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 assets.
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 ratio; and
- 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 professionals.
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.
