Ontario proposal would exempt IPPs from pension legislation

January 15, 2020 | Last updated on January 15, 2020
3 min read
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The consultation period will soon end on proposed amendments to Ontario’s Pension Benefits Act (PBA) that would exempt certain individual pension plans (IPPs) and designated plans.

As a result of the proposal, IPPs would no longer be subject to requirements set out by the province’s pension legislation, such as minimum funding requirements.

The proposed changes, introduced in November’s fall fiscal update, are part of the province’s plan to reduce regulation, especially for small business. The government’s consultation launched Dec. 20 and ends Jan. 23.

Lea Koiv, a tax, pension and retirement expert at Lea Koiv & Associates, and William C. Kennedy,  a senior vice-president at Lesniewski Moore Consulting Group, welcomed the proposals in a response shared with Advisor’s Edge.

“Where plans are established for members who are business owner–managers, eliminating what some consider as regulatory overreach and regulatory burden is long overdue,” they wrote.

Koiv and Kennedy also noted the proposed amendments would allow Ontario to join the other jurisdictions that provide exemption from pension legislation, including Alberta, British Columbia, Manitoba and Quebec.

Proposal details

Draft legislation lays out the requirements for IPPs or designated plans to be exempt from the pension act. Plan members must be “connected” with the employer as defined in the Income Tax Act, including owning at least 10% of the shares of the employer’s corporation and not dealing at arm’s length with the employer. Also, all plan members must consent in writing to the exemption.

The effective date of exemption must be set out in the election and filed with the chief executive officer of the Financial Services Regulatory Authority of Ontario (FSRA), the Ontario government’s consultation webpage says.

An IPP or designated plan established after the amendments come into force and containing only members connected with the employer would be automatically exempt from the provincial pension act.

Once a plan is exempt, only connected individuals can join it.

Proposed changes would also automatically exempt IPPs and designated plans that have had their Income Tax Act registration revoked but remain registered under the PBA.

Proposal benefits

Once a plan is exempt, the pension act and regulations — as well as FSRA rules — would no longer apply to the plan, including as it relates to benefits or entitlements accrued under the plan, the Ontario government says. The powers and duties of enforcement, as specified in the PBA, would no longer apply.

The administrative burden of these plans would thus be reduced.

“Actuarial valuations will be less complex,” Koiv and Kennedy wrote, as annual filings will be required with the Canada Revenue Agency but not FSRA. As a result, plan sponsors in Ontario wouldn’t have to pay FSRA’s $750 annual fee for pension plan assessment, which increased last year from $250.

Also, the province’s funding requirements for these plans would no longer apply — though a corporation’s available liquidity to fund a plan would still be a consideration when establishing an IPP.

Where funding concerns are “evident from the outset, it may not be appropriate to establish a plan,” Koiv and Kennedy wrote.

At the same time, they acknowledged that unforeseen circumstances can mean corporate funds are unavailable for making contributions in some years.

“Prospective plan sponsors will welcome being exempt from the PBA,” they said. “This will provide them with considerable flexibility as it relates to the timing of any contributions.”

The consultation period closes on Jan. 23. Read the draft amendments here.

Also read:

Deciding if an IPP is right for your client

Breaking down the government’s proposed IPP changes