Reach

• Author: Ari Kaplan, Mitch Frazer
• Pages: 81-125

81

CHAPTER 3

R E ACH

Since the establishment of a pension plan is a voluntary exercise, so

too, to a large extent, is the general design and content of a plan vol-

untary. The exceptions to this principle are primarily regulatory in

nature. Pension plans are subject to the requirements for registration

under provincial pension standards legislation and the Income Tax Act

(ITA)1. These rules prescribe mini mum pension and taxat ion standards

and form the substantive core of pension regulation. The legislation

places limits on the freedom of employers and employees to contract

the design of a pension plan. From a public policy persp ective there are

two competing interests: the protection and support of registered pen-

sion benef‌its for all Canadians; and the protection of government tax

revenues. More specif‌ically, the purpose of pension standards legisla-

tion is to protect the benef‌its and other right s of employees, pensioners,

their spouses and benef‌iciaries and ensure that the assets in the pen-

sion fund corresponding to the benef‌it promi ses will be available when

due. One of the purposes of the ITA is to establish a set of tax rules

and policies that restrict who can contribute, the amount and timing

of contributions, the types of income that can be deferred, and when

payment of retirement income must commence.

This chapter describes the jurisdictional application of provincial

pension standards legislation, with a focus on the Ontario Pension Ben-

1 RSC 1985, c 1 (5th Supp), as amended [ITA].

PENSION LAW

82

ef‌its Act (PBA)2and the federal Pension Benef‌its Standards Act (PBSA),3

the registration requirements for pension plans under the PBA and the

ITA, and the legal principles applicable to the nature and scope of the

PBA’s statutory f‌loor and the ITA’s statutory ceiling.

A. INTRODUCTION

With the exception of the short-lived Pension Benef‌its Act, 1962–1963,4

there has never been a statutory re quirement that an employer establish

a pension plan for its employees.5 Accordingly, it is the implementation

of a decision to sponsor a pension plan that triggers the application of

the PBA. As stated by one court:

There is no requirement in Ont ario that an employer establish a pen-

sion plan. Its willingness to do so is a matter of contract between it

and its employees. Once est ablished, however, there is no doubt that

compliance with the provisions of the PBA is mandatory.6

The PBA governs the establishment and administration of pension plans

in Ontario. The PBSA is the governing legislation in respect of “included

employment” in the federal sectors.7

Generally, the PBA requires pension plans to vest benef‌its in em-

ployees immediately, provide employees with the right to portable

benef‌its on termination of employment, preserve pensions by locking-

in benef‌its upon termin ation of employment, confer minimum benef‌its

on death, and protect interests of spouses, former spouses, and same-

sex partners.

The PBA also sets out the re sponsibilities of employers who establish

and sponsor pension plans. The legislation requires the employer to in-

clude all minimum statutory standards and benef‌its as it designs its pen-

sion plan, pre-fund the pension plan to minimum levels so as to ensure

the long-term f‌inancial viability of pensions and deferred benef‌its, and

appoint a pension plan admini strator to administer the plan and the pen-

sion fund. Under the PBA, plan admi nistrators must prudently invest the

assets of a pension fund, disclose required documentation to plan mem-

2 RSO 1990, c P.8 [PBA].

3 RSC 1985, c 32 (2d Supp) [PBSA].

4 SO 1962–1963, c 103.

5 See Chapter 2, Sect ion C(2)(a).

6 Justice Abella, dis sentingin St Marys Paper Inc (Re) (1994), 116 DLR (4th) 448

at 466 (Ont CA), aff’g (1993), 107 DLR (4th) 715 (Ont Ct Gen Div) [St Marys].

7 PBSA, s 4(2).

Reach 83

bers, make all prescribed regulatory f‌ilings as required, and administer

their plans in accordance w ith the legislation and the plan terms.

Finally, the PBA prescribes procedures for plan amendment and

termination and codif‌ies generally the respective rights, duties, and re-

sponsibilities of the pension regulator, employers, administrators and

their agents, employees, and pensioners.

B. SPONSORSHIP

This section identif‌ies the legal i ssues arising from the various forms of

plan sponsorship and from the various models available for designing

and calculating pension benef‌its.

1) Plan Sponsor

a) Introduction

The term “plan sponsor” is not a term that is def‌ined or referenced in

the PBA. However, the term is widely used in the pension industry to

denote the one or more entities that, or persons who, establish the pen-

sion plan and to whom is reserved in the pension contract the ultimate

power to amend or terminate the plan. Pension plans may be spon-

sored by one or more employer, employer’s association, trade union,

government, or any combination of these. Where the employer is not

the sole plan sponsor, the terms “plan stakeholders” or “plan partners”

are sometimes used to refer to the sponsors.

b) Employer-sponsored pension plans

Where an employer voluntarily establishes a pension plan for its em-

ployees, it will customarily be referred to as the “plan sponsor” and

the plan will be referred to as an “employer-sponsored pension plan.”

Employer-sponsored plans most commonly arise in private-sector

workplaces. The term “plan sponsor” is often interchangeable with

“employer” in these circumstances.

The most signif‌icant feature of an employer-sponsored plan is with

respect to funding the pension benef‌its. Generally, an employer is re-

quired to ensure that the plan is fully funded to the level that secures

all promised pension benef‌its. An employer may not reduce any ac-

crued or vested benef‌its under the plan in the event that the pension

fund is de f‌icient.8 Rather, the employer is responsible for any unfunded

8 There are exceptions to this r ule, for example, where the plan is de signed as a