AuthorAri Kaplan/Mitch Frazer
Since the establishment of a pension plan is a voluntary arrangement,
so too, to a large extent, is the general desig n and content of a plan
voluntary. The exceptions to this principle are primarily regulatory in
nature. Pension plans are subject to the requirements for registration
under provincial pension sta ndards legislation and the Income Tax Act
(ITA).1 These rules prescribe minimum pension and taxation standard s
and form the substantive core of pension regulation. The legislation
places limits on the f reedom of employers and employees to contract
the design of a pension plan. From a public policy perspective there
are two competing interests: the protection and support of registered
pension benef‌its for all Canad ians; and the protection of government
tax revenues. More specif‌ically, the purpose of pen sion standards legis-
lation is to protect the benef‌its and other rights of employees, pension-
ers, their spouses and benef‌iciaries, and ensure th at the assets in the
pension fund correspondi ng to the benef‌it promises will be available
when due. One of the purposes of the ITA is to establish a set of t ax rules
and policies that restr ict 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 describ es the jurisdictional application of pension stan-
dards legislat ion, with a focus on the Ontario Pension Benef‌its Act (PBA)2
1 Income Tax Act, RSC 1985, c 1 (5th Supp), as amended [ITA].
2 Pension Benef‌it s Act, RSO 1990, c P.8 [PBA].
Reach 85
and the federal Pension Benef‌its Stan dards Act, 1985 (PBSA),3 the regi stra-
tion requirements for pension plans under t he PBA and the ITA, and t he
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 statutor y requirement 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 i s a matter 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 mandatory.6
The PBA governs the establi shment and administration of pension plans
in Ontario. The PBSA is t he governing legislation in re spect of “included
employment” in the federal sectors.7
Generally, the PBA requires pension plans to vest benef‌it s in employ-
ees immediately, provide employees with the right to portable benef‌its
on termination of employment, preser ve pensions by locking-in benef‌its
upon termination of employment, confer minimum benef‌its on death,
and protect interests of spouses, former spouse s, and same-sex partners.
The PBA also sets out the responsibil ities of employers who estab-
lish and sponsor pension plan s. The legislation requires the employer
to include all minimum statutory standards and benef‌its a s it designs
its pension plan, pre-fund the pension plan to minimum levels so as to
protect the long-term f‌inancial v iability of pensions and deferred benef‌its,
and appoint a pension plan admini strator to administer the plan and the
pension fund. Under the PBA, plan ad ministrators must prudently invest
the assets of a pension fund, disclose required documentation to plan
3 Pension Benef‌its St andards Act, 1985, RSC 1985, c 32 (2d Supp) [PBSA].
4 Pension Benef‌its A ct, 1962–1963, SO 1962–1963, c 103.
5 See Chapter 2, Sect ion C(2)(a). The one notable exc eption is in the province of
Quebec, where employers a re required to establish a r etirement savings plan ,
however, it need not be a register ed pension plan.
6 Justice Abella, dis senting in St Marys Paper Inc (Re) (1994), 116 DLR (4th) 448 at
para 55 (Ont CA), a’g (1993), 107 DLR (4th) 715 (Ont Ct Gen Div) [St Marys].
7 PBSA, s 4(2).
members, make all presc ribed regulatory f‌il ings as required, and admi n-
ister their plans in accordance with the legislation and the plan terms.
Finally, the PBA prescribes procedures for plan amendment and
termination and codif‌ies generally the respect ive rights, duties, and
responsibilities of t he pension regulator, employers, administ rators 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 pension benef‌its.
1) Plan Sponsor
a) Introduction
The term “plan sponsor” is not a term t hat is def‌ined or referenced in the
PBA. However, the term is widely used in t he pension industry to denote
the one or more entities that, or persons who, establi sh the pension plan
and to whom is reserved in the pension contract the ultimate power to
amend or terminate the plan. Pension plan s may be sponsored 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 p ension plan for its employ-
ees, it will customa rily be referred to as the “plan sponsor” and t he plan
will be referred to a s an “employer-sponsored pension plan.” Employ-
er-sponsored plans most commonly ari se 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 w ith
respect to funding t he pension benef‌its. Generally, an employer is required
to ensure that the plan i s fully funded to the level that secures all prom-
ised pension benef‌its. An e mployer may not reduce any accrued or vested
benef‌its under the plan in the event that the pension fund is def‌icient.8
8 There are exceptions to this r ule, for example, where the plan is de signed as a
“target benef‌it pla n”: see Section B(2)(e), below in t his chapter. See also Sect ion
B(1)(c), below in thi s chapter.

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