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Funding Relief:  With the continuation of historically low interest rates, the current economic crisis and its impact on investment returns are having a cataclysmic impact on pensions, especially for the sponsors of DB pension plans and their cash funding requirements.  The call is out to the pension regulators for some form of relief from the crushing rise in solvency funding that will result for plan sponsors who must file new valuations in 2009.

This Aon Situation Room is Aon's dedicated web site for sharing information about these issues. Please see below for the Aon perspective on these events and to keep up-to-date with the ongoing events related to pension funding relief and pension standards reform in Canada . To subscribe to Aon's Situation Room updates, simply complete the online form on this page.


Aon's Perspective: GO BACK UP
 

Due to the dramatic and significant plunge in global equity and fixed income markets in 2008, especially in the months of September and October, sponsors of defined benefit (DB) pension plans face material increases in their funding obligations.  In some circumstances the increase in funding is extreme and could potentially compromise the sustainability of pension benefits and/or weaken the financial position of the sponsoring organization.  We believe there is an urgent need to provide temporary funding relief for plan sponsors.  As evidence of this, in response to a survey recently undertaken by Aon, 67% of respondents indicated that they would participate in any initiatives that Aon took with regulatory authorities on this matter.   Also, projections performed for some of our clients have shown that many sponsors will be facing special amortization contributions of 30% - 40% of covered wages. As a result, Aon Consulting undertook a letter-writing campaign to government ministries responsible for pensions urging immediate action on this matter.  

While there are many options available, we support a balanced approach to adequately accommodating all stakeholders.  We believe that relief should be offered in a manner that adheres to the following principles:

  • Simple and easy to administer
  • Transparent to all stakeholders
  • Easy to unravel or phase out

Keeping these principles in mind, we offer the following for consideration:

  • A complete moratorium on solvency funding for a temporary period
  • The extension of solvency funding from 5 years to 10 years, without a condition of member approval
  • Use of letters of credit, in jurisdictions where not yet permitted, and possibly guaranteed access to letters of credit in the event access becomes difficult
  • Greater flexibility in selection of valuation dates

Finally, we call on all pension regulators to revisit their pension funding rules so that rules are put in place that better anticipate situations such as the most recent crisis.  The need for change is apparent given that this is the second time in less than 10 years that economic conditions have caused sponsors of DB pension plans to seek concessions. GO BACK UP


Aon's Responses: GO BACK UP
 

Past Actions & Existing Relief: GO BACK UP
 

The call for pension funding relief is not new.  It wasn't that long ago that we were dealing with the "perfect storm" of pension funding.  Earlier this decade, starting in 2001, equity markets turned south for two years which, when combined with the steady decline in interest rates that drive solvency valuation assumptions, created significant funding challenges for many plan sponsors.  Following extensive lobbying, a mix of temporary and permanent measures was adopted by various jurisdictions across the country, as follows:

  • Federally regulated pension plans (e.g., those involving industries such as transportation and communication) - Temporary measures were adopted in November 2006 for plans with a valuation date on or after December 31, 2005 but before January 2, 2008 that allowed for the:
    • consolidation of all existing solvency deficiencies as at that date and reamortization over the subsequent 5-year period;
    • extension of solvency deficiency funding from 5 years to 10 years, subject to plan member consent;
    • extension of the solvency funding payment period to 10 years when the difference between the 5- and 10-year level of payments is secured by a letter of credit; and
    • extension of solvency deficiency funding to 10 years for federal agencies and Crown corporations.

These measures were voluntary and were offered on a one-time-only basis.

  • British Columbia - Changes to the Regulations came into effect June 26, 2008, to allow:
    • the use of letters of credit to fund solvency deficiencies for plans on an annual renewable basis, excluding DB multi-employer negotiated cost (MENC) plans; and 
    • administrators of MENC plans a 3-year window in which to apply for the suspension of special payments.
  • Alberta - The following rules were passed through Order in Council on November 28, 2007:
    • Letters of credit were permitted to fund solvency deficits subject to specific rules and conditions.
    • Publically funded plans (e.g., covering employees of municipalities and educational/medical institutions) were completely exempt from solvency funding, subject to some conditions.
    • Specified multi-employer plans (SMEPs) were given a 3-year window in which to suspend funding of solvency deficits, subject to some conditions.
  • Manitoba - New rules were registered October 15, 2007 that allow university pension plans to request exemption from solvency funding rules.

  • Ontario - New rules were filed August 24, 2007 permitting Specified Ontario Multi-Employer Pension Plans SOMEPPs to apply for up to 3 years of solvency funding relief on or after September 1, 2007 but prior to September 1, 2010.  The 3-year period applies to valuation reports filed with a date prior to September 1, 2010.

  • Quebec - New rules were provided for the first valuation with a date of December 31, 2004 or later, which allowed the:
    • consolidation of all existing solvency deficiencies as at that date and reamortization over the subsequent 5-year period;
    • extension of solvency deficiency funding from 5 years to 10 years, subject to plan member consent; and
    • extension of the solvency funding payment period to 10 years when the difference between the 5- and 10-year level of payments is secured by a letter of credit.

For the period June 20, 2008 to December 31, 2009, an employer may guarantee by letter of credit the payment of any contribution representing up to 20% of the difference between the solvency liabilities and assets (solvency deficit) determined as at the pension plan's last actuarial valuation. However, the total amount secured by the letter of credit cannot exceed 15% of the solvency liability.

For valuations made on or after December 31, 2009, letters of credit will be permitted to fund solvency deficiencies, as long as the yearly increase in face value does not exceed 20% of the latest solvency deficit and as long as the cumulative amount does not exceed 15% of solvency liabilities.

  • New Brunswick - Rules that were effective December 1, 2003 allowed the Superintendent to allow the extension of amortization payments to the later of December 31, 2018 and 5 years.  Subsequent rules permitted municipalities and universities to be exempt from solvency deficiency payments subject to obtaining the requisite consent from members and plan beneficiaries.

  • Nova Scotia - New rules that were effective December 10, 2007 allow:
    • specified multi-employer pension plans to have a temporary 3-year exemption from solvency funding; and
    • university pension plans to amortize solvency deficiencies that arose prior to January 1, 2006 over 15 years
  • Newfoundland and Labrador - Rules filed May 26, 2008 allow regular DB pension plans, based on actuarial valuation reports completed between January 1, 2007 and January 1, 2009, to:
    • consolidate previous solvency funding payment schedules and amortize the entire solvency deficit over a single, new 5-year period;
    • extend the solvency funding period to 10 years, so long as no more than 1/3 of members and plan beneficiaries object; and
    • extend the solvency funding payment period to 10 years when the difference between the 5- and 10-year level of payments is secured by a letter of credit.

Multi-employer DB pension plans have been provided with a 3-year solvency funding exemption option, based on actuarial valuation reports completed between December 31, 2007 and December 31, 2010.

The following rules were previously adopted:

    • Memorial University was exempted from solvency funding for the period from January 1, 2006 to December 31, 2010; and
    • the Newfoundland and Labrador Municipal Employees Benefits Inc. Pension Plan was exempt from solvency funding for the period January 1, 2006 to December 31, 2008 in respect of the solvency deficiency that existed as of December 31, 2005.

Although some common themes exist among these various rule changes, the diversity of responses to a common issue reinforces the need for uniform pension standards in Canada . GO BACK UP


Most Recent Progress:
GO BACK UP
 

Lobbying by various interest groups in the latter part of 2008 has prompted many discussions and a general call to action.  We are hopeful that most jurisdictions will respond positively for plan sponsors. Progress will be reported on the Situation Room as it happens.  Related activities are listed below in chronological order:

December 2011

  • Manitoba – On December 12, 2011 a Policy Bulletin was released outlining the requirements under for use of letters of credit to fund solvency deficiencies under single employer DB plans, effective January 1, 2012. The bulletin addresses the requirements for letters of credit, and procedural issues such as:
    • renewal, replacement, expiry or cancellation;
    • termination reports;
    • transfer deficiencies; and
    • impact on actuarial valuations.

At the same time, Update #11-08, The Special Payments Relief Regulation, 2011, was released, with effect from January 1, 2012, permitting certain existing solvency deficiencies under a DB plan to be consolidated and amortized over a 10-year period, conditional on funding payments being up to date and fewer than one-third of members and beneficiaries objecting. This regulation applies to the consolidated deficiency reported in the first valuation report between December 30, 2011 and January 2, 2014.

November 2011

  • Quebec – On November 15, 2011, Bill 42, An Act to amend the Supplemental Pension Plans Act in order to extend certain measures to reduce the effects of the 2008 financial crisis on plans covered by the Act, was introduced on first reading and would extend the availability of these various payment options for another two years, until January 1, 2014.

    Finally, the government has confirmed that it will establish an independent committee to study possible reforms of the SPPA to take into account the new economic and demographic realities impacting defined benefit pension plans. A report is expected within the following two years.

June 2011

  • Ontario – The final regulations setting out solvency funding relief for certain public sector pension plans, effective May 20, 2011, were published in the Ontario Gazette (ONTARIO REGULATION 178/11) on June 4, 2011. The following plans are entitled to stage one relief as of the applicable stage one valuation date, and may become eligible for stage two solvency funding relief:
  • Retirement Plan of the University of St. Michael's College;
  • Contributory Pension Plan for Hourly-Rated Employees of McMaster University Including McMaster Divinity College;
  • Pension Plan for Professional Staff of Lakehead University;
  • Wilfrid Laurier University Pension Plan;
  • Pension Plan for Professional Staff of University of Guelph;
  • Retirement Plan of University of Guelph;
  • York University Pension Plan;
  • The Royal Ontario Museum Pension Plan;
  • Carleton University Retirement Plan; and
  • The Contributory Pension Plan for Trent University Faculty Association Employees of Trent University.

Those public sector plans that do not subsequently qualify for stage two relief will be entitled to transitional solvency funding relief beginning as of the pension plan's transitional valuation date. The regulation includes detailed requirements for funding, valuation reporting, disclosure to members, and stage one and stage two funding relief.


December 2009

  • Ontario – Ontario - FSCO made available a summary of their analysis as of November 10 of the funding relief elections that plans sponsors have made. Recall that these temporary funding relief measures are available to the first actuarial valuation report filed with a valuation date of September 30, 2008 or later. Of the 421 non-designated plan valuations reviewed, 27% elected one or more funding relief options, with 37% of those covering members represented by unions. The most common election (66%) was a combination of the 1-year deferral of new special payments and the consolidation and reamortization of pre-existing solvency special payments (i.e., options 1 & 2), neither of which required member approval.

November 2009

  • Quebec – On November 11, 2009, the government of Quebec released the final version of the Regulation respecting measures to reduce the effects of the financial crisis on pension plans covered by the Supplemental Pension Plans Act (“Regulation”). This Regulation, long awaited by many pension plan sponsors to mitigate the effects of the financial crisis, includes few significant changes from the draft version published in May 2009 and takes effect retroactively as at December 31, 2008.

    For more information, please refer to the Special Edition of Ready entitled, "Québec: Pension Funding Relief Regulation Published in Response to the Financial Crisis".

  • Nova Scotia – On November 4, 2009, the government announced that private defined benefit pension plans ravaged by the recent economic downturn would have longer to recover lost value under changes to the Pension Benefits Act regulations. Normally, pension plans without enough assets to provide promised benefits, must be fully funded within five years.  The changes in the regulations provide plan administrators to have 10 years to make a plan solvent. The provisions apply to plans that report under-funding between December 30, 2009 and January 2, 2011.  

    Details of the funding relief can be found in the attached Order in Council dated November 3, 2009.

September 2009

  • Quebec – On September 8, 2009, the Régie des rentes du Québec announced an extension would be granted to pension committees who must submit an actuarial valuation report as at December 31, 2008 will have until December 31, 2009 to do so (instead of September 30). This extension is being granted because the regulation for applying the relief measures provided for in Bill 1 has not yet been adopted.

  • Ontario
    • O. Reg. 322/09 was filed August 25, 2009 and provides technical changes to the details with respect to the solvency funding relief provisions that were filed in June. Sections 1 and 3 of the regulation come into force on the date of filing (August 25, 2009). All other sections of the regulation are deemed to come into force on September 30, 2008.
    • O. Reg. 321/09 relating specifically to the General Motors pension plans and the solvency funding relief measures was filed and came into force on August 25, 2009.

A direct link to information about these changes, including a link to the Regulations, can be found at FSCO’s website at  http://www.fsco.gov.on.ca/english/pensions/legchange2006.asp

August 2009

  • Saskatchewan – On August 10, 2009, the Saskatchewan government issued an updated bulletin on changes that will be made to the Pension Benefit Regulations, 1993 (Regulations) in September 2009 to provide temporary relief from solvency funding.  The reissued bulletin does not include any material changes compared to the original version of the bulletin which was released in May 2009.

      As described in the Temporary Solvency Deficiency Payment Relief bulletin, the Regulations will be amended to allow administrators of defined benefit pension plans to file an election for a three year moratorium related to a solvency deficiency established in a valuation prepared between December 31, 2008 and January 1, 2011. Any payments related to a solvency deficiency established prior to election of the relief must continue to be made during the period of the relief.

    June 2009

    • Ontario – On June 23, 2009 The Government of Ontario announced that Regulation 239/09 amending  Ontario 's Pension Benefits Act was filed on June 19, 2009.  The Regulation is summarized in a Special Ready and include the following:
       
      • Introduction of temporary solvency funding relief for certain pension plans and revised standards for the use of solvency valuations;
      • changes to the rules for locked-in accounts that will allow owners of Life Income Funds (LIFs) to unlock up to 50% of the assets in their fund starting in January, 2010;
      • changes related to the payment of commuted values; and
      • changes to the rules applicable to contribution holidays. 

      Specific details are available in the news release and a backgrounder issued by the Ministry of Finance.

      A direct link to information about these changes, including a link to the Regulation, can be found at FSCO’s website at  http://www.fsco.gov.on.ca/english/pensions/legchange2006.asp

    • Federal – On June 12, 2009, the federal Minister of Finance, announced the coming into force of new regulations that provide temporary solvency funding relief for federally regulated defined benefit pension plans.  The measure covers plans established for employees working in areas that fall under the federal jurisdiction.

      The measures coming into force immediately will:

      • Extend the solvency funding payment period by one year for deficiencies reported as of year-end between November 1, 2008 and October 31, 2009.
      • Extend the solvency funding payment period to 10 years from 5 years with the agreement of members and retirees.
      • Extend the solvency funding payment period to 10 years from 5 years when the difference is secured with a letter of credit.
      • Extend the solvency funding payment period to 10 years from 5 years for agent Crown corporations with terms and conditions to ensure a level playing field.
      • Allow asset smoothing above 110 per cent with the difference in payments subject to a deemed trust.

      In our discussions with OSFI, we have been advised of administrative policies with respect to caps on the smoothed values of assets:

      • The 110% cap remains in place for going concern valuations.
      • While the 110% cap has been lifted for solvency valuations, it has simply been replaced with a 115% cap for solvency valuations.

      For additional information on the new measures, please refer to the Regulatory Impact Analysis Statement and Solvency Funding Relief Regulation, 2009.

      With a view to introducing comprehensive new regulations in the fall, the Government has conducted national consultations on Canada 's legislative and regulatory framework for federally regulated private pension plans.  For more information on Canada 's Economic Action plan, please visit www.actionplan.gc.ca.

    • Federal – On June 4, 2009, the Office of the Superintendent of Financial Institutions of Canada (OSFI) released a letter to administrators of defined benefit pension plans registered under the Pension Benefits Standards Act, 1985 (PBSA) on the impact of the Solvency Funding Relief Regulations, 2009 (Funding Relief Regulations) on filing requirements for actuarial reports. If the Funding Relief Regulations (pre-published April 4, 2009) comes into force, pension plans registered under the PBSA will be able to continue to fund in accordance with the normal funding rules or to take advantage of funding relief options.

      Plan sponsors may be waiting for the final version of the Funding Relief Regulations before deciding on funding relief; however, many federally regulated pension plans are required to file an actuarial report for the plan year ending December 31, 2008, and, unless otherwise directed by the Superintendent, this report is due by June 30, 2009. 

      In light of this approaching deadline, the Superintendent directs that for actuarial reports required to be filed for a plan year-end date of November 1, 2008 up to October 31, 2009, the filing deadline is the later of August 14, 2009 or six months after the plan year-end date.

    May 2009

    • Saskatchewan – On May 26, 2009, the Saskatchewan government announced plans to provide temporary solvency funding relief. 

      As described in a Technical Policy Bulletin, the Regulations will be amended to allow administrators of defined benefit pension plans to file an election for a three year moratorium related to a solvency deficiency established in a valuation prepared between December 31, 2008 and January 1, 2011. Any payments related to a solvency deficiency established prior to election of the relief must continue to be made during the period of the relief.

    • Quebec – On May 6, 2009, the government of Québec released a draft version of an eagerly anticipated regulation aimed at reducing the impact of the financial crisis on pension plan sponsors.

    The draft Regulation respecting measures to reduce the effects of the financial crisis on pension plans covered by the Supplemental Pension Plans Act (Regulation) follows an announcement made by Minister Sam Hamad on December 17, 2008 regarding the government’s intention to provide sponsors of defined benefit plans with relief regarding their funding obligations. The Regulation is intended to supplement the funding relief measures contained in Bill 1, which was adopted on January 15, 2009. (See our January 16 Special Issue of Ready.)

    For detailed, please refer to the Special Issue Ready on Quebec Releases Draft Pension Funding Relief Measures.

    April 2009

    March 2009

    • Federal – On March 27, 2009, the Minister of Finance released a detailed news release explaining and regulations on providing temporary solvency funding relief for federally regulated DB plans.  Plan sponsors can choose one of the following four temporary measures:
      • Extend solvency funding period by an additional year;
      • Extend solvency funding to 10 years with member approval
        (i.e., not more than one third of members object);
      • Extend solvency funding to 10 years with letter of credit; or
      • Extend solvency funding to 10 years for Agent Crown Corporations.

    For additional information on the March 27th release:
    News release and Regulations

    • Ontario -- The Ontario government released its 2009 Budget on
      March 26, 2009.  As announced in December 2008, the government has confirmed its intention to introduce solvency funding relief, which can
      be adopted for the first scheduled valuation report dated on or after September 30, 2008.

    Plan sponsors struggling with the heavy contribution burden resulting from the current economic crisis may elect from the following relief measures:

    • consolidate existing solvency payment schedules into a new five-year payment schedule;
    • defer for one year from the valuation date, the start of new going-concern and solvency special payments identified in the valuation report; and
    • subject to not more than one-third of plan beneficiaries in aggregate objecting, extend the solvency payment schedule to a maximum of 10 years for a new solvency deficiency determined in the report (with the option to use up to 10 years of going-concern special payments to determine the net solvency deficiency).

    If any of the preceding elections are made, solvency excess identified in subsequent valuation reports could be used to reduce or eliminate solvency special payments identified in the initial report.

    In addition, plan sponsors may adopt the Canadian Institute of Actuaries’ revised Standard of Practice for Pension Commuted Values, scheduled to take effect

    April 1, 2009, for solvency valuations as of December 12, 2008.

    For details on the 2009 Ontario Budget, please refer to our Special Issue Ready dated March 26, 2009.

    • British Columbia – In March 2009, British Columbia formally announced
      in Bulletin PENS-09-002 that it will consider early implementation of the
      new commuted value basis for solvency valuations performed as at December 31, 2008, provided that the following conditions are met:
      1. the actuarial valuation report containing the solvency valuation is filed with the regulator on or after April 1, 2009; and
      2. the pension plan was not terminated prior to April 1, 2009.
    • Alberta –  On March 13, 2009, in response to common questions related to the defined benefit funding relief provisions, a Frequently Asked Question guide (EPPA Update 09-02) has been developed.  Additionally, a slight amendment to Policy Bulletin #41 has also been made to clarify that the requirement to make "top up" payments under the solvency extension and solvency moratorium options does not extend to ongoing monthly pension payments.

      February 2009

      • Alberta – On February 20, 2009, Alberta Finance released funding relief provisions for defined benefit plans under the Employment Pension Plans Regulations. Some of the main changes made to the Regulation via the Employment Pension Plans Regulation Amendment, 2009 include:

        • Solvency moratoriums, which were initially introduced in 2005, are extended for Specified Multi-Employer Pension Plans (SMEPPs)
        • Solvency moratorium introduced for non-SMEPPs
        • New solvency amortization deficiencies revealed in valuations with a review date between September 1, 2008 and December 31, 2009, can be amortized over 10 years instead of 5, subject to conditions.

      Note: Existing rules permitting sponsors to use letters of credit in lieu of solvency deficiency payments will continue (see original Policy Bulletin 39 – Letters of Credit).

      Policy Bulletin # 17 - Specified Multi-Employer Pension Plans has been amended slightly to coincide with the changes to the Regulation.

      A detailed description of the funding relief provisions, including a description of additional conditions is found in Policy Bulletin #41 – Funding Relief Provisions – 2009.  [NOTE: Policy Bulletin #41 updated March 2009]

      Manitoba In the first week of February, the Manitoba Office of the Superintendent – Pension Commission issued Update #36 – Determination and Transfer of Commuted Values. In the update, it is explained that the Office of the Superintendent will be permitting the Revised Standards of Practice for Pension Commuted Values (Section 3800) for actuarial valuations with review dates of December 31, 2008 and later provided that the plan does not terminate before April 1, 2009.

      For termination reports for pension plans with a termination date prior to April 1, 2009, the Office of the Superintendent will not permit the use of the Revised Standards of Practice for Pension Commuted Values (Section 3800). The Standards of Practice for Determining Pension Commuted Values of the Canadian Institute of Actuaries effective February 1, 2005 must be used.


        January 2009

        • Quebec By adopting Bill 1 on January 15, 2009, the Government of Quebec has followed up on the measures announced in December 2008 (see December update below).  While this new bill is silent on many of the measures, it allows the government to adopt regulations later in 2009 that will contain additional measures. The pre-publication of the draft regulations is expected in early spring. The government has also announced that it may adopt special measures for plans that require targeted actions.

        Since many technical aspects have yet to be defined, plan sponsors must wait until the regulations are published before filing actuarial valuations that take these special measures into account.

        All these measures apply to pension plans under the jurisdiction of the Régie des rentes du Québec and have little or no impact on plans whose employers are exempt from paying solvency-based amortization payments, notably municipalities, universities, and certain multi-employer plans. It should be noted that the pension plans which will avail themselves of the relief measures must immediately apply the new financing rules of the Supplemental Pension Plans Act (bill 30), including the requirement to perform a yearly actuarial valuation.  

        Where pension plans are concerned, the measures regarding plan funding will make it easier for employers to weather the financial crisis. Of course, this will not change the size of the financial pill to be swallowed; it will only defer payment.

        In addition to relief measures, Bill 1 introduces provisions for insolvent pension plans which are terminated before January 1, 2012.  In such cases, retirees and members entitled to an immediate pension may ask the Régie des rentes to pay them a pension out of the plan assets set aside for people exercising this option. After a certain period, the Régie des rentes will purchase an annuity from an insurer. Any actuarial gain realized in the meantime can be used to re-establish part of the pension that was reduced as a result of insolvency. An interesting aspect of these provisions is that if the funds from the pension fund become insufficient to maintain the level of pension established on plan termination, the government will provide the funds required to maintain the initial pension level. As well, this amendment guarantees that when plan members opt for a pension paid by the Régie, this pension will not be less than the pension that would have been paid to them in the absence of funding-relief measures applied by the sponsor.  For more details, please refer to the Special Issue Ready on Impact of the Economic Crisis on Pension Plans in Quebec. 

        For more details, please refer to the Special Issue Ready on Impact of the Economic Crisis on Pension Plans in Quebec.

        • British Columbia – On January 5, 2009, the Financial Institutions Commission confirmed to Aon that B.C. intends to take the same position as the federal regulator; that is, early implementation of the Canadian Institute of Actuaries’ Final Standard for Revised Standards of Practice for Pension Commuted Values will be permitted with respect to solvency valuations subject to the following conditions:
        1. the actuarial valuation report containing the solvency valuation is filed with the regulator on or after April 1, 2009; and
        2. the pension plan was not terminated prior to April 1, 2009.

        Later in the month, the BC Superintendent of Pensions released Information Bulletin PEN-09-001, the Guidelines for Requests for Solvency Extensions for Defined Benefit Pension Plans. The Guidelines are intended to provide guidance to plan administrators who are considering making solvency extension requests.

        December 2008

        • Manitoba – On December 22, 2008, the Special Payments Relief Regulation was issued. This regulation gives plan sponsors more flexibility in managing the solvency funding of pension plans while continuing to safeguard members' rights to benefits promised. The Office of the Superintendent – Pension Commission released Update #35 on the Special Payments Relief Regulation.

        On December 17, 2008, the Minister of Labour and Immigration wrote a letter regarding funding relief for defined benefit pension plans in Manitoba . As indicated in its recent Throne Speech, the government is committed to protecting the pensions of Manitoba citizens by adding an element of flexibility to pension regulations. Regulation changes will soon be made to ensure that pension benefits are protected and help pension plans manage solvency issues arising from the historic declines in the stock market. 

        The government is also looking to urge the federal government to raise the retirement savings age limit from age 71. 

        The Office of the Superintendent (Office) is presently reviewing the Canadian Institute of Actuaries’ Final Standard for Revised Standards of Practice for Pension Commuted Values. The Office is considering its ability to permit the new standards to apply to December 31, 2008 actuarial valuations, provided the application results in reducing the solvency deficiencies of defined benefit pension plans.

        • Federal –  The Superintendent of Financial Institutions has already granted permission to use the Canadian Institute of Actuaries’ Final Standard for Revised Standards of Practice for Pension Commuted Values for solvency valuations with effective dates on or after December 12, 2008, provided:
        • the actuarial valuation report containing the solvency valuation is filed with the Office of the Superintendent of Financial Institutions on or after April 1, 2009; and
        • the pension plan was not terminated prior to April 1, 2009.

        • Canadian Institute of Actuaries Revises Pension Commuted Value Standard -- On December 8, 2008, the Actuarial Standards Board (ASB) of the Canadian Institute of Actuaries approved the Final Standard for Revised Standards of Practice for Pension Commuted Values (New Standard) that will have an impact on all defined benefit pension plans in Canada . The changes concern the assumptions used by actuaries to determine the commuted value of a pension.

        Although it was not the purpose of the revision, the New Standard will result in lower commuted values, which in turn will lead to lower solvency liabilities.

        The New Standard is meant to apply on April 1, 2009. However, specific adoption will be required in Ontario , Quebec , and New Brunswick , which might delay its application in these jurisdictions.

        • Alberta – released its Proposed Response Alternatives to Meet the Defined Benefit Pension Plan Funding Issues Arising from the Current Economic Environment on December 18, 2008. The four proposed measures are:
          1. Permit the Superintendent to accept the use of the Canadian Institute of Actuaries’ new standard with respect to pension commuted values, that comes into effect on April 1, 2009, for a December 31, 2008 solvency valuation.
          2. Extend the current solvency moratorium for specified multi-employer pension plans (SMEPPs) for a further 3-year window up to December 31, 2011, subject to certain conditions.
          3. Permit the special solvency deficiency attributed to the 2008 economic environment to be amortized over a 10-year period (rather than the usual 5-year period).
          4. Offer a solvency moratorium to single employer plans for a 3-year window up to December 31, 2011, subject to certain conditions.

        The Alberta Superintendent of Pensions is looking for comments on the discussion paper by January 31, 2009.

        • Quebec - A consensus of acceptable relief measures was reached in early December within the working groups established in November. On December 17, the Quebec Pension Board published a press release in which it states that the government intends to implement the proposed relief measures early in 2009. These measures, which will only apply for 2009 to 2011, are:
          • retroactive application, to December 31, 2008, of the Canadian Institute of Actuaries' Revised Standards of Practice for Pension Commuted Values;
          • consolidation of previous solvency amortization schedules;
          • an extension of solvency amortization periods from 5 years to 10 years; and
          • asset smoothing over 5 years.

        Application of the relief measures will be permitted as long as the resulting amortization contributions are not less than those that would have been required had there not been a financial crisis in 2008.

        • Ontario - proposes to introduce legislation in the spring of 2009 (to be effective retroactive to September 30, 2008) that would extend the solvency amortization period and increase transparency of pension plan financial health. The eight proposed measures include:
        1. An extension of solvency amortization periods from 5 to 10 years with the consent of active members or their collective bargaining agent and retired plan members
        2. Consolidation of previous funding schedules
        3. Deferral of catch-up payments to provide one year of cash flow relief
        4. Permitting the use of actuarial gains to reduce annual cash payments by plan sponsors
        5. Enhanced notice to active and retired plan members
        6. Accelerated funding of benefit improvements
        7. Temporary limitations going forward on certain contribution holidays
        8. Adoption of the Canadian Institute of Actuaries’ Revised Standards of Practice for Pension Commuted Values for solvency valuations
        • Nova Scotia - after consulting with its plans that are expected to file a 2009 valuation, has decided that there is no need to provide relief at this time.
        • Saskatchewan - released its Solvency Relief Discussion Paper requesting proposals on two options: a 3-year moratorium on new solvency amortization payments, and the extension of solvency funding from 5 years to 10 years for new solvency deficiencies.  The Saskatchewan Financial Services Commission is looking for comments on its discussion paper by January 31, 2009.
        • Alberta - took a step in the opposite direction by writing to all pension plan sponsors who appear to be taking contribution holidays to advise them to either recommence making contributions in accordance with the last filed actuarial valuation or to file a new actuarial valuation as of January 1, 2009.
        • Manitoba - The regulator acknowledged receipt of a letter from representatives from the pension consulting industry.  The Premier mentioned in the most recent throne speech that something will have to be done.

        November 2008

          • Federal - The government's Economic and Fiscal Statement for 2008 contains proposals to amend the Pension Benefits Standards Act, 1985 to extend solvency funding for federally regulated plans from 5 years to 10 years provided plan members approve and the difference between 5- and 10-year funding is secured by a letter of credit. The Statement also indicated the government's intention to address solvency funding on a more permanent basis through a consultative process.
          • Ontario - The government held in-camera meetings with industry representatives but nothing was publically reported.
          • Quebec - When presenting the November 4 update on the province's finances, the Minister of Finance announced that it would put forth special measures and that it was creating working groups representing pension plan stakeholders that are to make recommendations regarding those measures.  The Minister also stated that the measures would have retroactive effect to December 31, 2008, if they were passed in 2009, and that the changes to the Canadian Institute of Actuaries' new standards of practice for commuted values would apply for December 31, 2008 solvency valuations if that helped. GO BACK UP

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