In response to its new defined benefit pension funding regime, the Financial Services Commission of Ontario has developed a chart illustrating the rules applicable in five scenarios, based on valuation and filing dates.
The new regime, which took effect on May 1, 2018, includes: shortening the amortization period to 10 years from 15 years for funding a going-concern shortfall in the plan; requiring the funding on a solvency basis if needed to improve the plan’s funded status to 85 per cent; increasing the guarantee provided by the pension benefits guarantee fund to $1,500 a month; and providing funding rules for benefit improvements and restricting contribution holidays to improve benefit security.
For each scenario, the chart indicates which provisions govern contribution holidays and whether plan surpluses can be used to pay pension benefits guarantee fund assessments. The chart is based on the following aspects of the new funding regime:
- Contributions for normal cost, and for the provision for adverse deviations in respect of normal cost, may be reduced or suspended if there’s an available actuarial surplus;
- It applies to a report with a valuation date on and after Dec. 31, 2017, and filed after April 30, 2018;
- The limitations on the amount of actuarial gain that can be applied to reduce normal cost only apply to fiscal years ending Jan. 1, 2020; and
- The ability to use an actuarial gain to pay a pension benefits guarantee fund assessment was revoked as at May 1, 2018. Therefore, assessments may be paid under the new regime only if they were paid prior to May 1, 2018. Effective on that date, available actuarial surpluses may be used to pay pension benefits guarantee fund assessments in accordance with the new regime, but only where a valuation report has been filed on or after Dec. 31, 2017.
The chart for the five scenarios is available here.