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 h e 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 ens ure that contributions associated wit h pension benef‌its
are made into the pension fund reg ularly throughout the working life
of the employee, and invested prudently, so that the necessar y funds
will exist upon retirement to pay the pension and other benef‌its that
were contained in the plan text or other wise were part of the “pension
promise.” The purpose of adequate funding standards i s to enhance
the security of pen sion benef‌its for employees by mandating minimum
funding levels, regulat ing the timing of payments to pension fu nds, and
ensuring th at pension funds are invested prudently.
Without these rules, the receipt of an employee’s pension would be
contingent on the liquidity 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 requireme nts 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 tha n its
members, who are either depen ding upon it as a source of income in
their retirement ye ars, or looking forward to the d ay when they will,
or must? 3
Statutory solvency funding requirements apply almost exclusively
to def‌ined benef‌it (DB) pension plans, since a def‌ined contribution (DC)
pension plan is, in essence, fully funded once the employer’s normal
contributions to the pension fund are remitted. In a DB pension plan,
the amount of an employer’s required contribution is largely determined
according to assumptions made by t he plan actuary. These assumptions
take into account the demographics of the plan a s well as economic and
personnel factors, such as future in f‌lation, salary incre ases, expected
investment return, retirement ages, li fe expectancy, and other variables.
Over time, the cost of a DB plan is determ ined by the benef‌its and
expenses paid less investment earnings. In order to fund a DB plan in
an orderly and systematic manner, the cost of the pension plan must,
therefore, be allocated to time per iods using actuarial cost method s and
assumptions to determi ne a current service cost, or “normal cost,” for
each year and an “actuar ial liability” as of the valuation date.
This chapter describes the rules concerning contributions to an
ongoing DB pension plan and the actuarial valuations and reports that
must be prepared and f‌iled at periodic and other pre scribed intervals and
which give a snapshot of the health of the pension fund and the invest-
ment of the pension fund. Special fu nding rules and exceptions exist for
multi-employer pension plans (MEPPs), jointly sponsored pension plans
(JSPPs), and target benef‌it plans (TBPs). In addition, in 2020, some of the
solvency rules across the countr y were temporarily revised or, in some
cases, frozen in re sponse to the COVID-19 pandemic.
1) Introduction
The PBA identif‌ies cer tain terms rel ating to pension contributions that
must be included in the plan text and pre scribes rules applicable to
employees and employers who make those contributions. The most sig-
nif‌icant responsibility in relation to pension contributions, however,
falls upon the plan admi nistrator. While the administ rator does not
3 Collins v Ontario (Pension Commission) (1986), 31 DLR (4th) 86 at 98 (Div Ct).
Funding 387
make contributions, it must nevertheless ensure that all contributions
that are required to be m ade are properly remitted to the pension fund in
a timely manner by tho se persons who are responsible for making them.
2) Plan Design Requirements
a) Introduction
A pension plan must set out the method of calculating t he 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 sucient to provide the benef‌its promi sed
and payable under the pension plan.6 Signif‌icantly, 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 liabi lity” and
applicable “solvency def‌iciency” under the plan.7
b) Multi-employer pension plans, jointly sponsored pension plan,
and target benef‌it plan rules
There is an important exception to the plan design requirements con-
cerning an employer’s contribution obligation with respect to MEPPs8
and JSPPs.9 These are jointly trusteed (and sometimes jointly sponsored)
DB 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 col-
lective agreement. In TBPs,10 the employer’s contribution obligations are
also f‌ixed, and the se plans 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 un funded liability and,
except in the case of MEPPs, any reduced solvency def‌iciency.12 Furt her,
the plan terms m ay limit the employer’s contribution obligation to “such
4 PBA, above note 1, s 10(1)6.
5 Ibid, s 14.1(2).
6 Ibid, s 55(1).
7 Ibid, Reg, s 4(1). These terms ar e def‌ined Section C(2), below in thi s chapter.
8 Ibid, ss 1(3) & (4).
9 Ibid, s 1(2).
10 Ibid, s 39.2(1). As of the date of public ation, section 39.2 had not been pro-
claimed and re gulations had not yet been rele ased.
11 Ibid, s 10(3)2, and ibid, Reg, s 6(1).
12 Ibid, s 10(3)1.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT