The amendments to the Pension Benefits Act (PBA) eliminating partial wind ups and identifying a broader range of circumstances that will trigger grow-in benefits to be paid to eligible members of pension plans that provide defined benefits were proclaimed into force July 1, 2012. The PBA also identifies circumstances that will not trigger grow-in benefits to be paid.
The amendments to the PBA allowing employers and members of Jointly Sponsored Pension Plans (JSPPs) and administrators of multi-employer pension plans (MEPPs) to opt out of providing grow-in benefits to their members were also proclaimed into force July 1, 2012.
Regulation 178/12 (the Regulation) made under the PBA also came into effect on July 1, 2012. The Regulation identifies an additional circumstance that will trigger grow-in benefits to be paid to eligible members. The Regulation also sets out the mechanics of the opting out process for those JSPPs and MEPPs that decide to opt out of providing grow-in benefits to their members.
New Requirements for Grow-in
Under the PBA, eligible members become entitled to grow-in to certain benefits (referred to as “grow-in benefits”), such as an unreduced early retirement pension, even though their employment is terminated before they have met the eligibility requirements to qualify for the benefits. To be eligible, members must be employed in Ontario and their combination of age plus years of continuous employment or membership in the plan must equal at least 55 on the relevant date.
If an individual ceases to be a member of the plan as a result of the employer’s termination of his or her employment, the relevant date is the effective date of termination. If an individual ceases to be a member of the plan as a result of the wind up of the plan, the relevant date is the effective date of the wind up.
For example, a plan may provide that a member is entitled to begin receiving an unreduced pension when he or she reaches 60 years of age. If a member’s membership is terminated when he or she is 48 and at the date of termination the member has 10 years of continuous employment or membership in the plan, the member would be eligible to begin receiving an unreduced pension when he or she is 60. This is because the member’s age plus years of continuous employment or membership in the plan is equal to at least 55 on the effective date of termination. The pension the member will receive will be based on the benefits he or she earned as at the effective date of wind up or termination.
Circumstances triggering payment of Grow-in
Before July 1, 2012, grow-in benefits were available to eligible members of pension plans that provided defined benefits only when they ceased to be members of their plans on the wind up of the plans. As of July 1, 2012, grow-in benefits are available to eligible members in a broader set of circumstances (referred to in the PBA as “activating events”).
The following circumstances are identified in the PBA and Regulation as activating events that will trigger grow-in benefits to be paid to eligible members:
- the wind up of a pension plan, if the effective date of the wind up is on or after April 1, 1987;
- the employer’s termination of the member’s employment, if the effective date of the termination is on or after July 1, 2012; and
- the member resigns before the termination date specified in a written notice of termination of employment given to him or her by the employer.
Circumstances not triggering payment of Grow-in
If the member’s employment was terminated as a result of wilful misconduct, disobedience or wilful neglect of duty by the member that is not trivial and has not been condoned by the employer, such termination of employment is not considered to be an activating event. In that circumstance, a member will not be entitled to grow-in benefits.
The Regulation identifies other circumstances that are not considered to be activating events and where members will not be entitled to grow-in benefits. They are:
- where the member is a construction employee within the meaning of Ontario Regulation 285/01(Exemptions, Special Rules and Establishment of Minimum Wage) made under the Employment Standards Act, 2000; and
- where the member is on temporary lay-off within the meaning of subsection 56(2) of the Employment Standards Act, 2000.
Opting out of grow-in – JSPPs and MEPPs
Section 74.1 of the PBA permits JSPPs and MEPPs to opt out of providing grow-in benefits to their members. The election to opt out must be exercised by:
- the employers (or any persons or entities who make contributions on behalf of the employers or who represent employers) and the members (or the representatives of the members) of a jointly-sponsored pension plan (JSPPs), in the case of a JSPP; and
- the administrator of a multi-employer pension plan (MEPP), in the case of a MEPP.
The election to opt out must be made within a prescribed period and satisfy certain requirements.
Please refer to the special posting of June 5, 2012, which explains in detail the period for making the election and the requirements that must be satisfied for opting out.
Questions and answers on opting out of the new grow-in rules
Elimination of Partial Wind Ups
As of July 1, 2012, partial wind ups of pension plans are eliminated. Any plan whose effective date of wind up is on or after July 1, 2012 may not be wound up in part.
For a partial wind up with an effective date prior to July 1, 2012, the rules that were in effect for wind ups prior to July 1, 2012 continue to apply (except that the administrator is not required to purchase life annuities for members, former members, retired members or other persons entitled to benefits under the plan in order to distribute the assets in connection with the partial wind up – see subsection 77.2 of the PBA). Eligible members who are affected by the partial wind up will continue to be entitled to be paid grow-in benefits.
Questions and answers on the elimination of partial wind up and transitional issues