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New Brunswick provides solvency funding relief, amends requirement for annual valuations

On December 8, 2011, New Brunswick filed a new regulation with two important changes affecting defined benefit pension plans registered in New Brunswick:

Solvency Funding Relief

The plan administrator will be permitted to consolidate all existing solvency schedules and amortize the solvency shortfall over a 10-year period. The one-time solvency extension must be requested in a valuation report with a review date between April 1, 2010, and January 1, 2012. Plan member consent is not required, but notice must be provided to all members and other plan beneficiaries. During the extended period, annual valuation reports will not be required. Any benefit improvements during the extended amortization period must be fully funded.

It should be noted that any special payments made between the review date and the filing date of the valuation report that are in excess of the special payment required under the 10-year solvency consolidation schedule cannot be used as a credit to further reduce special payments made after the filing date.

Given the very significant increase in solvency liabilities and negative asset return for many pension funds during 2011, this announcement will be welcome relief for sponsors of New Brunswick defined benefit plans.

Annual Valuation Requirements

Effective for any valuation report with a review date on or after April 1, 2011, annual valuations are now required when the report identifies a transfer ratio of less than 0.9. Previously, annual valuations were required when the solvency ratio identified in the report was less than 0.9.

Due to the financial markets and declines in long-term yields, many pension plans will have transfer ratios that are less than 0.9. Consequently many sponsors of New Brunswick registered pension plans will likely be required to file annual valuations.

Please contact your Morneau Shepell consultant for additional information regarding these changes.