The Ontario budget contained an update on the actions that the Liberal government has taken over the last few years to strengthen pension plans registered in Ontario, and lays out a general blueprint for pension reform in the upcoming year. This section of the budget has implications for the recently released report on pension by the Council of Ontario Universities (COU), and may affect some of the discussions we know are occurring regarding pensions on university campuses around the province.
As you are no doubt aware, the COU working group has proposed that the government exempt universities from the requirement to undertake solvency valuations for their pension plans, in exchange for which the universities will undertake a number of initiatives, including limits on contribution holidays, increasing pension plan member contributions, and co-mingling all of the university pension plan assets under a single management structure, among others. In the budget, the government indicated that it supports the Expert Commission on Pension’s recommendation that a total exemption from solvency valuations should only be contemplated for pension plans that provide for joint risk-sharing and joint decision-making. Since neither of these measures are part of the COU proposal, the government is essentially indicating that it will not accept the COU framework as contained in the Working Group report.
However, the government is prepared to consider additional temporary funding relief measures for broader public sector pension plans if they meet certain conditions related to greater sharing of risk and governance are met, such as:
converting to joint sponsorship for future service;
more equitable sharing of the normal cost of providing benefits between plan sponsors and members;
linking some future benefits, such as inflation protection, to plan performance; and
enhancing cost certainty and affordability through benefit adjustments that make plans more sustainable.
The budget also notes that these plans should also explore measures that would reduce administrative and investment expenses in order to enhance cost efficiency (which presumably would include the co-mingling of assets into a single management structure, as was contemplated by the COU report).
There are no further details in the budget on what types of temporary funding relief measures the government may be contemplating. OCUFA has begun the process of preparing a response to the COU Working Group report. Clearly, we will need to seek clarification from both the government and the COU on the implications of these budgetary measures on our on-going dialogue on university pension plans.
With respect to further pension reform in 2010, the government is exploring measures to:
strengthen the requirements for taking contribution holidays to ensure greater benefit security and require disclosure of contribution holidays to plan members and retirees;
enhance the requirements for funding benefit improvements when existing benefits are not fully funded and require that all benefit improvements be funded more quickly;
limit the extent to which funding can be based on going-concern and solvency valuations that exclude the value of certain benefits, employ asset values that significantly depart from market values, or smooth interest rates;
further encourage innovative plan design by providing a framework for “flexible pension plans,” as permitted under the federal Income Tax Act;
permit letters of credit to be used to partially satisfy solvency funding requirements;
clarify procedures for determining surplus entitlement when a pension plan winds up; and
set a uniform funding threshold at which annual actuarial valuations would be required.
Although the budget does not contain any timetable for the introduction of amendments to the Pension Benefit Act, the government had committed to posting all regulation emerging from the reform process on the Ontario Regulatory Registry for consultation.
Research Director, OCUFA
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