Straight Talk  

Department of Finance finalizes regulations for pension solvency funding

The Department of Finance released final regulations this month to provide temporary funding for federally regulated defined benefit pension plans registered under the Pension Benefits Standards Act, 1985.

The new regulations respond to the difficulty some plan sponsors have with funding solvency deficits that may be transitory in nature and draw down capital that might otherwise be invested in the business. Solvency deficits have risen over the last few years due to declining long-term interest rates, bearish capital markets and changes in actuarial standards.

The measures cover defined benefit plans established for employees working in areas that fall under federal jurisdiction – about 10 per cent of all plans in Canada.

Plan sponsors can choose one of the following options:

• Consolidate previous solvency payment schedules and amortize the entire solvency deficiency over a single, new five-year period.
• Extend the solvency funding payment period to 10 years from five years with buy-in from members and retirees.
• Extend the solvency funding payment period to 10 years when the difference between the five and 10-year level of payments is secured by a letter of credit.
• Extend the solvency funding payment period to 10 years for federal agency Crown corporations with terms and conditions to encourage a level playing field.

If you have any questions please contact your relationship manager or one of our directors of business development.

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