The Nova Scotia government is moving forward with changes to its regulatory framework for defined benefit pension plans.
The province’s new framework follows a review launched in September 2017 and a summary of feedback released in April 2018. It’s still seeking input on technical issues, identified in the paper, in order to determine the best road forward for regulatory provisions.
Similar to other jurisdictions across Canada, Nova Scotia currently requires DB plans to be valued and funded on both a going-concern and a solvency basis. Under the review, the province considered three options: maintaining the current solvency funding standard, but introducing measures to help reduce the volatility and variability of funding payments; eliminating solvency funding and enhancing going-concern funding; or reducing solvency funding so solvency liabilities need only be partially funded.
The regulatory changes include permitting DB pension plan sponsors to elect, on a go-forward basis, to permanently fund their pension plans to an 85 per cent solvency standard rather than the current 100 per cent. Solvency deficiencies up to the new 85 per cent standard must be amortized on a five-year basis with no consolidation of prior years’ deficiencies.
As well, similar to previous rules around temporary solvency funding relief, it can only move forward if fewer than a third of eligible plan participants object. As well, once the option moves forward, plan sponsors must provide new members with information in respect of the solvency funding standard.
Nova Scotia is also enhancing its going-concern funding rules to require deficiencies be funded over 10 years rather than 15 years. It will also allow special payments to be consolidated with prior years’ deficiencies into a single schedule and will require the establishment of a provision for adverse deviation or margin.
The new regulations will also strengthen restrictions on contribution holidays. In order for an employer to take a contribution holiday, a pension plan will be required to retain at least a 110 per cent funded level on a going-concern basis and a 110 per cent funded level on a solvency basis after the holiday is taken. The government is seeking feedback on whether the 110 per cent funded level is the appropriate standard.
“In the short term, the above changes to funding rules may reduce funding costs for some plans and increase funding costs for other plans,” noted the report. “Over the long term, funding requirements should be less volatile. Further changes to, or exceptions, from the funding rules, including temporary solvency funding relief, should not be needed, which will result in greater predictability of funding rules.”
The government is proposing a three-year transition period for pension plans whose contribution requirements increase as a result of the new funding regime. However, it’s seeking feedback on the necessity for a transition period and on the length of the transition period.