,” says CAW president Ken Lewenza.