Law Times: Kyle Lambert says solvency funding changes may only ease some of the burden on defined benefit sponsors 

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August 30, 2017

News

A new Law Times report says pension sponsors are cautiously optimistic about Ontario’s new funding framework for defined-benefit (DB) plans, according to lawyers in the field.

 

Provincial law currently requires most private DB plans to report their funding ratios on a solvency basis, a method that calculates what percentage of the fund’s liabilities it could pay off using its existing assets if it were forced to wind up immediately.  Any shortfall must then be made up with a special payment spread over five years. While Ontario presently requires DB plans to be funded on a 100 per cent solvency basis, proposed legislative changes will reduce that number to 85 per cent, easing the funding burden on plan sponsors.

 

McMillan lawyer Kyle Lambert, who works from the Ottawa office, told the Law Times, he suspects some employers would have preferred the reforms to go further by eliminating solvency funding requirements altogether, especially those in the minority with funding ratios below the 85-per-cent threshold.

“If you have a smaller plan that’s stuck around 50 per cent and struggling to stay afloat, there’s still a significant burden there,” he says.    

Lambert believes Ontario’s more conservative approach may not be enough to stop employers from abandoning DB plans in favour of the typically less generous defined-contribution model.

“This is just the latest of a number of moves that seemed designed to keep as many pension plans afloat as possible, but I’m not sure if it really matters to a sponsor that is thinking of moving to DC,” he says.