Following similar moves in jurisdictions across Canada, British Columbia’s proposed changes to its defined benefit pension solvency funding requirements will take effect on Dec. 31.
Under the changes, DB plan sponsors in the province will be permitted to fund to a solvency ratio of 85 per cent instead of the previous requirement of 100 per cent. In addition, they’ll no longer be able to take contribution holidays unless their funding status is 107.5 per cent or higher, and will remain at that level for the length of the holiday. And they’ll be required to include a provision for adverse deviation in contributions to the DB provisions of a plan.
Despite the stricter regulations around going-concern funding, Riley St. Jacques, partner and senior consultant at PBI Actuarial Consultants Ltd., says the changes are positive on the whole. “The changes come with an overall positive impact for most [plan] sponsors in that they will increase flexibility around managing the pension costs for the plan and will reduce the burden of solvency funding.”
Notably, the province is also moving to make target-benefit arrangements available for single-employer plans. Previously, the options was only available for multi-employer pension plans.
“Certainly, we welcome that [change] and we’ll see how it goes,” says St. Jacques, though he noted the changes don’t come with any alterations to target-benefit funding regulations, which require plan sponsors to calculate a “significantly higher” PfAD for their going-concern funding status.
“We have plans we work with that might now consider converting back to a defined benefit plan because they would have better funding regulations [as a] defined benefit than a target-benefit, which is counterintuitive,” he says.
The province is also adjusting the payment timeline for going-concern deficits. Previously, it was 15 years, but under the amendments, the payments will be determined by dividing the deficit by 10. Solvency payments will remain at five years. The changes will allow plan sponsors a “fresh start” with their payments, where solvency and going-concern unfunded liabilities can be consolidated and reported as a single amount at each review date.
In addition, plans making solvency funding payments will no longer be able to make applications for temporary relief. For an plans currently using the option, it will cease on the plan’s first review date after the changes take effect.