The Ontario Ministry of Finance has released a consultation paper on the distribution of defined benefit (DB) pension fund surpluses, which it claims is designed to find a balance between employers and employees in surplus sharing arrangements.
Commenting on the release of the consultation paper, Ontario's finance minister, Jim Flaherty, said: Recent court decisions have limited the ability of employers and employees to negotiate surplus sharing arrangements. As a result, the legislation that governs the way these arrangements are negotiated in Ontario requires reform.
Under proposals put forward by the Ministry in the report 'Surplus Distribution from Defined Benefit Pension Plans,' the Pension Benefits Act (PBA) would be amended so that, in the event of a full wind up of the pension fund, plan sponsors would have to notify members and former members of the intent to withdraw the surplus.
However, the amended PBA would also allow an employer to apply to the Ontario Financial Services superintendent to withdraw the surplus, without the consent of the fund's members. Plan sponsors would only be able to so if the pension fund’s charter clearly states that ownership of the surplus lies with the sponsor.
The PBA would also state that employers are entitled to the surplus, even if the fund's charter does not clearly state the ownership of the surplus. This however, would be dependent upon the employer being able to secure the requisite level of consent of plan members and former members.
In the event of partial windups, the PBA would end the rights of fund members to share in any future surplus distribution, if some of that surplus was given to members when the fund was wound up. In cases where surpluses are not distributed on partial wind up, affected members would retain the right to consent to a future surplus distribution.
The report also states that the PBA should be amended to permit employers to take contribution holidays if the fund has a surplus, unless the plan documents expressly state otherwise. Other proposals include allowing the superintendent to order a final settlement of all remaining fund assets, in the event of a full wind up where surplus assets remain undistributed.
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