The Financial Services Regulatory Authority of Ontario (FSRA) is seeking consultation on proposed regulations necessary to implement a permanent target benefit framework for pension plans in Ontario.
The regulator initially began the consultation in March 2023 when it launched a consultation on proposed regulations needed to implement a permanent framework for multi-employer pension plans (MEPPs) providing target benefits.
Feedback to the initial consultation included support for a permanent framework, including a permanent exemption from funding on a solvency basis and support for adopting new actuarial standards for calculating commuted values for target benefits. Concerns included those about the requirement to fund a provision for adverse deviations (PfAD) that involves the use of a benchmark discount rate and others.
Proposed changes based on the initial round of feedback include a revised approach to the PfAD in which plan administrators would have discretion to establish their plan’s PfAD in line with the plan’s funding policy. Changes also permit the commuted value calculation to include a reduction by the plan’s going concern funded status if required by the terms of the plan. It also added a requirement for plan administrators to establish and file a communications policy – to reflect some of the proposed minimum information required to be included in member communications.
“Research has shown that governance and communication play a crucial role in benefit sustainability in plans like target benefits (plans),” writes Barry Gros, retired actuary and chair of the pension board at the University of British Columbia Staff Pension Plan. “The follow up is spot on in requiring a written governance policy,” he adds in the C.D. Howe Institute note, A Revised Scorecard for Ontario’s Proposed Framework for Target Benefits.
In other areas, however, he adds: “the follow-up seems to miss a critical point in that it is impossible for these plans to separate out their funding and benefits policy (which will likely detail their approach to benefits sustainability), its approach to the PfAD, and contribution sufficiency testing, all of which should be completely integrated. The follow-up muddies the water by separating the contribution sufficiency test from the other key elements of determining benefits sustainability. If the ministry truly wants a framework that will support long-term plan sustainability for target benefit beneficiaries, this should be reconsidered.”
He also says the follow-up takes a major step forward requiring plans to have a funding and a benefits policy, rather than just a funding policy. “Where the update falls short, is that it still requires contribution sufficiency test even as it expects the funding and benefits policy to outline the process and methods for achieving benefit and funding objectives. This is redundant,” he writes.
The Ministry of Finance asks stakeholders to submit their comments to the follow-up proposals in writing by October 17, 2023.
