Multi-Employer Benefit Plan Council of Canada


Ontario Multi-Employer Pension Plan Funding Relief 2020

March 25, 2020

The Hon. Rod Phillips
Minister of Finance
Ministry of Finance
Frost Building South
7th Floor
7 Queen's Park Cres.
Toronto, ON M7A 1Y7

Dear Minister Phillips,

Re: Ontario Multi-Employer Pension Plan Funding Relief 2020

Ontario is facing an unprecedented crisis that has wide-sweeping affects on working Ontarians. The Multi-Employer Benefit Plans Council of Canada (MEBCO - see appendix) represents the interests of workers in the construction, entertainment, retail and other industries with respect to their pensions and benefits. These workers do not have “normal” employer/employee relationships and rely on independent pension and benefit trusts to provide them with the necessary financial security sought after by all Ontarians. To that end, we offer the following comments on how the Ontario Government can assist these workers weather this crisis, in particular to ensure that their pension cheques continue to be paid. We’re taking this opportunity to provide both short-term and long-term solutions to this crisis.


Entering 2020, Multi-Employer Pension Plans (MEPPs) were just on the verge of emerging from the 2008 financial crisis. MEPPs were close to, at, or above fully funded status. This all changed with the COVID 19 crisis and resulting impact on investment markets, low interest rates and economic activity.

During the 2008 financial crisis, MEPPs managed to survive the crisis due to the implementation of the temporary Specified Ontario Multi-Employer Pension Plan funding rules. The current COVID 19 crisis appears to be more damaging to MEPPs than the 2008 financial crisis, requiring more significant funding relief to protect members and pensioners from drastic and immediate reductions to their benefits. Further, long term funding requirements should reflect the possibility that such crises may occur more frequently than ever expected. This results in the need for short-term funding relief considerations along with a reasonable long-term funding framework.

Although MEPPs are coming off very strong 2019 returns, it currently appears that MEPPs could experience large double-digit negative returns in 2020, along with interest rates near zero, and significant reductions to contributions due to severely reduced work hours. Although plans generally maintain a contribution margin to be able to fund shortfalls, under the current funding rules few plans may be able to address shortfalls of the magnitude that will be created due to the early 2020 environment. Investment returns will be likely at record negative lows and with most work sites potentially shutting down, work hours will plummet and then so will contributions. Finally, interest rates have never been lower in recent history, meaning pension liability values and normal costs are high.

It is likely that a global recession will occur. With the collapse of investment markets, it is not clear how long, or how deep, any recession will be. However, it is also not clear how fast or how big any recovery will be. Globally, governments appear to be keen to stimulate the economy, but any recovery is likely months, or possibly years, away.

Funding Objectives

Pension funding requirements are intended to provide some level of security to plan members that their accrued pensions (including pensions in pay) will be honoured. Benefit security must be balanced with benefit adequacy – greater benefit security comes at the cost of lowering the level of benefits.

MEPPs provide good pensions and a high level of retirement financial security to members. However, although benefit levels are reasonable, contractual indexing (either pre- or post- retirement) is largely non-existent. Post retirement death benefits usually come at a cost to the retiring member (by way of a smaller pension). The only meaningful ancillary benefit that is often provided is early retirement, which is appropriate given the nature of the work for many of those in the MEPP industries, such as construction. Thus, although MEPPs provide a high level of financial security, pensions in MEPPs are not as high and do not have the same ancillary benefits as those provided in the public and broader public sector plans. It would therefore be very harmful for funding rules to result in benefit reductions, especially at this time. Funding rules need to be aligned so that MEPPs can avoid being forced to take extreme measures in the short term as a result of the current circumstances as history tells us that markets will come back over the long term.

It would be unreasonable to increase benefit security through more restrictive funding requirements if that meant reductions in benefits. This is especially true in the current environment of general public uncertainty and a depressed economic period that is inevitably temporary. In other words, simply applying current funding rules will likely result in immediate cuts to pensions. This could provide a devastating blow to many MEPP members and pensioners, trying to survive the current situation.

MEPPs, like all pension plans, are long-term financial vehicles. Drastic reductions in pensions for pensioners that can little afford them only to have plans recover a few years down the road and be in a position to increase benefits for future members. Not considering the consequences of generational inequity will undermine the long term viability of these plans. To use a current popular term – we need to flatten the curve.

As a result, a key tenet must be to maintain current benefit levels – both accrued pensions and pensions currently being earned. This can only be achieved if minimum funding requirements are relaxed.

Short-term Funding Relief

The Ontario Government has previously advised that new MEPP funding rules are imminent. It is important to release permanent funding rules for MEPPs (these plans have been operating under temporary funding rules for 13 years). However, it would be imprudent to impose fundamentally different funding requirements at this time. We support the release of new rules, but recommend that MEPPS be granted a period of time (3-5 years) to be subject to them.
Some specific short-term funding relief mechanisms could be:

  1. To assist plans facing severe liquidity constraints, the Ontario Government will provide an interest free loan to MEPPs for up to 6 months of pension payments, repayable within 5 years.
  2. Extend the filing deadline for actuarial valuations effective December 31, 2019 (to at least December 31, 2020 or March 31, 2021) due to the potential challenges in administrators compiling the data due to social distancing.
  3. Allow trustees to elect to extend the applicable period beyond the current maximum 3 years in respect of the last filed actuarial report, provided that certain financial metrics have been met (to be determined) (i.e., extend the current report for up to another 3 years);
  4. Permit a filed December 2019 actuarial valuation to apply for more than the current 3-year period (perhaps 4-6 years), maintaining the option for trustees to elect to file a subsequent actuarial valuation early should they so choose. Alternatively, change the contribution sufficiency test to exclude the amortization of any experience losses in 2020 (or associated with periods consistent with the COVID 19 crisis) for purposes of requiring benefit reductions.
  5. Allow “fresh-start” amortizations for outstanding unfunded liabilities at future actuarial valuation dates.
  6. Extend the amortization period to 15 years - this option could be coupled with a restriction on any benefit improvements (excluding those automatically implemented with contribution rate increases) while an amortization period exceeds 12 years.
  7. Consider contribution sufficiency over periods covered by the actuarial valuation report rather than 12 months – to accommodate potential substantial fluctuation in work hours between 2020 and subsequent years.
  8. Allow for the immediate adoption of the Canadian Institute of Actuaries revised section 3500 of the practice-specific standards for pension plans – pension commuted values applicable to Target Pension Arrangements. At a time of unprecedented low interest rates, not allowing adoption of this standard will result in further significant losses to MEPPs. The calculation method provided by these standards was already permissible for such arrangements in BC and Alberta prior to the CIA’s revisions (released in January 2020) and has been adopted in most other provinces.
  9. History indicates that large investment losses are eventually followed by larger investment gains. Most MEPPs adopt some sort of asset smoothing approach to moderate the effect of swings in investment returns. However, one year of substantial investment loss followed by a year of substantial investment gains (e.g., 2018 followed by 2019) creates havoc when smoothing. Thus, in this environment, allow MEPPs flexibility in adjusting its asset smoothing approaches over a series of actuarial valuations to mitigate this risk of very large swings in investment returns.
  10. Implement new MEPP funding rules but allow MEPPs up to 5 years to be subject to them. 

Long Term Funding Regime

If we’re now in a “new normal” of wild market returns every decade or so, the funding regime must acknowledge this reality and be applicable within the funding objectives stated above. We continue to support the general funding framework structure previously announced, subject to our comments made in response to that proposal. The funding requirements should be a minimum standard, with trustees exercising their fiduciary duties to fund to a higher, prudent, level. In particular, the funding requirements should have the following characteristics:

  1. No solvency funding requirements;
  2. Going concern actuarial basis determined by the MEPP’s actuary in accordance with actuarial professional standards;
  3. Level of any Provision for Adverse Deviation (PfAD) at the discretion of the MEPP’s trustees;
  4. In the event that a PfAD applies, it is not considered when evaluating the plan’s funded status (i.e., there is no requirement to fund the PfAD on the balance sheet, it is funded by way of positive plan experience);
  5. Any PfAD required by regulation should be reasonable and not excessive (i.e., should be in the 5% - 8% range) and should be stable year over year (i.e., not variable based on external factors like levels of interest rates). Ideally, the size and application of any PfAD should be left to the trustees (subject to actuarial advice) rather than imposed by legislation;
  6. Any PfAD should only be considered in the contribution sufficiency test, and should be inclusive of any amounts allocated to eliminate an unfunded liability (i.e., the provision is the greater of any amortization amount and the PfAD);
  7. Extend minimum amortization period to 15 years to eliminate unfunded liabilities created by poor experience (a shorter period could be used to amortize the increase in liabilities due to benefit improvements);
  8. Allow “fresh start” amortizations to eliminate any unfunded liability; and
  9. Benefit improvements may be implemented provided that the MEPP has sufficient contributions to fund the benefits (after the improvement) whether or not the plan is fully funded (including a less than fully funded PfAD).

We would greatly appreciate the opportunity to discuss the above with you and your staff. Thank
you for your consideration of these issues.

Robert Blakely

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