Amendments to Pension Benefits Standards
Regulations, 1985 (the Regulations)
came into force on April 1, 2011. These amendments apply to
federally-registered pension plans.
The amendments include provisions that:
permit employers to provide letters of credit in lieu of making
solvency payments to the pension fund, up to a limit of 15% of plan
require the plan sponsor to fully fund pension benefits on plan
void any plan amendments that have the effect of reducing the
solvency ratio of the pension plan below 85%,
permit sponsors, plan members and retirees of a distressed
pension plan to negotiate their own funding arrangements to
facilitate a plan restructuring.
Letters of Credit
Plan sponsors are now able to use letters of credit to satisfy
solvency payments up to 15% of plan assets. The letters of credit
could be reduced by the plan sponsor upon a return to fully-funded
status, subject to a 5% solvency margin remaining in the plan.
Where the plan returns to full funding plus the solvency margin
without factoring in the value of the letters of credit, any
outstanding letters of credit would be allowed to expire.
Requirement for Full Funding on Plan Termination
The Pension Benefits Standards Act, 1985 (Canada) was amended to
require plan sponsors to fund any deficiency existing at the date
of plan termination. The amendments to the Regulations set out a
payment schedule to fund the deficiency. In particular, any
solvency deficiency that exists at the date of plan termination
must be amortized in equal payments over 5 years.
Void Plan Amendments
The Pension Benefits Standards Act, 1985 (Canada) voids any plan
amendment that has the effect of reducing pension benefits that
accrued before the amendment date, or where the solvency ratio is
or would fall below 85%. These provisions are aimed at preventing
underfunded plans from adopting amendments that would further
reduce the plan's funded position.
Distressed Pension Plan Workout Scheme
An employer in financial difficulty may elect to enter into a
distressed pension plan workout scheme agreed to by members and
beneficiaries of the plan. The agreement, subject to the approval
by the Minister of Finance, may include a funding schedule that is
different from what is required by normal funding rules.
In Shirbigi v. JM Food Services Ltd. (2014 BCSC 1927), the B.C. Supreme Court found that an employer could not mask the fact that it had constructively dismissed the plaintiff simply by relocating her place of work.