Ontario’s pension-solvency rules mean non-unionized workers can’t get the best plan

‘We should urgently be doing everything possible to protect the financial future of 60% or 70% of Ontario workers who have no pension’

July 10, 2018

The Ontario government’s policy of granting preferential pension funding rules to unionized workplaces may be impairing the ability of workers in non-union and non-profit workplaces to prepare and plan for their retirement.

“The apparent resoluteness of the Pension Policy Division of the Ontario Ministry of Finance to continue discriminating against non-union and non-profit workplaces is impairing our potential to improve pension coverage for those currently in defined contribution (DC) plans and to increase coverage for the 60 to 70 per cent of Ontario workers who have no pensions,” says Randy Bauslaugh, a pensions lawyer in the Toronto office of McCarthy Tétrault LLP.

The most common form of workplace pension in Ontario is the target benefit (TB) multi-employer pension plan (MEPP). Some 70 per cent of employees in pension plans belong to these plans, which include defined benefit (DB) MEPPs and jointly sponsored pension plans (JSPPs). MEPPs are common in the construction industry, for example, while JSPPs are found largely in the public sector, including the Ontario Teachers’ Pension Plan, the Healthcare of Ontario Pension Plan, the Ontario Municipal Employees Retirement System, the Colleges of Applied Arts and Technology Pension Plan and the OPSEU Pension Trust.

Employer costs are fixed in TB plans, just as they are in DC arrangements or group RRSPs. However, unlike DC arrangements, TB MEPPs do not maintain individual member accounts, but rather pool investment and longevity risks, with the result that retirement income can be provided on a cost-efficient, sustainable and predictable basis.

“On average, because TB plans work like DB plans from the investment perspective, they can deliver $1 of retirement income at 48% less cost than the average DC arrangement,” Bauslaugh said. “Put another way, an individual would have to contribute approximately 92% more to the average DC or RRSP arrangement to receive the same level of lifetime retirement income as they could realize under an average target benefit plan.”

In 2007, the Ontario government created the so-called specified Ontario multi-employer pension plan (SOMEPP) rules. They granted an exemption from solvency funding requirements to DB MEPPs — but only to DB MEPPs in for-profit unionized workplaces.

In May 2018, the then-Liberal government implemented a new funding framework for DB plans that continued to exempt only unionized workplaces from solvency rules.

“In establishing the new framework, the government recognized that the new rules were not appropriate for DB MEPPs because new members would pay proportionately more for benefits than older members or members with longer service,” Bauslaugh said. “But it still allowed these inappropriate rules to continue in non-union workplaces on the rationale that unions can exert a practical, if not legal, influence to promote good governance, thereby reducing the increased risk of thinner plan funding created by the exemptions.”

About the same time, the emergence of TB plans prompted the Ontario government to release a consultation paper on a funding framework for TB MEPPs. Like the new DB rules, it also proposed to exempt TB MEPPs in unionized workplaces and in the public sector from solvency funding requirements. Workers in non-union and non-profit workplaces remained subject to the general rules.

Murray Gold, a pensions lawyer at Koskie Minsky LLP in Toronto, told Legal Post that having trade unions represent members and protect them is fundamental to the structure of a MEPP.

“If you don’t have that, you need solvency protections,” he said.

Gold believes that non-unionized employers should seek retirement security by joining union-sponsored plans.

“If you’ve got a trade union that’s protecting the majority of plan members and non-union members want to join, that’s fine in principle,” Gold says.

But Bauslaugh questions this reasoning.

“My practical experience with a broad range of MEPPs is that unions — particularly one-union MEPPs, like those involving the (United Food and Commercial Workers International Union) and a few plans in the construction industry — are more concerned with looking out for the interests of the union or the international union and broader collective bargaining measures as opposed to the interests of plan members,” he said. “I have also been present in negotiations where the union was happy to sacrifice retiree interests for the greater good of active plan members who are currently in the union.”

For his part, Gold acknowledges that it’s not at all clear that Ontario law in its current state would allow non-union members to join union-sponsored plans.

Meanwhile, the discriminatory impact of Ontario’s pension rules persists. For example, according to Bauslaugh, the new funding solvency rules will result in pension benefit reductions of 15 to 20 per cent for a pension plan in the education sector that has been in operation since 1948.

“We are in discussions about ejecting the 10 to 12 schools in Ontario whose participation is not based on a collective agreement, or maybe carving off the Ontario portion of the plan and moving the registration to BC or Alberta, which have the same funding framework for unionized and non-unionized workplaces.” Bauslaugh said.

The union sector, Bauslaugh notes, already enjoys 75 per cent pension coverage, vastly greater than the general population, which comes in at about 30 to 40 per cent.

“We should urgently be doing everything possible to protect the financial future of 60 per cent or 70 per cent of Ontario workers who have no pension at all, and who work primarily in non-unionized small to medium enterprises, including the increasing number of people who work on their own from their homes,” he said.

It’s unknown what the stance of Ontario’s new Conservative government will be. But Izhak Goldhaber, senior vice-president of Lawyers Financial — an arm of the Canadian Bar Association that has created a TB plan for lawyers, accountants and doctors that it plans to launch in 2020 — believes the policies of the former Liberal government were definitely headed in the wrong direction.

“We’re concerned that the overall direction not only provides no consideration for non-unionized MEPPs, but in fact creates a more onerous framework for them,” he said.

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