On September 21, 2020, the Ontario government filed O. Reg. 520/20 (Regulation), which, among other things, permits employers of certain pension plans to elect to defer one or more consecutive monthly payments of employer contributions due between October 1, 2020 and March 31, 2021, including normal cost, provision for adverse deviations in respect of the normal cost and special payments.
Certain pension plans are ineligible to make such an election to defer employer contributions, including plans that do not provide defined benefits, multi-employer pension plans, individual pension plans and jointly sponsored pension plans. Deferred payments must be repaid with interest within scheduled timeframes specified in the Regulation.
An election to defer contributions must be filed with the Financial Services Regulatory Authority of Ontario (FSRA), and accompanied by a schedule of payments (Schedule of Payments) in accordance with the Regulation, no later than the date on which the contributions for the first deferred month are due. The election must specify which monthly payment or payments are deferred and, if more than one monthly payment is deferred, the deferred payments must be in respect of consecutive months. FSRA has indicated in its updated Pension Sector Emergency Management Response (Guidance) that a form for the initial election and the Schedule of Payments will be available soon.
The required Schedule of Payments must be prepared by an actuary and include financial information for the plan. The Regulation also sets out a number of requirements for updates to the Schedule of Payments. The first update must be prepared as of the last day of the third month following the month in which the first deferred payment would have been required had the election had not been made. Administrators must send this update to FSRA no later than 30 days after the last day of the third month. Subsequent updates are required on the last day of every third month thereafter, and must be filed no later than 30 days after the last day of the particular month. No further updates are required once FSRA has been informed that all deferred payments have been repaid with interest.
Updates to the Schedule of Payments must also include a statutory declaration made by an officer of the employer in a form satisfactory to FSRA, indicating that the employer has complied with the requirements of the Regulation. FSRA has prepared a template statutory declaration, which is available at Appendix A of the Guidance. Employers must provide the statutory declaration to their plan administrator at least 15 days before the update is due to FSRA.
An employer that makes an election to defer contributions is not permitted to take the following actions until all deferred payments are made and interest is paid:
- Declare or pay any amount, whether as a dividend or a return of capital, on any issued and outstanding share capital of the employer
- Buy back or otherwise purchase or redeem any issued and outstanding share capital of the employer
- Pay a bonus, however described, whether non-discretionary or discretionary, and whether in cash or otherwise, to any “executive” of the employer
- Increase the compensation of any “executive” of the employer
- Repay the principal amount of any debt or other obligation of the employer in excess of amounts previously scheduled and agreed to before September 21, 2020
- Pay or credit any amount as a loan or advance to or for the benefit of:
- Any person or entity that beneficially owns any issued and outstanding share capital of the employer or of any related person or entity of the beneficial owner, or
- Any “executive” of the employer and any related person or entity of the “executive”
- Enter into any transaction with a related person or entity in the normal course of business and under terms and conditions that are less favourable to the employer than market terms and conditions
For the purpose of the above restrictions, “executive” is defined in the Regulation as an employee or office holder who is a chief executive officer, president, vice president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief development officer of the employer or holds any other executive position or office with the employer, regardless of the title of the position or office.
FSRA’s updated Guidance provides additional details on the restrictions set out in the Regulation. The Guidance indicates, amongst other things, that FSRA considers both short-term and long-term incentives to be bonuses that would be restricted.
Additionally, administrators will not be able to file plan amendments to increase benefits or ancillary benefits, unless the amendment is made to confer a benefit improvement that is required by law or the amendment implements a benefit improvement agreed to in a collective agreement before September 21, 2020. O. Reg 520/20 contains further details regarding repayment schedules, interest payments, disclosure to members and calculation of contributions.
The Ontario government also filed O. Reg. 521/20, which provides for general administrative monetary penalties to be levied for breaches of certain provisions discussed above related to an election for deferrals of contributions.
For further information, please reach out to a member of our Pensions, Benefits & Executive Compensation group or your usual Blakes contact.
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