Nova Scotia is following in the footsteps of a number of other provinces by looking into its funding framework for defined benefit pension plans.
Like most jurisdictions in Canada, Nova Scotia requires defined benefit plans to be valued and funded on both a going-concern and a solvency basis. Under the review, the province is considering 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.
Read: 2016 Top 100 Pension Funds Report: Solvency reform on the agenda
Paula Boyd, the province’s superintendent of pensions, notes many defined benefit plans in the province have faced significant solvency deficiencies and have had difficulties managing special payments over the last number of years. “This is largely due to prolonged low interest rates and increasing life expectancies.”
While Nova Scotia has implemented a number of temporary solvency relief programs to help pension plan sponsors, a more permanent solution is now warranted, says Boyd, noting the solution must work for the province’s employers and plan members. “Our pension plans and economic reality may be different from other jurisdictions and so we are interested in hearing from our stakeholders what changes to pension funding would work for them.”
Indeed, Nova Scotia isn’t the first province to tackle this issue. In May 2017, Ontario announced a number of pension reforms, including that defined benefit pensions will now have to fund themselves on a solvency basis only if their funded status falls below 85 per cent. Ontario’s plans came more than a year after Quebec’s shift to going-concern funding obligations for defined benefit plans on Jan. 1, 2016. And regulators in Alberta and British Columbia have also moved to loosen their solvency funding rules.
Read: Ontario announces long-awaited DB solvency reforms
Read: A look at Quebec’s pension solvency changes one year on
Nova Scotia’s review is also looking at a number of other regulatory issues, including target-benefit plans. While the province’s pension legislation contains provisions for these types of plans to be established in unionized environments, they haven’t been enacted. The review is considering whether the province will develop regulatory framework for target-benefit plans.
“Nova Scotia doesn’t currently have any regulations for target-benefit plans, but as target-benefit plans have been discussed more and more by pension plan stakeholders and implemented in some jurisdictions, we are interested in gauging the interest in this type of arrangement,” says Boyd.
The pension funding framework review is asking for feedback by Nov. 10, 2017.
Read: B.C. report still shows ‘some sense of discomfort’ with target-benefit plans: prof