Federal pension plans: Solvency payment requirement moratorium rules have been released
The Office of the Superintendent of Financial Institutions (OSFI) announced that the Solvency Special Payments Relief Regulations (2020) came into effect on May 27, 2020.
The Regulations set out the application rules following the federal government’s April 15 announcement of a moratorium on solvency funding payments for the remainder of 2020.
The Regulations outline the following:
- Moratorium: solvency payments normally required from March 2020 (to be paid in April) to November 2020 inclusively (to be paid in December) are no longer required. In addition, solvency catch-up payments that could result from an actuarial valuation as at December 31, 2019 will not be required.
- Payment recovery: solvency payments made in April or May can be recovered through a reduction in current service contributions (or going concern special payments) through December 30, 2020.
- Optional use: plan sponsors may continue to make solvency payments if they so wish, but these will not be considered as prepaid contributions.
- Plan improvements: during the moratorium, improvements cannot be made to a pension plan, unless the plan has a solvency ratio of at least 105% or by obtaining OSFI’s authorization.
- Letters of credit: plan sponsors who choose to meet their solvency payment requirements for 2020 through a letter of credit may reduce the face value of the letter of credit.
- Information to participants: annual statements as at December 31, 2020, must quantify the use of the reduced solvency special payments, if applicable.
The federal government has not yet announced what it intends to do regarding funding rules in 2021. For the time being, the Regulations set out that the solvency payments should resume normally in January 2021, and that pension plan sponsors will not be required to repay the solvency payments that were not made in 2020.
While many plan sponsors are hoping for a reform of funding rules to eliminate solvency payment requirements, the government may instead opt for temporary funding relief measures in 2021, given the extent of the work and consultations to be carried out ahead of such a reform.
If you have any questions or concerns, contact your NB consultant.