Reach

• Author: Ari N. Kaplan
• Profession: Partner, Koskie Minsky LLP. Faculty of Law, University of Western Ontario
• Pages: 94-136

CHAP TER 3

REACH

Since the establishment of a pension plan is a voluntary exerci se, so

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

untary. The exceptions to this principle are primar ily regulatory in

nature. Pension plans are subject to the requirement s for registration

under provincial p ension standard s legislation and the Income Tax Act1

(ITA). These rules prescr ibe minimum pen sion standards, which a re

the substantive core of pension regu lation. The legislation places limits

on the freedom of employers and employees to contract the design of

a pension plan. From a public policy per spective, the purpose of pen-

sion standards legi slation is to protect the benef‌i ts and other right s of

employees, pensioners, their spouses and benef‌i ciaries and ensure that

the assets in t he pension fund corres ponding to the benef‌i t promises

will be avail able when due.

This chapter descr ibes the jur isdictional appl ication of provincial

pension standard s legislation, with a focus on the Ontar io Pension Bene-

f‌i ts Act (PBA)2and the federal Pension Benef‌i ts Standards Act (PBSA),3 the

registration requirements for pen sion plans under the PBA and t he ITA,

and the legal principles applic able to the nature and scope of the PBA’s

statutory f‌l oor.

1 R.S.C. 1985, c. 1 (5th Supp.), as amended [ITA].

2 R.S.O. 1990, c. P.8.

3 R.S.C. 1985, c. 32 (2nd Supp.).

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Reach 95

A. INTRODUCTION

With the exception of the short-lived Pension Benef‌i ts Act, 1962–63,4

there is no statutory requirement that an employer establish a pension

plan for its employees.5 Accordingly, it is the implementation of a deci-

sion to sponsor a pension plan t hat triggers the application of the PBA.

As stated by one court:

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

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

and its employees. Once e stablished, however, there is no doubt that

compliance with the provisions of the PBA is mandatory.6

The PBA governs t he establishment and admi nistration of pension

plans in Ontar io. The PBSA is the governing legislation in respect of

“included employment” in the federal sectors.

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

ployees after comparatively short ser vice, provide employees w ith the

right to portable benef‌i ts on ter mination of employment, preserve pen-

sions by locking-in benef‌i ts upon termination of employment, confer

minimum benef‌i ts on death, and protect interests of spouses, former

spouses and same-se x partners.

The PBA a lso sets out the responsibi lities of employers who estab-

lish and sponsor pension plan s. The legislation requires the employer

to include all minimum st atutory standard s and benef‌i ts as it designs

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

to ensure the long-term f‌i nancial viability of pen sions and deferred

benef‌i ts, and appoint a pension plan admi nistrator to administer the

plan and the pension fund. Under the PBA, plan administrators must

prudently invest the assets of a pension fund, disclose required docu-

mentation to plan members, make al l prescribed reg ulatory f‌i lings as

required, and administer their plans in accordance with the legislation

and the plan terms.

Finally, the PBA prescribes procedures for plan amendment and

termination and codi f‌i es generally the respective rights, duties, and re-

sponsibilities of the pension regulator, employers, administrators and

their agents, employees, and pensioners.

4 S.O. 1962–63, c. 103.

5 See Chapter 2, se ction C(2)(a).

6 Abella J., dis senting in St. Marys Paper Inc. (Re) (1994), 116 D.L.R. (4th) 448 at

466 (Ont. C.A.), aff’g (1993), 107 D.L.R. (4th) 715 (Ont. Gen. Div.). [St. Marys].

PENSION LAW96

B. SPONSORSHIP

This section identif‌i es the legal issues arising from t he various forms of

plan sponsorship and from the va rious models available for design ing

and calculating pension benef‌i ts.

1) P l a n Sp o n sor

a) Introduction

The term “plan sponsor” is not a term that is def‌i ned 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 ultim ate

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 sta keholders” 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 customarily be referred to as the plan sponsor and the

plan will be referred to as an employer-sponsored pension plan. Sin-

gle-employer-spon sored pla ns most commonly ari se in pr ivate-sector

workplaces. The term “plan sponsor” is often intercha ngeable with

“employer” in these circumst ances.

The most signif‌i cant feature of an employer-sponsored plan is with

respect to funding t he pension benef‌i ts: an employer is required to en-

sure that the plan i s fully funded to the level t hat secures all promised

pension benef‌i ts. An employer may not reduce any accrued or vested

benef‌i ts under the plan in the event that the pension fund is def‌i cient.

Rather, the employer must make good any unfunded liability or sol-

vency def‌i ciency in the pension fund that arises while the plan is i n

operation by contributing speci al payments beyond those pre scribed

in the plan.7

c) Multi-employer pen sion pla ns

In the broader public-sector and in the constr uction trades, pension

plans are frequently e stablished through collective bargaining. In such

cases, a pens ion plan may be jointly-sponsored by one or more employ-

7 See Chapter 7, section C(4).