The Financial Services Regulatory Authority (FSRA) of Ontario issued new guidance on Friday advising employers in the province that they are not allowed to stop or reduce their matching contributions into their company-sponsored defined-contribution (DC) pension plans due to financial stress caused by the Covid-19 pandemic.
“Employers cannot simply stop making required contributions to DC pension plans that they participate in,” indicated the provincial regulator. “Any change to employer or member-required contributions can only be on a go-forward basis and must be supported by an amendment to the [pension] plan text.”
However, if a company does amend its plan to temporarily suspend contributions for part of the 2020 calendar year, the FSRA will not order a plan to be wound up solely due to that reason, “subject always to our ability to act upon the facts of any particular case,” the regulator said.
The FRSA’s updated guidance, effective as of Friday and until further notice, addresses a variety of regulatory and operational issues and concerns for pension plan sponsors and administrators in order to help them meet their regulatory requirements during the crisis. It also provides information for pension plan members who might have questions regarding their pension plans and benefits.
“It is our expectation that pension plan sponsors and administrators will focus on managing risks while making all efforts to meet their administrative and other pension-related obligations,” the FSRA said.
The FSRA said that firms that anticipate being unable to continue making required contributions to DC plans, or employees who would rather not contribute because of reduced earnings, are “required to contribute in accordance with the PBA [Pension Benefits Act] and the plan text that governs their pension plan.”
While amending the provisions of a plan text is a possible option available to companies, such a step “requires careful consideration and analysis of a number of factors, including the plan specific amending provision and any collective agreements that govern the plan, as well as potential employment law implications and member notice requirements,” the FSRA said.
If member contributions are optional under the rules governing a particular DC plan, “[plan] members can choose to reduce or eliminate those optional contributions in accordance with plan rules – and any matching employer contributions will then be reduced accordingly,” the FSRA pointed out.
If an employee is laid off or on leave and has reduced or no earnings, plan sponsors will need to determine if contributions must continue. “The determination of the requirement to continue contributions (or not) will depend in part on employment law considerations, the specific fact situations involved and the terms of the plan text,” the FSRA said.
Guidance issued by the FSRA in March in response to the Covid-19 crisis advised plan administrators of Ontario-registered defined-benefit pension plans that if the plan’s transfer ratio had fallen by 10% or more since the most recently determined transfer ratio, “the administrator shall not transfer any part of the commuted value of a pension, deferred pension or ancillary benefit to which a member or former member is entitled, without first obtaining FSRA’s prior approval.”
On March 27, the Office of the Superintendent of Financial Institutions froze all transfers out of federally regulated DB pension plans.