An Act to reduce burden on people and business (The Better for People, Smarter for Business Act) received Royal Assent on December 8, 2020. The Act amends the Ontario Pension Benefits Act (PBA) such that employers of certain individual pension plans (IPPs) or designated plans (DPs) can elect to exempt their plans from the application of the PBA, its regulations and rules of the Financial Services Regulatory Authority (FSRA), the Ontario pension regulators.

The exemption applies to all IPPs or DPs where all active members are connected persons and all retired/deferred members were connected persons up until the date they retired/terminated. Connected person is defined in the Income Tax Regulation as an individual owning 10% or more of any class of shares of the company or not dealing at arm’s length with such individual (e.g. spouse, parent or child).

The exemption means that the employer will no longer have to:

• Comply with Ontario PBA funding rules.
• File forms and triennial actuarial valuations with FSRA.
• Pay the registration and annual assessment fees.
• Make statutory minimum contributions required by the PBA to the plan

The exemption does not apply to the registration requirement with Canada Revenue Agency (CRA).

Please note the following:

• Only connected persons may join an exempted IPP.
• Any connected person, whether active, deferred or retired, may later become non-connected without affecting the exemption.
• The exemption is optional.

Employers who wish to exempt their IPPs or DPs from the PBA must complete and submit an Exemption Election Form and the applicable consent forms to FSRA. FSRA have prepared the appropriate forms
required to be completed and filed with them.

Westcoast Actuaries will be contacting all our clients affected by the new legislation to assist them in the application for exemption process.

If you have any questions, please contact the IPP team at Westcoast Actuaries. In addition, you might find that most of your questions are answered by FSRA’s comprehensive Q&A.

Westcoast Actuaries’ Comments

Although the exemption applies only to IPPs and DPs registered in Ontario, this is a major step in the right direction as far as IPPs in Ontario are concerned. The great majority of the plans which may now be
exempted do not require the protection of the Ontario PBA and in many cases the required contributions according to the PBA funding rules cannot be made as they would exceed the limit permitted by the Income Tax Act (ITA).

This now puts Ontario on the same footing as many other provinces* with respect to the legislation regarding these IPPs. If you have been putting off implementing an IPP because of the extra cost and red tape involved with registering an Ontario IPP with FSRA, now is the time to reconsider. If you are interested in finding out about the possibilities, please call Bruce Moir at 647-766-2415 or e-mail him at Bruce@WAInc.ca . Westcoast Actuaries will recognize the considerable reduction in red tape attached to the exemption by reducing our fees to be similar to those we charge our clients in other exempt jurisdictions outside Ontario.

One issue we have investigated is the possibility of a loss of creditor protection resulting from exemption. The creditor protection may be affected by the PBA exemption since the provincial pension regulations stipulate the protection and exceptions to the protection. However, the IPP will retain some level of creditor protection via trust laws and the ITA. While this is not a legal opinion, the extent to which the creditor protection is affected by the PBA exemption appears to be minimal.

There are some specific scenarios where we can foresee a client opting to maintain registration under the PBA:

• DPs where the member is not the controlling shareholder may decide to retain the registration with FSRA if they wish to preserve a more secure pension benefit. Maintaining registration under the PBA means the employer continues to be obligated to fund the IPP and the member has full entitlement to benefits.
• A spouse does not wish to relinquish their rights to survivor benefits from the IPP. The IPP member may name a non-spouse beneficiary without the spouse’s consent if the IPP is exempted from the PBA, therefore, when the spouse consents to the PBA exemption they are also relinquishing their rights to survivor benefits. Note that the tax benefits of having the spouse as the beneficiary are still intact, the PBA exemption only means the IPP member is no longer required to designate their spouse as their primary beneficiary.
• The most robust creditor protection is desired. Although trust law and the ITA provide protection from creditors, maintaining the registration under the PBA may enhance the creditor protection.

We expect that the majority of business-owner IPPs who are eligible for the exemption will pursue it. The PBA imposes a lot of extra requirements and restrictions and this results in higher fees. We cannot imagine many IPP clients preferring to continue to pay twice as much for a less flexible IPP.

*Alberta, BC, Manitoba, New Brunswick, Nova Scotia and Quebec all provide some level of exemption for IPPs and/or DPs. Nova Scotia and New Brunswick were two other recent additions to the list, like Ontario, having amended their pension legislation in 2020. For more information regarding this please contact our IPP team.