British Columbia is amending the definition of provision for adverse deviation for pension plans in the province with a target-benefit provision.
The changes to PfAD’s definition, which will come into effect on Dec. 31, 2022, reflects recommendations from the B.C. Financial Services Authority to the Ministry of Finance. The amendments will lower the minimum funding requirement of the PfAD to 7.5 per cent and allow a supplementary percentage identified by the target-benefit provision administrator as appropriate to achieve the expectations for the PfAD.
In addition, the Order in Council clarifies the use of actuarial excess by target-benefit provisions, including in relation to meeting funding requirements, and corrects the scope of disclosure statements explaining when and how benefits under a target-benefit provision may be reduced.
Since the introduction of target-benefit provisions into the province’s Pension Benefits Standard Act in 2015, concerns have been raised about the size and volatility of the PfAD funding requirements due to fluctuation based on interest rates and asset allocation, according to a press release by the B.C. Financial Services Authority.
Concerns were also raised that the PfAD formula unfairly penalizes plans that adopt certain prudent investment strategies, due to asset classification. These challenges have made it difficult for target-benefit provision administrators to plan on a long-term basis and have reduced their flexibility to make appropriate decisions based on the unique characteristics of their plans, said the release.