Stabilizing Pensions: A Breakdown of Target Benefit Regulations

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Ontario Regulation 386/24, enacted on October 10, 2024, establishes new guidelines and requirements for pension plans offering “target benefits” in Ontario. This regulation falls under the Pension Benefits Act and seeks to govern target benefit pension plans through a series of specific provisions, primarily focused on multi-employer plans and plans with variable benefits based on funding levels.

The regulation applies exclusively to pension plans that provide target benefits, which are based on plan performance and funding status, rather than a fixed payout. The terminology within the regulation aligns with Ontario’s existing Regulation 909, except where additional definitions are introduced.

Under Section 3, pension plans must meet several criteria to qualify for target benefit regulation. Eligible plans cannot be a jointly sponsored pension plan (JSPP) and must demonstrate that no more than 95% of members were employed by a single employer at the end of at least one of the past three fiscal years. The plan must also either involve contributions from a minimum of 15 employers or ensure that at least 10% of its members were employed by two or more employers during at least one of the past three fiscal years. Affiliated groups under the Business Corporations Act or the Not-for-Profit Corporations Act, 2010, are regarded as a single employer for these purposes.

Several sections of the General Regulation (Regulation 909) do not apply to target benefit plans under Regulation 386/24, including some minimum funding requirements and specific administrative obligations. Moreover, for plans offering both target and defined contribution (DC) benefits, the regulation mandates a clear separation of assets. DC assets cannot exceed 5% of the total assets of the target benefit plan, and target benefit assets cannot be used to cover DC-related costs or contributions. Additionally, target benefit assets cannot be used to fund expenses tied to DC benefits.

Special provisions for multi jurisdictional pension plans allow for specific flexibility in benefit reductions if restricted by pension laws in other jurisdictions. For funding requirements, the regulation stipulates that employer or designated contributor payments must meet or exceed employee contributions, with contributions due within 30 days following the month of collection.

Additionally, target benefit plans must establish a “provision for adverse deviations” as a financial buffer against market volatility. Plan administrators determine the necessary provision percentage based on the plan’s policy and circumstances, and this provision is waived only for defined contribution benefits and at the initial conversion date for target benefit plans.

By establishing eligibility criteria, enforcing asset separation, implementing funding requirements, and safeguarding member benefits, the regulation aims to ensure the financial sustainability of target benefit plans while managing the risks associated with variable returns on investments.

Ontario (386/24) November 2, 2024