Nova Scotia and New Brunswick: Temporary solvency funding relief
Nova Scotia has adopted temporary solvency funding relief regulations for defined benefit (DB) pension plans registered in those provinces. At the same time, New Brunswick has proposed temporary solvency funding relief regulations, but only for multi-jurisdictional DB plans registered in that province.
The Nova Scotia Pension Benefits Regulations have been amended to allow for temporary solvency relief for DB pension plans registered in Nova Scotia. Effective August 8, 2017, plan administrators have the one-time option to fund eligible solvency deficiencies over a period of up to 15 years, as opposed to the standard 5-year period. Solvency relief must be elected in a valuation report dated from December 30, 2016 to January 2, 2019 inclusive. The extension can apply to both new solvency deficiencies and pre-existing solvency deficiencies being funded over a 5-year period. Pre-existing solvency deficiencies that were already being funded over an extended period are not eligible for the new extension.
In order to qualify for solvency relief the administrator is required to have made all normal cost contributions and remitted all employee contributions. The solvency relief report submitted to the Superintendent must include:
- A statement that the administrator proposes to make an extension to the amortization period;
- The special payments that will be required after the election to extend is made; and
- The special payments that would have been required if the election to extend were not made.
Further, a plan administrator must notify plan members (active, former and retired members, as well as any collective bargaining agents that represent them) if solvency relief is being sought.
If at least one-third of these members object, then the administrator may not obtain temporary solvency relief. The collective bargaining agent may object on behalf of the members it represents.
Nova Scotia has previously provided solvency relief measures in 2013 (an extension to 15 years), and in 2009 (an extension to 10 years). Nova Scotia university and municipal pension plans already benefit from a permanent solvency exemption.
The New Brunswick Government has released draft amendments to the Pension Benefits Regulations (the “Draft Regulations”) to provide temporary solvency funding relief to multi-jurisdictional DB pension plans. A multi-jurisdictional pension plan is defined as a pension plan subject to the New Brunswick pension legislation and to the pension legislation of at least one other jurisdiction. The Draft Regulations would permit a solvency funding extension from 5 to 10 years, and would furthermore permit consolidation of previous solvency deficiencies into the new solvency funding deficiency. Temporary solvency funding relief would apply to a single valuation report with a review date between December 31, 2016 and December 31, 2018, both dates inclusive.
Notice to members, former members and other persons entitled to payments under the pension plan would be required, but member consent would not be required. Plans would be required to file annual valuations until fully funded or the 10-year period expires. Furthermore, amendments to improve benefits are not permitted during the 10-year period unless fully funded by the employer or no special payments are required with respect to the consolidated existing solvency deficiencies.
Nova Scotia launches consultation on solvency reform
On September 6, 2017, Nova Scotia has announced a DB pension plan funding consultation. This comes on the heels of its latest solvency relief measures. Broadly speaking, the three options under consideration are:
- maintain full solvency funding with measures to help reduce funding volatility;
- eliminate solvency funding and enhance going concern funding; and
- require only partial funding of solvency liabilities.
The consultation paper also asks for input on target benefit pension plans, buy-out annuities and investment regulations.
Comments can be submitted until November 10, 2017.
On September 11, 2017, Alberta’s Superintendent of Pension extended the deadline to file valuation reports as at December 31, 2016, for six months to March 31, 2018, for all pension plans except collectively bargained pension plans. A six month extension is also granted for valuation reports due to be filed between September 27, 2017 to December 31, 2017.
The extension will allow the Superintendent’s office to undertake research, analysis and stakeholder engagement in the development of options regarding private sector pension plan funding relief.
Contributions must continue in the amounts specified under the prior actuarial valuation until the new actuarial valuation report is filed.
If a DB pension plan has already filed an actuarial valuation report as at December 31, 2016, the Superintendent requests that the plan administrator contact the Superintendent’s office directly to discuss options.
The proposals will be discussed in greater detail in the next edition of News and Views.
In introducing temporary solvency funding relief measures for private sector pension plans, New Brunswick and Nova Scotia join British Columbia, Manitoba, and Ontario, which have also provided broad-based temporary solvency relief measures in the past two years. In addition, Ontario is currently reviewing permanent changes to its funding rules, while Quebec permanently removed solvency funding and updated its funding rules in 2016.
The New Brunswick Draft Regulations are unique in that they only apply to multi-jurisdictional DB pension plans registered in the province. The rationale appears to be that pension plans with solely New Brunswick members have the option of becoming shared risk pension plans, an option that is foreclosed to pension plans with members in other provinces.
Public comments in New Brunswick were requested by August 18, 2017.