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Alberta: draft guidelines on successor plans and surplus use

On October 22, 2015, Alberta Finance released the following draft Interpretive Guidelines (IG’s):

  • Interpretive Guideline #19 – Successor Situations; and
  • Interpretive Guideline #20 – Use of Actuarial Excess and Surplus.

A summary of the matters addressed in those draft IG’s follows.

IG-19 – Successor situations

IG-19 outlines the legislative requirements pertaining to successor employer/plan situations. A successor situation arises where:

  • an employer merges two or more pension plans into one plan, or splits one pension plan into two or more plans, or
  • some or all of a business is purchased and the purchaser takes over the pension plan of the purchased business, or merges the pension plan of the purchased business into an existing plan of the purchaser.

The general goal in a successor situation is that the funded status of transferring benefits should be maintained and neither plan should gain or lose as a result of the transaction. The successor plan must recognize service with the predecessor for purposes of eligibility even if assets and liabilities are not being transferred.

IG-19 summarizes considerations when a single employer splits a single plan into several successor plans. If defined benefit (DB) assets are to be transferred to a successor plan, an actuarial report is required. If a predecessor DB plan’s assets are not transferred to the successor plan, a revised actuarial valuation for the predecessor plan must be filed. This valuation must take into consideration any salary increases to be applied to the accrued benefits as required by the plan text document.

When a successor employer purchases some or all of the business of another employer there are several options for the treatment of the predecessor employer’s pension plan. The successor employer may assume responsibility for the predecessor employer’s pension plan, an asset transfer may be provided for, or the predecessor employer’s plan may be terminated.

IG-19 notes that there is no requirement to transfer excess assets from the predecessor plan to the successor plan, but such a transaction is permitted, depending on the terms of the predecessor plan respecting surplus. This approach is in contrast to Ontario’s new asset transfer rules, which require a proportionate amount of surplus to be transferred in all cases.

IG-20 – Use of actuarial excess and surplus

IG #20 summarizes the legislative requirements relating to the withdrawal and use of actuarial excess and surplus, and the establishment of a solvency reserve account under Alberta’s pension legislation. The concepts of actuarial excess and surplus are applicable to pension plans with benefit formula provisions (i.e. a DB or target benefit provision).

Actuarial excess is defined as the amount by which assets in an ongoing plan exceed the liabilities of the plan, calculated on either a going concern or solvency basis. Surplus is defined as the amount of assets left after all liabilities have been settled upon termination of a plan. There are differences in the manner in which target benefit plans and defined benefit provisions may use actuarial excess and surplus.

In a target benefit provision, actuarial excess may be used to improve benefits for all members or to provide for temporary benefit improvements for retirees. On plan termination, a target benefit provision may use surplus assets to improve benefits for all members. An employer is not permitted to withdraw actuarial excess or surplus from a target benefit component of a plan.

In a DB provision, subject to the terms of the plan, actuarial excess or surplus may be used to improve benefits for plan members, to offset participating required contributions, or to refund the participating employer. In addition, a DB plan may establish a solvency reserve account under the legislation. Where the plan has established a solvency reserve account, no prior member consent is required for withdrawals, and the plan is deemed to permit the withdrawal transaction even if the plan text document is silent on the issue. A participating employer under a DB provision is permitted to withdraw up to 20% of the accessible actuarial excess from the plan fund in each plan year commencing in the year the Superintendent’s consent is received, and continuing for the next two years. It should be noted that the Superintendent’s consent to withdraw actuarial excess may be withdrawn at any time. Withdrawal of surplus from a solvency reserve account or the main plan fund requires written consent of the Superintendent in all cases.


Comments may be provided by December 22, 2015.