Thursday, February 11, 2010

Ontario Pension Commission Recommendations

The Ontario Government commissioned a group of experts in 2006 to examine the situation on Pensions and to recommend new approaches given the fact that a number of pension funds fail and result in retirees losing benefits.

The recent activities by the NRPC to protect Nortel retiree benefits have included discussions with the government to implement the recommendations of the Pension Commission. One recommendation is that Ontario should create an Ontario Pension Agency (OPA) to handle pension plans of failed companies like Nortel. This would allow the Ontario Government to continue administering the plans. Reductions in payments may occur as in the case of Nortel, but the OPA may be able to minimize the impact by amalgamating the assets of many plans. Recommendation number 5-2 on the OPA is shown below.

Another recommendation ot the Commission is that the current Pension Benefit Guarantee Fund of Ontario increase the minimum amount paid from $1000 to $2500. See recommendation 6-17 below.

The full report of the Commission can be seen at:

Recommendation 5-2 — The Lieutenant Governor in Council should establish an Ontario Pension Agency to receive, pool, administer, invest and disburse stranded pensions in an efficient manner.

I explore the possible uses of the Ontario Pension Agency (OPA) later in this chapter and in Chapter Six. First, however, a word about its structure and general mandate. The OPA could be established as an arm’s-length Crown corporation, or operated under franchise by one or more private firms based in the pension industry or, indeed, through some form of public–private partnership — but there should be no long-term reliance on government funding. However organized, it should be able to sustain itself after an initial period by charging modest service fees to its “clients.” The OPA would provide pension beneficiaries and sponsors with the option of depositing the assets of stranded pension funds with the agency, which would, in turn, invest and actively manage them. Upon retirement, the beneficiary would receive not the pension originally contracted for, but an earnings-related target benefit pension, calculated in a fashion roughly comparable to that used by the Canada Pension Plan. Conceivably, though it is not an essential part of the scheme, beneficiaries might be able to augment their initial stranded pension by depositing additional sums with the OPA by way of contributions from either subsequent employers or themselves.

While a host of important aspects of its mandate, design and operation remain to be determined,
the OPA would:

provide both the sponsors and recipients of stranded pensions with options not now available to them;
ensure that beneficiaries can retain, augment and keep track of stranded pensions accumulated over their working lives;
enable sponsors — with the consent of active plan members and retirees — to protect their pension entitlements without having to annuitize them following a wind-up or partial wind-up;
relieve sponsors of the obligation to track former employees with deferred pensions;
achieve economies of scale in administration and be able to pursue investment strategies not available to small plans or individuals; and
relieve the plan administrator of some of the burdens now associated with plan wind-ups and partial wind-ups, including what to do with accruals for the benefit of former plan members who cannot be found.
These possibilities are explored in greater detail below.

Recommendation 6-17 — The level of monthly pension benefits eligible for protection by the Pension Benefits Guarantee Fund should be increased to a maximum of $2,500 to reflect the effect of inflation on the original maximum of $1,000.

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