Alberta: New rule on commuted value payments

On November 21, 2017, the Government of Alberta amended the Employment Pension Plans Regulation (the “Regulation”) to establish a new commuted value payout option for Collectively Bargained Multi-Employer Plans (CBMEPs) that are under a solvency moratorium.

Prior to the amendment to the Regulation, CBMEPs were required to pay commuted values of defined benefit pensions on a solvency basis, by reference to the current standards of the Canadian Institute of Actuaries. However, with the amendment to the Regulation, CBMEPs now have the option to calculate and pay commuted values on a going concern basis. However, it should be noted that CBMEPs still have the option to continue to calculate and pay out commuted values on a solvency basis.

A CBMEP that would like to exercise the option to calculate and pay commuted values on a going concern basis must currently be under or apply for a moratorium on solvency funding. In addition, any CBMEP that wishes to exercise the option must:

  1. Submit an application to the Alberta Superintendent of Pensions for approval;
  2. Develop a communication plan to inform plan members of the change to commuted value calculations; and
  3. Provide the communication plan to the Superintendent.

Trend allowing for different commuted value calculations depending on plan design

The approach of permitting or requiring the use of a pension plan’s going concern funded ratio for the calculation of commuted values has already been adopted for certain types of pension plans in several jurisdictions. It is also under discussion as part of funding reform measures in other provinces.

Alberta and British Columbia: Target benefit pension plans

In both Alberta and British Columbia, target benefit pension plans are required to pay commuted values that are calculated based on going concern assumptions.

Saskatchewan: Limited liability plans

Saskatchewan permits limited liability plans, which are also commonly referred to as negotiated cost plans, to pay out commuted values based on going concern assumptions. Limited liability plans that exercise the option to pay commuted values based on going concern assumptions are required to disclose the calculation methodology in disclosure statements to members.

Proposals in other provinces

In addition, Ontario has proposed using going concern assumptions in its framework for collectively bargained target benefit plans. A similar change has also been suggested in Quebec but is still under discussion.


Conclusion

In the jurisdictions referenced above, which permit or require the commuted value to be calculated and paid based on the going concern basis, there is a link to the design and funding of the plan. In the situations described above, the pension plans that are allowed to calculate and pay out commuted values on a going concern basis are not funded on a solvency basis. It will be useful to follow the development of this trend as other jurisdictions such as Ontario develop regulations to support new solvency funding frameworks for pension plans.


News & Views - December 2017 (PDF)