Over the past two years we have seen a number of amendments to
federal pension legislation with respect to the funding of defined
benefit (DB) plans (see
April 1, 2010 and
December 17, 2010 posts). These reforms include amendments
permitting plan sponsors to use letters of credit in lieu of making
solvency payments to a pension fund for up to 15% of a plan's
In response to these "letter of credit amendments",
which came into force on April 1, 2011, the Office of the
Superintendent of Financial Institutions recently updated its
frequently asked questions on the changes to the DB funding rules
to include new FAQs on letters of credit.
These FAQs consider issues such as:
the treatment and application of letters of credit obtained
under the Solvency Funding Relief Regulations and how they
interplay with the "new" letter of credit regime;
the treatment of a letter of credit that is included in
solvency assets when calculating a plan's average solvency
when a letter of credit that is used in lieu of solvency
special payments must be provided to the trustee and what must be
its effective and expiry dates.
This guidance should be of assistance to sponsors of federal
pension plans seeking to use letters of credit in the future.
Lesha Van Der Bij is a member of Osler's
Knowledge Management team, Lesha facilitates Osler's efficient,
effective and timely delivery of cutting-edge legal advice to
clients by ensuring that the Pensions & Benefits and Labour
& Employment Departments' legal, intellectual and practical
expertise is captured and readily accessible by all legal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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