British Columbia: Temporary solvency funding relief announced
On October 24, 2016, the British Columbia government amended its regulations to implement two new solvency funding relief measures for pension plans with a defined benefit (“DB”) component: 1) an extension of the regular solvency amortization period from 5 to 10 years, and 2) a consolidation of all prior solvency deficiencies into a single new deficiency.
BC’s new temporary solvency funding relief measures are similar to Ontario’s temporary solvency funding relief measures adopted earlier in 2016, with the exception that member consent is not required for the extension.
In 2009, the Financial Institutions Commission of British Columbia (FICOM) issued a bulletin stating that it would consider extending solvency funding amortization schedules for up to 15 years. The 2009 bulletin has been removed from the FICOM website and is no longer in effect.
Summary of new solvency funding relief measures
The two new measures are:
- Solvency deficiency payments may be made over a 10-year period commencing on the review date, rather than the regular 5-year amortization period.
- All existing solvency deficiencies may be consolidated into one new solvency deficiency as at the review date.
It is important to note that this change does not affect the transfer deficiency provisions of the B.C. pension legislation, which require transfer deficiencies created when commuted values are transferred from the plan to be paid within five years.
Election for solvency funding relief
A plan administrator may make an election for solvency funding relief for a defined benefit component with a specified review date between December 31, 2015 and December 31, 2017 inclusive. It is important to note that election can be made only once. Certain conditions must be met to allow the exemption:
- During each fiscal year that includes any portion of the exemption period, annual statements to active and retired members or their beneficiaries must disclose that the pension plan has elected to amortize the solvency deficiency over the 10-year period; and
- The administrator must provide an updated Schedule of Expected Contributions (Form SOP-004) to the fund holder.
Plan administrators who have already filed an actuarial valuation with FICOM with a specified review date prior to the enactment of the regulation may take advantage of temporary solvency funding relief by:
- Providing written notice of the election to FICOM before December 31 2016;
- Specifying in the written notice of election a review date falling between December 31, 2015 and December 31, 2017; and
- Submitting to FICOM a revised amortization schedule prepared by the plan’s actuary before December 31, 2016.
Until the administrator submits the revised schedule, the employer is required to continue making payments in accordance with the schedule on file with FICOM. Once a revised schedule is submitted, the employer may reduce future solvency deficiency payments or cease future required solvency deficiency payments by using previously made payments.
Plan administrators who have not yet filed an actuarial valuation with FICOM are not required to file a separate notice of election to FICOM. However, the actuarial valuation report must include an amortization schedule that reflects the election to amortize the plan’s consolidated solvency deficiency in accordance with the solvency funding relief measures.
FICOM has also released Bulletin PENS 16-009, titled “Extension of Solvency Deficiency Payment Period”, which summarizes the regulation and outlines FICOM’s expectations concerning its implementation.