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August 18, 2014

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Page 10 August 18, 2014 • Law Times www.lawtimesnews.com FOCUS Exemption from 10-per-cent rule among pension changes By Julius Melnitzer For Law Times ONTARIO PENSION ACT AMENDMENTS As part of its pension reform ef- forts, the Ontario government has announced several amendments to the Pension Benefits Act and regulations. The changes relate to state- ments of investment policy and procedures, annual statements for former and retired members, financial statements, and the pay- ment of variable benefits from defined-contribution plans. "The amendment that will have the most important practical implications is the one requiring that statements be sent to former and retired members," says Peggy McCallum of Fasken Martineau DuMoulin LLP's Toronto office. "Right now, they haven't been getting them." The information that will now go to former and retired mem- bers is similar to the information members receive annually. Plan administrators will have to pro- vide these statements on the ear- lier of every three years or within six months of the filing date of the last valuation report. They must provide the first statements with- in 12 months of proclamation of the amendment. "More disclosure is a good thing but it's also more work for administrators," says Mitch Fraz- er of Torys LLP's Toronto office. "On the whole, it makes [de- fined-contribution plans] more cumbersome and it isn't clear who's going to pay for this." But McCallum says some plan sponsors will welcome the new requirements. "Sending out statements to former and retired members al- lows sponsors to keep track of a group that can be hard to stay on top of," she says. Otherwise, acting on the re- port of the Ontario expert com- mittee on pensions, the govern- ment proposes that pension plans include in their annual statements an accounting of whether or not the statements of investment policies and proce- dures they must file with the Fi- nancial Services Commission of Ontario address environmental, social, and governance factors. "All the government seems to be asking is for pension plans to disclose whether or not they have considered these factors," says Kathryn Bush of Blake Cassels & Graydon LLP's Toronto office. As well, a new amendment would allow defined-contribu- tion plans to pay retirement in- come directly to retired members. Currently, retiring members must take their account balance out of the plan on retirement. "For members, it's a posi- tive development because they get lower fees and benefit from investment expertise," says Mc- Callum. "But I don't see a significant take-up rate from plan sponsors because paying the pensions di- rectly will be an administrative burden, involve additional fees, and pose a fiduciary risk." Finally, the amendments up- date regulatory requirements to ref lect updates to the Char- tered Professional Accountants Canada handbook. The updates change the definition of related party, exchange market value for fair value in the reporting of assets and liabilities, and expand the list of investment assets and liabilities that must be disclosed. 10-PER-CENT RULE EXEMPTION In March, a regulation exempt- ing securities issued by the gov- ernment of the United States from the 10-per-cent rule found in Ontario's Pension Benefits Act took effect. The rule limits assets in which a plan can invest or loan to a single company or a group of re- lated companies to 10 per cent of the total book value of its assets. There are other exceptions, in- cluding for securities issued or fully guaranteed by the federal or provincial governments. "The intention of the rule is to provide more f lexibility on portfolio di- versification," says Frazer. NEW ALBERTA PENSION LEGISLATION On July 22, the Alberta govern- ment approved the long-delayed regulations to the Employment Pensions Plans Act passed in late 2012. Now that it has released the regulations, the act will come into force on Sept. 1, 2014. But the legislation won't in- corporate bill 10, tabled by the government in April as the em- ployment pension (private sector) plans amendment act. The pro- posed amendments included a re- gime for converting accrued ben- efits when an employer converts a defined-benefit pension plan to a target-benefit arrangement. With a major fight over pen- sions looming, all parties agreed to send the bill to the standing committee on Alberta's eco- nomic future for further con- sultation. 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