Amendments to Federal DB Funding and Plan Investment Rules Finalized and Regulator Responds
On June 25, 2010 the federal government announced that it finalized the amendments to the defined benefit funding provisions and the federal investment rules, which it had released in draft form for comment earlier this year. Most of these amendments to the Pension Benefits Standards Regulations, 1985 come into force on July 1, 2010.
As reported in a previous post, the amendments include the following changes:
- with respect to defined benefit (DB) plan funding, implementing a new standard for establishing minimum funding requirements on a solvency basis that will use average – rather than current – solvency ratios, and permitting past funding deficiencies to be consolidated annually for the purpose of establishing solvency special payments;
- restricting contribution holidays to plans with a solvency margin (in excess of full funding) of 5% of the plan’s solvency liabilities; and
- eliminating the 5%, 15% and 25% quantitative investment limits in respect of resource and real property investments.
While the new DB funding rules and the contribution holiday restrictions apply only to federally regulated plans, the changes to the federal investment rules may apply to plans in other jurisdictions as most provincial jurisdictions have adopted these investment rules. However, not all jurisdictions adopted the federal rules as amended from time to time. The new rules will not apply automatically in Ontario, for example, as Ontario adopted the investment rules as they read on December 31, 1999. Ontario will still have to amend its pension legislation for the rules to apply to Ontario-registered plans.
OSFI has taken certain steps in response to the changes to the DB plan funding provisions.
OSFI has amended the “Directives of the Superintendent Pursuant to the Pension Benefits Standards Act, 1985” to reflect the requirement for annual valuation reports. Specifically, the new Directive states that annual valuations will generally be required, but there will be certain exemptions for plans that meet the definition of a designated pension plan under section 8515 of the Income Tax Regulations and plans with solvency ratios equal to or greater than one as at certain dates. The amended Directive also requires the filing of actuarial valuations as at the effective date of an amendment to a pension plan which alters the cost of benefits under the plan.
OSFI has also extended the deadline for filing actuarial reports that were required to be filed for plan year-end dates between December 31, 2009 and February 28, 2010 to September 15, 2010. In addition, OSFI indicates that while plans that file their actuarial reports prior to July 1, 2010 will not be required to re-file the report, plans that wish to use the modified funding rules may re-file the report.
