2026 Ontario Budget: Pension and Benefit Highlights
On March 26, 2026, the Ontario government released its 2026 Budget, titled A Plan to Protect Ontario (the “Budget”). Budget legislation, Bill 97, Plan to Protect Ontario Act (Budget Measures), 2026 (“Bill 97”), was introduced into the legislature on the same day. Below is summary of the pension and benefit related updates.
Pension Updates
Increasing Pension Benefits Guarantee Fund Coverage Limits
As outlined in the 2025 Ontario Economic Outlook and Fiscal Review (“2025 Fall Economic Outlook”), the government was required to conduct a review of the Pension Benefits Guarantee Fund (“PBGF”) by spring 2026. The Budget notes that with a decline in membership and the number of single-employer defined benefit pension plans, as well as net assets of $1.3 billion in the PBGF as of March 31, 2025, the PBGF can be leveraged to provide additional coverage for plan beneficiaries. As a result, the Budget proposes to double the guarantee limit under the PBGF from $1,500 per month to $3,000 per month for wind-ups on or after March 26, 2026.
Bill 97 includes the legislative amendments to the Ontario Pension Benefits Act (“PBA”) required to implement the increase in PBGF coverage.
Expanded Unlocking from Locked-In Accounts
The Budget proposes to increase flexibility for locked-in account holders to unlock funds to address affordability challenges. The existing unlocking rules permit locked-in account holders to unlock funds for a number of reasons, including financial hardship (medical expenses, arrears of rent or debt secured on a principal residence, first and last months’ rent, and low expected income) and where the amount in all of the account holder’s Ontario locked-in accounts is below a prescribed threshold ($29,840 in 2026, indexed annually) if the account holder is at least age 55.
The Budget proposes that locked-in account holders who have reached early retirement age under the terms of their pension plan would be able to fully unlock their funds. The same would apply to locked-in account holders under age 55 whose total locked-in balances are below a prescribed amount ($29,840 in 2026) that would be indexed annually – effectively extending the current small benefit unlocking rule to those under age 55.
Extinguishment of Rights for Unlocatable Members Age 100 and Above
The Budget proposes that pension plan administrators could obtain a discharge of liability for unlocatable plan members aged 100 and above. Bill 97 introduces new provisions to the PBA under which a pension plan administrator may apply to the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario for consent to the extinguishment of the rights and benefits under the pension plan and the PBA of a former member, retired member or any other person entitled to benefits under the plan if the records of the pension plan indicate that the former member, retired member or other person is at least age 100 and the administrator is unable to locate them.
In order to receive the discharge, administrators would be required to comply with prescribed requirements. The Budget indicates that plan administrators would be required to conduct additional searches for these unlocatable members, which would be followed by a prescribed waiting period. We anticipate that further detail on the requirements to obtain the discharge will be set out in forthcoming regulations.
The amendments to the PBA contained in Bill 97 also provide that if the amount to which an individual ceases to be entitled relates to defined benefits or target benefits, the amount shall remain in the pension fund and be used for the purposes of the plan or the fund. In contrast, if the amount relates to defined contribution benefits, the PBA amendments provide that the administrator of the plan may reallocate the amount in the prescribed manner.
Amendments to the PBA to Authorize Variable Life Benefits
The Budget proposes legislation to enable defined contribution pension plans and plans with additional voluntary contributions to offer variable life benefits (“VLBs”). The government previously announced in the 2025 Fall Economic Outlook that it was developing a VLB framework following consultations in late 2024 and early 2025.
Generally, a VLB is a decumulation framework that allows for pooling of members’ defined contribution accounts in retirement. The monthly benefit payments for a member’s life are adjusted based on the investment performance of the VLB fund and the mortality experience of the fund’s retirees.
Bill 97 contains amendments to the PBA to authorize the payment of VLBs. The amendments to the PBA cover, among other things, the required characteristics of a VLB, who may elect to transfer amounts into a VLB fund and the amounts that may be transferred, restrictions on transfers between VLB funds, death benefits for VLBs, and partial wind-ups for plans that provide VLBs.
Enabling regulations are required before VLBs can be offered in Ontario. The Budget indicates that proposed regulations will be informed by stakeholder consultations that are planned for later in 2026, and that the government aims to have the VLB framework in place by January 1, 2027.
JSPP Conversion Updates
The Budget announces that the government will be consulting on regulations to eliminate PBGF premiums paid by sponsors of single-employer defined benefit pension plans once plan beneficiaries have consented to a conversion of the plan to a jointly sponsored pension plan (“JSPP”).
The Budget and Bill 97 also propose technical amendments to clarify the application of the conversion framework from a single-employer defined contribution pension plan (or a single-employer pension plan that contains a defined contribution component) to a JSPP that were released with the 2025 Fall Economic Outlook. Further details on the expansion of the JSPP conversion framework to defined contribution plans can be found in our article on the 2025 Fall Economic Outlook: Ontario Economic Outlook and Fiscal Review 2025: Modernizing Ontario’s Pension Sector | BMKP Law | Pension, Benefits & Executive Compensation. More recently, the government published draft regulations supporting the expanded JSPP conversion framework for consultation.
Benefit Update
Insurance Premium Tax Flexibility for Benefit Plans
Ontario’s Corporations Tax Act currently applies the Insurance Premium Tax (“CT-IP”) to insurance policies and benefit plans based on their funding structure. A funded plan, which has contributions exceeding what is needed for benefits foreseeable and payable within 30 days, is charged an up-front CT-IP on contributions when they are paid into the plan. In comparison, CT-IP is only applied to unfunded plans when benefits are paid out.
The Budget and Bill 97 propose to amend the Corporations Tax Act to provide certain funded benefit plans with the ability to elect to be treated as unfunded plans effective April 1, 2026 for CT-IP purposes.
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