Nova Scotia Bill 109 introduces DB funding reforms and discharge for buy-out annuities
On March 12, 2019, Nova Scotia government introduced Bill 109, which includes several measures to help reduce defined benefit (DB) pension plan funding volatility and permits buy-out annuities.
Measures to reduce funding volatility
Bill 109 follows Nova Scotia’s consultation on DB pension plan funding (see the October 2017 News & Views). Three options had been identified in the consultation paper, including measures affecting solvency funding requirements. Bill 109 does not affect the requirement to fully fund solvency liabilities, but introduces the following measures, which would help reduce funding volatility:
Reserve accounts: administrators of pension plans with a DB provision will be able to create a separate account within the pension plan fund to hold payments in respect of a solvency deficiency or other prescribed contributions. On full wind-up of the pension plan, surplus in a reserve account could be withdrawn by the administrator subject to the requirements of the Pension Benefits Act (Act) and Regulations;
Letters of credit (LOCs): currently LOCs obtained from a financial institution can be used to cover solvency special payments for up to 15% of solvency liabilities. Bill 109 removes the 15% cap on LOCs.
Bill 109 also provides DB pension plan administrators with a full discharge of the obligation to pay pensions to former members, retired members, and other persons in receipt of a pension from the plan upon annuity purchase. The annuity purchase must meet the requirements of the Act and Regulations. Individuals for whom an annuity has been purchased would be able to participate in any surplus distribution in the event that the pension plan is wound up within three years of the date of the annuity purchase.
Bill 109 also revises the “deemed trust” provisions contained in the Act to ensure that the elements required to create a statutory deemed trust are present in order to establish an effective priority in favor of beneficiaries of underfunded pension plans. Finally, Bill 109 clarifies that all information filed, collected by or submitted to the Superintendent in relation to a pension or a pension plan must be kept confidential, and cannot be disclosed except to members and other persons who can request the information pursuant to the Act.
Nova Scotia sponsors of DB pension plans will welcome the measures to reduce funding volatility, but the measures do not represent comprehensive funding reform that has been seen in provinces such as Ontario and Quebec, and that was contemplated in the consultation paper. Employers with DB members in Nova Scotia will also welcome the opportunity to obtain a discharge upon the purchase of buy-out annuities.
Regulatory amendments to support the measures contained in Bill 109 (e.g., reserve accounts; annuity buy-out discharge) have not yet been released. Except for the administrative changes, which would take effect upon royal assent, Bill 109 would only come into effect upon proclamation, which is not expected until the regulatory amendments are released. Regulatory amendments and proclamation are scheduled approximately for fall 2019.