Ontario sets out solvency relief measures

Plan administrators seeking solvency relief have three funding relief options available to them as a one-time choice. The options are as follows:

• A deferral of up to 12 months for the commencement of the amortization payments to liquidate any new going concern unfunded liability and/or new solvency deficiency;

• A consolidation of previously established solvency deficiencies into a new five-year amortization schedule; and

• An extension by up to five more years to the amortization period for the new solvency deficiency, provided no more than one-third of eligible members and former members object.

According to Watson Wyatt Worldwide’s latest Infoflash, certain types of plans are ineligible under the regulation, such as non-DB plans, specified Ontario multi-employer plans (SOMEPPs) and other prescribed plans—including any plan which is not up-to-date in making all contributions required under the previous valuation report.

Option 1: 12-month amortization deferral
Plan sponsors may receive a deferral of up to 12 months for the required funding of any new going concern unfunded actuarial liability or new solvency deficiency, all determined at the valuation date of the solvency relief report. After the deferral period payments will be required over 15 years for a going concern unfunded liability, and five years for a solvency deficiency (or ten years if Option 3 is also elected).

Watson Wyatt explains that such a deferral will give plan sponsors an opportunity to allow for the higher contribution requirements resulting from the report and avoid the required retroactive lump sum payment to reflect the higher contributions for the period between the valuation date and the filing date. Further disclosure and member consent are not required.

Option 2: Consolidated five-year solvency payment schedule
The second option allows for existing solvency special payment schedules established in previous valuations to be consolidated into a single amount and amortized over a new five-year period commencing on the valuation date of the solvency relief report. This option could simplify the special payments and reduce the contributions which would otherwise be required in the short term.

However, Watson Wyatt warns that this could potentially create a situation where contributions already made between the valuation date and the date that the solvency relief report is filed exceed the new minimum. The new regulation specifically permits the use of any such excess contribution to offset future contributions required under the solvency relief report, and an administrator that chooses this option must provide an Election Notice to all eligible members and former members. Further disclosure and member consent are not required.

Option 3: 10-year amortization of new solvency deficiencies
This option allows plan sponsors to amortize a new solvency deficiency determined in the solvency relief report over a period of up to ten years, and is only permitted if no more than one-third of the aggregate of eligible plan members and former members object. Jointly-governed pension plans are exempt from this consent requirement.

If this option is elected in combination with Option 1, the schedule of special payments for the new deficiency may end up to 11 years after the valuation date. Watson Wyatt states that use of this option could reduce a sponsor’s new solvency payments by a significant amount.

For more information, visit the government of Ontario’s website.

(06/24/09)

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