Reach

• Author: Ari Kaplan/Mitch Frazer
• Pages: 84-130

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CHAPTER 3

R E ACH

Since the establishment of a pension plan is a voluntary arrangement,

so too, to a large extent, is the general design 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 standards 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 freedom 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 Canadians; 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 that the assets in the

pension fund corresponding 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 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 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].

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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.

A. INTRODUCTION

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 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 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 responsibilities of employers who estab-

lish and sponsor pension plans. The legislation requires the employer

to include all minimum statutory standards and benef‌its as 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 sentingin 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).

PENSION LAW86

members, make all prescribed regulatory f‌ilings as required, and admin-

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 respective rights, duties, and

responsibilities of t he pension regulator, employers, administ rators 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 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 as an “employer-sponsored pension plan.” Employ-

er-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 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.