First proposed in its ill-fated November 2008 Economic and Fiscal Statement, the federal government implements temporary solvency relief for federally regulated pension plans facing large funding shortfalls.
Ottawa (31 March 2009) - The federal Department of Finance released last Friday regulations to provide temporary solvency funding relief for federally regulated defined benefit pension plans.
The measures cover plans established for employees working in areas that fall under federal jurisdiction. These plans currently represent 7 per cent of all private pension plans in Canada, accounting for approximately 12 per cent of pension assets.
Recently, the sharp decline in global equity markets has led to significant solvency deficits for many sponsors of private defined benefit pension plans.
The Government first proposed to provide temporary solvency funding relief in its ill-fated November 2008 Economic and Fiscal Statement. In the March 2009 budget, the government announced that it would assist the Office of the Superintendent of Financial Institutions to provide further funding relief by allowing plans to use asset smoothing with values above the current 110 per cent limit, by making any payment differential subject to a deemed trust.
The proposed regulations set out a series of optional measures, which would:
- Extend the solvency funding period by one year for deficiencies reported as of year-end between November 1, 2008 and October 31, 2009.
- Extend the solvency funding payment to 10 years from 5 with the agreement of members and retirees.
- Extend the solvency funding payment to 10 years from 5 when the difference is secured with a letter of credit.
- Extend the solvency funding payment period to 10 years from 5 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.
The federal government is currently conducting national consultations on Canada’s legislative and regulatory framework for federally regulated private pension plans, chaired by Ted Menzies, Parliamentary Secretary to the Minister of Finance, with a view to introducing comprehensive new regulations in the fall.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE