Permitting the Payment of Variable Benefits from Defined Contribution (DC) Pension Plans
R.R.O. 1990, REGULATION 909
ONTARIO REGULATION 287/11
Regulation - LGIC
Bill or Act:
Summary of Proposal:
Currently, plan members who belong to a pension plan that provides defined contribution (DC) benefits must transfer their money to a financial institution to start receiving retirement income. The variable benefit provisions in the Pension Benefits Act (PBA) would permit, but would not require, an administrator to offer Life Income Fund (LIF)-like payments directly from the plan through the establishment of a variable benefit account.
Variable benefits are considered 'variable' because retired members would be able to determine how much income is withdrawn annually, subject to a minimum amount required by the Income Tax Act (ITA) and a maximum amount set out in the regulations to the PBA. Retired members who elect to receive a variable benefit pension could continue to benefit from the plan's investment expertise and economies-of-scale.
The legislative framework for variable benefits is set out in sections 39.1, 39.1.1, 39.1.2, 67.1, 67.7, 67.8 and 67.9 of the PBA.
The main provisions contained in the proposed new variable benefits regulation would address:
• Basic rules regarding how a retired member may elect to receive variable benefits, the amount that must be transferred from the retired member's defined contribution account to the variable benefit account and the minimum and maximum amounts that must be paid from the account in a calendar year.
• The obligation on the administrator to provide the member with an initial statement and the obligation on the retired member or specified beneficiary to notify the administrator of the amount, frequency and method of payment.
• Default option in the event that an individual does not notify the administrator of the amount, frequency or method of payment.
• Details about the variable benefit account that the plan administrator must provide to the retired member in the initial statement, including the amount transferred to the account, notice requirements, information that the retired member may designate his or her spouse as a specified beneficiary for the purpose of the Income Tax Regulations and that the retired member is entitled to withdraw or transfer from the account up to 50 per cent to a registered retirement savings arrangement within 60 days of the establishment of the account.
• Requirements and restrictions regarding transfers in and transfers out of a variable benefit account.
• Administrator's obligation to provide statements and other miscellaneous items.
The Ministry of Finance is also proposing consequential technical amendments to the Family Law regulation to allow for the valuation and division of a retired member's variable benefit account on marriage breakdown, as well as to General Regulation 909 to, among other things, reflect additional information to be included in the termination statement provided to a member on retirement about the member's option to elect to receive variable benefits.
Analysis of Regulatory Impact:
Plan administrators would have the option of providing variable benefit pensions from the defined contribution component of their pension plans. Retired members would have the option to choose these payments if their plan offers them. As such, the costs of providing these benefits may shift from financial institutions who offer LIFs to plan administrators should a business choose to offer variable benefits and the retiree elects to receive them.
April 11, 2019
Comments Due Date:
May 3, 2019
Variable Benefits Regulations
Pension Benefits Standards, Pension Policy Branch
Ministry of Finance
5th Floor, Frost Building South
7 Queen's Park Crescent East