Ontario is set to ease rules for its pension funds as years of low interest rates, poor equity returns and a looming retiree glut pressure companies, according to government officials with knowledge of the matter.
The biggest of a complex series of proposals would reduce the so-called "solvency funding" requirement of certain plans to 85 percent from 100 percent, the officials said, asking not to be identified before an official announcement due Friday. That means companies would be in compliance if they had enough to pay 85 cents on the dollar if they were wound-up immediately.
The changes come a year after Canada’s most populous province began a review of funding needs for pension sponsors, after having to provide temporary relief in 2009 and 2012 to offset plunging global returns. The measures are subject to consultation, will be formally proposed in legislation this fall and would take effect in 2018, an Ontario election year.
These would affect nearly 1 million people and roughly 1,150 plans, the officials said. Critically, the changes are aimed at current funding requirements and do not affect payouts for current retirees.
Balancing the changes are a tightening of other amortization requirements and a new ‘Provision for Adverse Deviation’ reserve fund contribution. There will also be an increase in the maximum guaranteed payment from the province’s Pension Benefits Guarantee Fund to C$1,500 ($1,100) each month from C$1,000 for claimants who meet certain requirements; however employer contributions will also rise.
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The government will also change rules for annuities purchased by pension plans from insurance companies -- rather than retaining liability, employers will be fully discharged of obligations when they purchase annuities, the officials said. It’s expected to raise demand for annuities and lead to a premium for acquiring them, they said.
The Ontario government is also considering establishing an agency to administer benefits for pension plans that have been wound up.
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