Conversion of Broader Public Sector Employer-sponsored Single Employer Pension Plans to Jointly Sponsored Pension Plans

​​The Ontario Government has proclaimed into force, effective November 1, 2015, the amendments to the Pension Benefits Act (PBA) that would permit a broader public sector employer-sponsored single employer pension plan (SEPP) to either transfer or merge into a new or an existing jointly sponsored pension plan (JSPP) (section 80.4), or convert to a JSPP (section 81.0.1), if specified conditions are met.  These provisions only apply to SEPPs that are in the broader public sector.  Related Ontario regulations 311/15 and 312/15 have been filed and are also effective as of November 1, 2015.


 

Background

 

Sections 80.4 and 81.0.1 were introduced under Schedule 26 of the Building Opportunity and Securing Our Future Act (Budget Measures), 2014 which received Royal Assent on July 24, 2014.  Section 80.4 of the PBA governs a conversion that is implemented through a transfer of assets and liabilities from the SEPP to another pension plan that is a JSPP.  For the remainder of this communication, a transaction under section 80.4 of the PBA will be referred to as a transfer/merger of assets.  Section 81.0.1 of the PBA governs a conversion that is implemented through an amendment to the SEPP itself, converting it into a JSPP and will be referred to as a conversion. 

Jointly Sponsored Pension Plan

 

A JSPP is a pension plan that has the following characteristics: 
  • provides defined benefits;
  • is jointly funded – both the members and employer(s) contribute to both the current service cost of the pension plan and payments required to pay any unfunded liability or solvency deficiency under the terms of the pension plan (members cannot contribute more than 50% of these required contributions); contribute to both the current service cost of the pension plan and payments required to pay any unfunded liability or solvency deficiency under the terms of the pension plan (members cannot contribute more than 50% of these required contributions);
  • is jointly governed – both the members and employer(s) make decisions related to the terms and conditions of the plan including any plan amendments and the appointment of the plan administrator;
  • permits a reduction in the amount of, or the commuted value of, a pension benefit, a pension, a deferred pension or an ancillary benefit on the plan's wind up;
  • may opt out of the grow-in provisions under section 74 of the PBA; and,
  • is not covered under the Pension Benefits Guarantee Fund.

Requirements for a Transfer/Merger or a Conversion from a SEPP to a JSPP

Notice and Consent

The plan administrator of the SEPP must provide notice of a proposed transfer/merger of assets under section 80.4 of the PBA or a proposed conversion under section 81.0.1 of the PBA, to members, former members, retired members and other persons entitled to benefits under the SEPP, to any trade union that represents members of the SEPP and, to the Superintendent.  The notice content requirements are set out in the PBA and Regulation 311/15 and include information about the benefits provided under the SEPP, information about the benefits to be provided under the JSPP and the nature of a JSPP.  

If a member is not represented by a trade union, in addition to the notice, the plan administrator must also provide the member with a consent form.  If the member is represented by a trade union, the consent form need only be provided to such union.  Furthermore, in addition to the notice to the retired members, former members and other persons entitled to benefits under the SEPP, the plan administrator must also provide each of these persons with an objection form. 

Consent Threshold 

In order for a proposed transfer/merger of assets under section 80.4 of the PBA or a proposed conversion under section 81.0.1 of the PBA to proceed, the PBA and Regulation 311/15, require that at least two-thirds of the members of the SEPP give their consent and, no more than one-third of the retired members, former members and other plan beneficiaries under the SEPP, as a group, object.  Any consent given by a trade union that represents a member or members is counted as that member's or those members' consents. 

Application and Superintendent Consent

The prior consent of the Superintendent to the transfer/merger of assets or to the conversion is required.  The criteria to be considered by the Superintendent for consent are specified in subsections 80.4(13) and 81.0.1(14) of the PBA as applicable, and Regulation 311/15. 

The employer of the SEPP must file an application with the Superintendent for consent to the transfer/merger of assets or to the conversion within nine months after the day that the notices were given.  The plan administrator must provide a second notice called the notice of application (with prescribed content) to members, former members, retired members and other persons entitled to benefits under the SEPP, and to any trade union that represents members of the SEPP.

Effective Date

Transfer/Merger of Assets under section 80.4 of the PBA

The effective date of a transfer/merger of assets cannot be earlier than the last day on which a consent form or an objection form is to be submitted to the plan administrator.

 

Conversion under section 81.0.1 of the PBA

The effective date of a conversion must be within 12 months after the date on which the Superintendent consents to the proposed conversion.   

Commuted Values Equal for Members 

As of the effective date of the transfer/merger under section 80.4 of the PBA or of the conversion under section 81.0.1 of the PBA, the commuted value of the pension benefit entitlement provided under the JSPP for the affected members must be not less than the commuted value of their pension benefit entitlement under the SEPP.

Replication of Pension Benefits for Retirees, Former Members and Other persons Entitled to Benefits 

As of the effective date of the transfer/merger under section 80.4 of the PBA or of the conversion under section 81.0.1 of the PBA, the pension benefits provided under the JSPP for the affected retired members, former members and other persons entitled to benefits must be at a minimum, the same as the pension benefits provided for them under the SEPP. 

Unfunded Liability or Solvency Deficiency under the SEPP in a Conversion

If a SEPP is being converted into a JSPP pursuant to section 81.0.1 and at the effective date of the conversion, the SEPP has a going concern unfunded liability or a solvency deficiency, the legislation requires the employer to make contributions into the pension fund in accordance with the regulations to liquidate the unfunded liability or the deficiency (81.0.1(14)7 of the PBA).


 

Other Matters

Surplus

If a SEPP is transferring/merging into a JSPP under section 80.4 of the PBA and there are assets, other than those relating to defined contribution benefits, remaining after the transfer from the SEPP to the JSPP, those assets are deemed to be surplus under the SEPP.  In such a situation, the notice to members, former members, retired members, other persons entitled to benefits under the SEPP and any trade union that represents members of the SEPP about the proposed transfer of assets, must provide the prescribed disclosures on surplus.

Special Contributions On Wind Up of the JSPP

If the JSPP is subsequently wound up and the money in the pension fund is not sufficient to pay all of the benefits, the amount or commuted value of a pension benefit, a deferred pension or an ancillary benefit of the members, former members, retired members and other persons entitled to benefits under the JSPP, may be reduced. 

In such a circumstance, the legislation requires the employer of the SEPP, who had transferred assets under section 80.4 of the PBA to the JSPP, to pay the amount of the shortfall related to the benefits that were credited under the JSPP as a result of the transfer into the pension fund for the benefit of the members, former members, retired members and other persons entitled to benefits under the SEPP before the transfer (subsection 75.1(1.1) of the PBA).  Similarly, the employer who had converted the SEPP into the JSPP pursuant to section 81.0.1 of the PBA, is required to pay the amount of the shortfall related to those pre-conversion benefits into the pension fund (subsection 75.1(1.2) of the PBA) for the benefit of the members, retired members, former members and other persons entitled to benefits under the SEPP before the conversion.  The amount of shortfall is prescribed under section 29.2 of Regulation 909.

 

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