A. INTRODUCTION
Proposed changes to the Ontario Pension
Benefits Act (PBA) were introduced on October 19, 2010
under Bill 120.
A small change that could be easily missed offers a new
pension planning opportunity for any related group of charities
and not-for-profits, making it simpler for the related companies
to participate in a single registered pension plan.
B. CORPORATE GROUPS
Businesses often establish subsidiaries
or affiliates for good commercial reasons. Recently, more
and more charities and not-for-profits have established
related companies. Separate legal entities are often prudent
in order to protect endowments and other assets against
claims that may arise from activities within a particular
branch of the organization.
For example, a charity operating a summer
camp might wish to have one entity operate the camp, while
putting endowments in a separate entity and ownership of
the real property in another entity. Each of the three companies
may have its own employees. If all three companies wish
to allow their employees to participate in a registered
pension plan, it would be simplest and least expensive to
have one pension plan for employees of all three companies.
C. PENSION PLANS FOR CORPORATE GROUPS
If a group of affiliated business corporations
participate in a single pension plan, that plan will not
be considered to be a multi-employer pension plan (MEPP)
for purposes of the PBA. This exemption from MEPP status
benefits employees, since members of MEPPs do not have the
benefit of the Pension Benefits Guarantee Fund. The Pension
Benefits Guarantee Fund pays minimum guaranteed pension
benefits in certain situations where the pension plan is
not able to pay the promised pension benefits in full. As
well, the PBA imposes different governance requirements
for MEPPs than for single-employer plans.
To date, the PBA exemption from MEPP
status for affiliated companies has used the definition
of “affiliate” contained in the Ontario Business Corporations
Act. That definition is based on control through the
holding of voting securities, so it has not applied to related
non-share companies. Hence related groups of charities and
not-for-profit companies have been required to either establish
a separate pension plan for each employer, establish a MEPP
or find an alternative to a registered pension plan.
D. PROPOSED AMENDMENTS TO PBA
Bill 120 will extend the exemption from
MEPP status to pension plans where all of the participating
employers are affiliates within the meaning of the Business
Corporations Act or the Not-for-Profit
Corporations Act, 2010.
The Not-for-Profit Corporations Act,
2010 was enacted on October 25, 2010, although it is
not yet in force. The definition of “affiliate” in the Not-for-Profit
Corporations Act, 2010 tracks the definition of “affiliate”
in the Ontario Business Corporations Act in substance,
except that control may be by way of votes attached to shares
or memberships.
For example, if a parent charity or not-for-profit
controls two subsidiaries through voting memberships, all
three companies will be “affiliates” under the Not-for-Profit
Corporations Act, 2010. Under the proposed changes to
the PBA, employees of all three companies could participate
in a single pension plan without the plan being a MEPP.
The same result has been theoretically
possible since amendments to the PBA were made in 2007 that
allowed exempting regulations to be made for pension plans
with multiple participating employers. However, obtaining
a regulation is not a quick or simple procedure. In fact,
no such exempting regulation has ever been made.
As a result of the change to the PBA,
it will be easier and less expensive to allow employees
of several related charities to participate in a single
pension plan, while still allowing employees the protection
offered by the Pension Benefits Guarantee Fund.
Note that the changes to the PBA proposed
under Bill 120 are not yet law. This particular change is
not likely to be controversial, but it will not take effect
until Bill 120 is passed and proclaimed in force.
This article is based on a Fasken
Martineau Pensions and Benefits Bulletin that can be found
at http://www.fasken.com/en/new-pension-planning-opportunities-for-charities-and-not-for-profits/.
