Labour, Employment & Employee
Benefits
Pension and Benefits
Client Alert
Toronto
November 2008
Expert Commission on Pensions Delivers
Final Report
On November 21, 2008, two years after it was established, the Ontario Expert
Commission on Pensions delivered it’s final report: A Fine Balance: Safe Pensions,
Affordable Plans, Fair Rules (the “Report”).
The Report is a comprehensive analysis of pensions in Ontario and addresses issues
such as: the funding of pension plans, the effect of corporate restructuring and
worker mobility, the consequences of plan failure, the regulation of pension plans
and governance issues facing plan sponsors and members.
The General Recommendations and Broad Findings of the Commission address,
among other issues, the concern that many employers have that their funding
obligations are too onerous or uncertain. Among the Funding Recommendations:
Donna Walwyn
Tel: +1 416 865 6925
E-mail: [email protected]
Jeremy Hann
Tel: +1 416 865 2322
E-mail: [email protected]
•
Single-employer pension plans should continue be funded on the
basis of both solvency and going concern valuations but should
maintain a security margin of 5% above full funding. Once plans
are funded at 95% or higher, they should be allowed a longer
amortization period to meet their funding obligations.
•
Plan sponsors should be allowed to reduce or suspend
contributions if the plan is funded at 105% or more, but must
resume contributions immediately if funding falls below 95%
•
Regulations should be developed to allow sponsors to use letters of
credit, and possibly asset pledges, to provide security for unpaid
contributions.
•
If a defined benefit option plan is converted to a defined
contribution plan, any surplus should first be applied to protect
accrued defined benefit entitlements and the plan’s 5% security
margin.
Lisa Stam
Tel: +1 416 865 6924
E-mail: [email protected]
Baker & McKenzie LLP
Brookfield Place
181 Bay Street, Suite 2100
Toronto, Ontario M5J 2T3
Tel: +1 416 863 1221
Fax: +1 416 863 6275
www.bakernet.com
The Government has asked for feedback on the Report by February 27, 2009. If
you are interested in providing comments on the Report, please contact a member
of our Pension & Benefits Group.
A summary of the Report can be found at
This may qualify as “Attorney Advertising” requiring
notice in some jurisdictions. Prior results do not
guarantee a similar outcome.
www.pensionreview.on.ca/english/report/summary.html
A full copy of the report can be found at
www.pensionreview.on.ca/english/report/Pensions_Report_Eng_web.pdf
Baker & McKenzie
These recommendations come in the midst of a global financial crisis that has
created even more risk and uncertainty for pension plan sponsors, particularly
of defined benefit plans and should be reviewed in the context of current issues
that employers and trustees of defined benefit plans should consider in this
economic environment.
In response to the Report, the Finance Minister announced that the government
is actively considering solvency relief measures to help plan sponsors manage
solvency funding issues arising from recent market uncertainty.
Although some of the effects of the global financial crisis are clear – the recent
fall in stock markets has created a significant decrease in most pension fund
assets – others are not immediately apparent and we expect that there will be
ongoing governance issues that will arise in pension fund administration.
Given the current economic environment, when reviewing the
Recommendations and Broad Findings of the Commission, Employers should
also consider the following:
•
A review of the most recent actuarial valuation of defined
benefit pension funds and discussions with the actuary how
significantly the pension fund has been affected by recent
market fluctuations
•
A Review of whether the current investment strategy remains
viable
•
A Review of any previously proposed or considered benefit
enhancements
•
Communications to plan members about the performance of
the pension fund and the security of pension benefits.
Please contact [email protected] if you would like to
discuss the Commission’s Report or if you have any questions
about your ongoing fiduciary and statutory obligations in the
midst of the current financial crisis.
Baker & McKenzie LLP, an Ontario limited liability partnership, is a member of Baker & McKenzie International, a Swiss Verein with member law firms
around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who
is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
©2008 Baker & McKenzie
All rights reserved.
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