The Government of Ontario Announces New Funding Framework for Defined Benefit Pension Plans, Including Solvency Reforms
The Ontario government's Ministry of Finance recently announced that it is implementing a new framework for defined benefit (DB) pension plans. The changes are designed to help provide retirement income security for workers and retirees.
The new funding framework for DB pension plans includes changes to the going concern funding rules, such that the amortization period for funding a shortfall would be shortened to 10 years from 15 years and special payment requirements would be consolidated into a single schedule.
Other changes include a new requirement to maintain a reserve for adverse deviations (PfAD) and, of particular note, a requirement for solvency basis funding if the funded status of a plan falls below 85 per cent. Based on the most recent estimates by the Financial Services Commission of Ontario (FSCO), the Ministry anticipates that this would affect 15 per cent of pension plans.
As added security against plans in deficit, the government plans to increase the monthly guarantee provided by the Pension Benefits Guarantee Fund for a plan member's pension to $1,500 from $1,000.
There are further complementary changes planned, and the Ministry is also looking at wind-up rules and at a proposal to establish an agency to administer wind-up.
As an interim step, the government will implement measures in the coming weeks to aid DB pension plans which must file valuation reports dated on or after December 31, 2016 and before December 31, 2017, and which may otherwise face solvency requirements in connection with those filings.
For more information on the provincial government's reforms to pension funding requirements, view the Ontario Ministry of Finance's news release and its background document.
In this Edition:
- Canadian Capital Markets Association Announces Less Than 100 Days to go until Canada’s Move to a T+2 Settlement Cycle
- BNY Mellon Releases U.S. Master Trust Universe/Asset Strategy View® Results for First Quarter
- Reminder of BNY Mellon's Policy Regarding Cash Account Balances
- Bank of Canada Interest Rate Announcement
Canadian Capital Markets Association Announces Less Than 100 Days to go until Canada’s Move to a T+2 Settlement Cycle
The Canadian Capital Markets Association (CCMA) announced on May 29, 2017, that there are less than 100 days remaining until Canada moves to a T+2 settlement cycle from three days in alignment with the U.S. market on September 5, 2017.
According to the CCMA, this change is designed to further strengthen Canada’s financial marketplace as Canadian investors and investors into Canada expect our market infrastructure to function effectively, reliably and smoothly. Furthermore, with many securities interlisted on both Canadian and U.S. exchanges, and our highly integrated markets, having the two countries on the same timetable should make investing less complicated, reduce risk and be more efficient.
In addition to the CCMA, the Canadian Securities Administrators (CSA) has also been working to support a smooth transition to Canada's shorter settlement cycle, such as by finalizing related national instrument rule amendments and providing guidance.
For more information on the CCMA's announcement, view the CCMA's press release. For background information on Canada's change to a T+2 settlement cycle, view CIBC Mellon's paper on T+2.
BNY Mellon Releases U.S. Master Trust Universe/Asset Strategy View® Results for First Quarter
BNY Mellon released the first quarter plan sponsor returns of its U.S. Master Trust Universe, a fund-level tracking service, on May 17, 2017. The median return of the BNY Mellon U.S. Master Trust Universe was +4.26% for the first quarter of 2017, marking the sixth straight quarter of positive results. The one-year return of +10.72% was above the Universe's 3-year annualized return of +5.36% and 5-year annualized return of +7.55% marking the fourth consecutive quarter of positive twelve-month performance.
With a market value of more than U.S. $1.9 trillion and an average plan size of U.S. $5.0 billion, the BNY Mellon U.S. Master Trust Universe is a fund-level tracking service that can be used to make peer comparisons of performance by plan type and size.
For more information, view BNY Mellon’s press release. For details on Canadian plan sponsor returns for the first quarter according to BNY Mellon Canadian Master Trust Universe, view CIBC Mellon's press release issued on May 2, 2017.
Reminder of BNY Mellon's Policy Regarding Cash Account Balances
As reported in the December 6, 2016 edition of Straight Talk, BNY Mellon had announced that it updated its policy with respect to cash account balances. If any end of day cash account balance on the last business day of a calendar quarter exceeds the average cash balance of the prior calendar quarter, BNY Mellon will apply an excess balance charge of one per cent per annum in the following month.
As the upcoming June quarter end for this charge is coming up, this communication is a reminder that this special charge remains in effect. As a custody client of CIBC Mellon Trust Company, this policy would apply to any non-CAD and non-USD held in the custody account.
By way of background, the policy applies to any excess long cash balances held with a BNY Mellon entity with effect from (and including) the first of the relevant dates specified below.
BNY Mellon will separately advise its clients of relevant dates beyond 2018.
| Relevant Dates – 2017 | Relevant Dates – 2018 |
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This policy applies to cash balances held in accounts at the following BNY Mellon entities:
- The Bank of New York Mellon, London Branch
- The Bank of New York Mellon, Brussels Branch
- The Bank of New York Mellon, Frankfurt Branch
- The Bank of New York Mellon SA/NV (Amsterdam, Brussels, Dublin, Frankfurt and Luxembourg Branches)
- The Bank of New York Mellon (International) Limited (London and Luxembourg Branches)
- The Bank of New York Mellon (Luxembourg) SA (including Milan Branch)
CIBC Mellon will provide notice to its clients of any amendments that BNY Mellon makes to this policy. The application of this policy is also subject to any applicable law or regulation and any specific contractual arrangement that BNY Mellon may have with its clients relating to the treatment of their cash balances.
Bank of Canada Interest Rate Announcement
The Bank of Canada (BoC) announced its decision on May 24, 2017 that it is maintaining its target for the overnight rate at 1/2 per cent.
According to the central bank, Canada’s inflation is generally in line with the BoC’s projection in its April 2017 Monetary Policy Report (MPR). It notes that the global economy continues to gain traction and recent developments reinforce its view that growth will gradually strengthen. The central bank reports that the Canadian economy’s adjustment to lower oil prices is mainly finished and recent economic data has been encouraging, such as indicators of business investment. Meanwhile, export growth remains subdued, as the BoC anticipated in its April MPR, at a time of ongoing competitiveness challenges.
The next scheduled date for announcing the BoC overnight rate target is on July 12, 2017. The next full update of the BoC’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at that time.
For more information on the BoC's latest interest rate decision, see the BoC’s press release.