Mere hours before a non-confidence vote brought down his government, Finance Minister Jim Flaherty released final amendments to the Pension and Benefits Standards Regulations, 1985 intended to strengthen the country’s federally regulated private pension system.
“These changes will help pension plan sponsors to better manage their funding obligations while providing additional protection to plan members and retirees,” Flaherty said in the release.
Regulatory amendments that will come into force on April 1, would:
- permit plan sponsors to secure properly structured letters of credit in lieu of making solvency payments to the pension fund, up to a limit of 15% of plan assets;
- require the plan sponsor to fully fund pension benefits on plan termination;
- void any amendments to a pension plan that would reduce the solvency ratio of the pension plan if the plan’s solvency ratio would be below a ratio of 0.85; and
- permit sponsors, plan members and retirees of a distressed pension plan to negotiate their own funding arrangements to facilitate a plan restructuring.
While the federal government’s release indicated that these changes will “enhance protection for plan members, reduces funding volatility, makes it easier to negotiate changes to pension arrangements and modernizes the rules for investments made by pension funds,” Scott Clausen, leader of the Canadian retirement, risk and finance professional group, with Mercer says there is nothing here that plan sponsors weren’t expecting and likely won’t have a monumental impact on plan sponsors.
“These are changes that were announced a year and a half ago and they are really just now coming out in approved form. To some degree, there will be some help–the ability to use letter of credit does add a bit of flexibility but how much they will be used is hard to say in actual practice,” he says.
Clausen adds, in regards to the point about plan sponsors being required to fully fund pension benefits on plan termination, “This isn’t something that was ever utilized. I’m not aware of any companies who have tried to walk away from their pension plan and close it down without funding a deficit. This [basically] prohibits something that wasn’t being done in the first place, but it’s still a good protection to have in there.”
However, it doesn’t seem like it was a coincidence that these regulations came out today. “I have a feeling it was now or never,” Clausen says. “I think it was a bit of the tidying up of the legislation that everyone agreed on.”