AuthorAri Kaplan, Mitch Frazer
A pension plan must be pre-“funded.”1 It cannot be a pay-as-you-go
arrangement. This feature is “central to the regulatory scheme”2 estab-
lished by the Pension Benef‌its Act (t he PBA) and is what qualitatively
distingui shes pension plans from other forms of retirement compen-
sation arrangements. The objective of “going-concern” and “solvency”
funding is to ensure that contributions associated with pension bene-
f‌its are paid regularly throughout the working life of the employee, and
invested prudently, so that the necessar y funds will exist upon retire-
ment to pay the pension and other benef‌its th at were promised in the
plan text. The purpose of adequate funding standards is to enhance
the security of pen sion benef‌its by mandating m inimum funding levels
and regulating the timing of payments to pension funds.
The PBA’s funding r ules exist to protect employees; without these
rules, the receipt of an employee’s pension is contingent on the liquid-
ity of the employer at the time the pension is payable. As one court
asked, rhetorically:
1 Pension Benef‌it s Act, RSO 1990, c P.8, ss 55–62 [PBA]; Pension plans must a lso
be funded in accord ance with the requirem ents of the Income Tax Act, RSC 1985,
(5th Supp), c 1, as amended [ITA].
2 St Marys Paper Inc (Re) (1994), 116 DLR (4th) 448 at 460–61 (Ont CA), appeal
dismis sed at (1996), 26 OR (3d) 416 (SCC) [St Marys Paper].
Who is more interested in t he solvency of a pension plan than its mem-
bers, who are either depend ing upon it as a source of income in their re-
tirement years, or look ing forward to the day when they wil l, or must?3
Statutory solvency funding requirements apply almost exclusively
to def‌ined benef‌it pension plans, since a def‌ined contr ibution pension
plan is, in essence, fully funded once the employer’s normal contribu-
tions to the pension fund are remitted. In a def‌ined benef‌it pension
plan, the amount of an employer’s required contribution is largely de-
termined according to as sumptions made by the plan actuar y. These
assumptions take i nto account the demographics of the plan and eco-
nomic and personnel factors, such as increa ses in salaries and the ex-
pected investment experience.
Over time, the cost of a def‌ined benef‌it plan is deter mined by the
benef‌its and expenses paid less investment earnings. In order to fund
a def‌ined benef‌it plan in an orderly and systematic manner, the cost of
the pension plan must, therefore, be allocated to t ime periods using
actuarial cost methods and assumptions to determi ne a current service
cost, or “normal cost,” for each year and an “actuarial liability” as of
the valuation date.
This chapter describe s the rules concerning contributions to an on-
going pension plan and the actuar ial valuations and reports t hat must
be prepared and f‌iled at periodic and other prescribed interval s and
which give a snapshot of the health of the pension fund and the invest-
ment of the pension fund. Special funding rules and exceptions exist
for multi-employer pension pl ans (MEPPs), jointly sp onsored pension
plans ( JSPPs), and target benef‌it plans (TBPs).
1) Introduction
The PBA identi f‌ies certain term s relating to pension contributions th at
must be included in the plan text and pres cribes rules applicable to em-
ployees and employers who make those contributions. The most signif‌i-
cant responsibility in relation to pension contributions, however, falls
upon the plan administ rator. While the administrator does not make
contributions, it must nevertheless ensure that all contributions that
are required to be made are properly remitted to the pension fund in a
timely manner by thos e persons who are responsible for making t hem.
3 Collins v Ontario (Pension Commission) (1986), 31 DLR (4th) 86 at 98 (Div Ct).
Funding 379
2) Plan Design Requirements
a) Introduction
A pension plan must set out the method of calculating the contribu-
tions required by the pen sion plan.4 A pension plan is not eligible for
registration if the formula for calculating the employer’s contributions
to the pension fund is var iable at the discretion of the employer5 or
does not provide for funding suff‌icient to provide the benef‌its promi sed
and payable under the pension plan.6 Signif‌ica ntly, every pension plan
must set out the obligation of the employer to pay the “normal cost” of
funding the plan, a s well as any “going concern unfunded liabil ity” and
“solvency def‌iciency” under the plan.7
b) MEPP, JSPP, and TBP rules
There is an important exception to the plan de sign requirements con-
cerning an employer’s contribution obligation with respect to MEPPs8
and JSPPs.9 These are jointly-tru steed and sponsored def‌ined-benef‌it
pension plans where the obligation of the employer to contribute to the
pension plan is usually limited to a f‌ixed amount set out in a collective
agreement. In TBPs10 the employer’s contribution obligations are also
f‌ixed, and these plan s need not be jointly sponsored and are usually
not. In MEPPs, JSPPs, and TBPs, there must be a provision for the fund-
ing of benef‌its that sets out the employer’s contribution obligations in
respect of the plan.11 However, the pension plan must also descr ibe the
employees’ obligation to make contributions under the plan, including
contributions in respect of any going concern unfunded liability and,
except in the case of MEPPs, any solvency def‌iciency.12 Further, the
plan terms may limit the employer’s contribution obligation to “such
amounts set out in the applicable collective agreement as are required
to be paid by the employer.”13 In other words, a MEPP, JSPP, or TBP
does not require that the employer pay any unfunded liabilities or sol-
vency def‌iciencies, if that is the n ature of the pension bargain.
4 PBA, s 10(1)(6).
5 PBA, s 14.1(2).
6 PBA, s 55(1).
7 PBA, Reg, s 4(1). These terms are def‌ined S ection C(2), below in this chapte r.
8 PBA, ss 1(3) & (4).
9 PBA, s 1(2).
10 PBA, s 39.2(1). As of the date of public ation, section 39.2 had not been pro-
claimed and r egulations had not yet been rele ased.
11 PBA, Reg, s 6(1), and PBA, s 10(3)2.
12 PBA, s 10(3)1.
13 PBA, Reg, s 6(2)(b).

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