Not Your Father’s Solvency Funding

The International Foundation has been closely monitoring the significant provincial and federal funding changes for pension plans over the last few years. Target benefit plan legislation in British Columbia and Alberta, as well as federal legislation in Bill C-27, have certainly garnered a lot of attention. Québec has led the exodus from solvency funding, with reforms in 2015. And with the recent announcement in Ontario, your father’s solvency funding requirements and the associated challenges could be things of the past.

Not Your Father’s Solvency Funding

The announcement heard around the province on May 19, 2017 relates to defined benefit plans registered in Ontario, which has roughly one and a half million residents who are members of such plans. How will these changes affect multi-employer pension plans (MEPPs) or jointly sponsored pension plans (JSPPs)?

The new requirements are expected to apply to:

  • Single employer defined benefit plans
  • MEPPS not currently qualified as specified Ontario multi-employer pension plans (SOMEPPs).

There is no indication the changes apply to JSPPs. Also, a separate framework is being developed for target benefit MEPPs (TBMEPPs), replacing the current rules applicable to SOMEPPs.

Legislation is scheduled to be introduced when the leaves change colours—an appropriate time for change. Before finalizing the changes, feedback from stakeholders will be sought and considered. This includes a stakeholder reference group and roundtable discussions. Watch for forthcoming measures in the coming weeks aimed at plans required to file actuarial valuation reports before the end of 2017.

The reforms in Ontario have some similarities and some differences to those in neighbouring Québec. Similarities include going concern funding, in concert with a reserve or provision for adverse deviation (PfAD)—not a new concept if you are a graduate of Foundations of Trust Management Standards (FTMS™) or Advanced Trust Management Standards (ATMS™). Another similarity is that the amortization for funding going concern shortfalls will be reduced from 15 to ten years. Also, a single schedule will be used for special payments. The biggest difference in Ontario compared with Québec is the decision to continue to require solvency funding for plans with a solvency funded ratio under 85%. If you meet or exceed that threshold, you are exempt from these requirements. How many plans will this affect? The Financial Services Commission of Ontario (FSCO) estimates about 15%.

[Related: Canadian Investment Institute, November 19-22, 2017, Southampton, Bermuda]

For employer bankruptcies, when the plan is not fully funded, the Ontario Pension Benefits Guarantee Fund (PBGF) will increase maximum coverage by 50%, from $1,000 to $1,500. For moral bankruptcies, seek out your nearest spiritual advisor.

Also noteworthy is that buyout annuities will fulfill the employer obligation to provide a pension. Currently, employers are accountable for pension payments even after purchasing an annuity.

There will be new rules for funding benefit improvements and taking contribution holidays. Plans will be required to develop governance and funding policies.

Hear more on this topic at the 50th Annual Employee Benefits Conference session “Should We Mourn the Death of Solvency?” presented by Cameron J. McNeill and Geneviève Lussier from the Segal Company.

Bryan Zoran, CEBS
Bryan Zoran, CEBS
Director, Educational Programs—Canada, at the International Foundation

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