AuthorAri Kaplan, Mitch Frazer
Since the establishment of a pension plan is a voluntary exercise, so
too, to a large extent, is the general design a nd content of a plan vol-
untary. The exceptions to this principle are primarily regulator y in
nature. Pension plans are subject to the requirement s for registration
under provincial pension sta ndards 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 regul ation. 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 regi stered pen-
sion benef‌its for all Canadian s; 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 benef‌ici aries 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 I TA is to establish a set of tax rules
and policies that restr ict who can contribute, the amount and timing
of contributions, the type s of income that can be deferred, and when
payment of retirement income must commence.
This chapter describe s 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].
ef‌its Act (PBA)2 and 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.
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 st ated by one court:
There is no requirement in Ont ario that an employer establish a pen-
sion plan. Its wil lingness to do so is a m atter of contract between it
and its employees. Once est ablished, however, there is no doubt that
compliance with t he provisions of the PBA i s mandator y.6
The PBA governs the establishment and administ ration of pension plans
in Ontario. The PBSA is t he governing legislation in respect of “included
employment” in the federal sectors.7
Generally, the PBA requires pension plans to vest benef‌it s in em-
ployees immediately, provide employees with the right to portable
benef‌its on terminat ion 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 legisl ation requires the employer to in-
clude all minimum statutory st andards and benef‌its a s it designs its pen-
sion plan, pre-fund the pension plan to minimum levels so as to ensure
the long-term f‌inancial v iability of pensions and deferred benef‌it s, 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, d isclose 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 senting in 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 prescribe s procedures for plan amendment and
termination and codi f‌ies generally the respective rights, duties, and re-
sponsibilities of the pen sion regulator, employers, administrators and
their agents, employees, and pensioners.
This section identif‌ies the legal i ssues arising from the various forms of
plan sponsorship and from the var ious models available for designing
and calculating pen sion 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 industr y to
denote the one or more entities that, or persons who, establish the pen-
sion plan and to whom is reserved in t he 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 st akeholders” or “plan partners”
are sometimes used to refer to the sponsors.
b) Employer-sponsored pension plans
Where an employer voluntarily establishes a pen sion plan for its em-
ployees, it will customari ly 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 pr ivate-sector
workplaces. The term “plan sponsor” is often interchangeable with
“employer” in these circumstances.
The most signif‌icant feature of an employer-sponsored plan is w ith
respect to funding t he pension benef‌its. Generally, an employer is re-
quired to ensure that the plan is fully funded to the level th at 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

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