Canada: Alberta Solvency Reserve Accounts: An Answer To Trapped Capital?

Defined benefit plan sponsors in Alberta (and soon British Columbia) should carefully consider taking advantage of recent (and forthcoming) legislation in those provinces permitting them to establish solvency reserve accounts (SRAs) as an effective way of funding their plans and avoiding the much dreaded "trapped capital" concerns that have often undermined defined benefit (DB) plan security over the last several decades.

Sponsors have traditionally viewed themselves as being vulnerable to the risks associated with restrictive surplus withdrawal rules and accounting treatment if their DB pension plans are more than 100% funded on a wind up basis for any significant period. To better manage these surplus-related concerns, many sponsors prefer to run their plans at a slight deficit, or where allowed, to partially replace traditional plan funding with an expensive letter of credit security.

The irony is that the desire to avoid trapped capital risk may produce results which are completely at odds with one of the primary goals of pension legislation – the adequate protection of member benefits.

For years, Ontario and other jurisdictions have been urged to resolve the trapped capital problem with no solution yet in sight, other than market volatility and low interest rates keeping surplus at bay. In 2009, the Joint Expert Panel on Pension Standards (JEPPs), a collaborative effort of the Alberta and BC governments, produced an enlightened report recommending many useful reforms, including the establishment of SRAs. SRAs, once established, are intended to enable a sponsor to fully fund its pension plan without risking the imposition of surplus-related restrictions on the use or withdrawal of excess plan assets. This would, for example, eliminate the question of surplus ownership on plan wind up in favour of the employer with respect to the portion of such surplus attributable to the SRA.

Following the recommendation in the JEPPs report, both Alberta and BC have since introduced pension reform legislation which includes SRA provisions. The BC legislation and related regulations are not yet in force, however, the Alberta SRA rules are now available to sponsors effective September 1, 2014. Alberta Finance has released draft Interpretive Guideline #07 (for industry/stakeholder comment) to explain how SRAs can be established and maintained. We expect that a BC SRA will be subject to similar rules.

The main considerations in establishing an Alberta SRA are as follows:

  • Per s. 54 of the Employment Pension Plans Act (EPPA), an SRA is a separate account within a pension plan fund that is established to hold solvency deficiency payments made under the DB component of a pension plan.
  • Section 54(5) of the EPPA states that the withdrawal of surplus from an SRA is permitted despite any wording in a plan document, however, because of potential ambiguities in this wording (i.e., query whether a trust agreement is a "plan" document), the SRA should be established through a new and separate trust agreement under the plan which is filed with the regulator, as well as the Canada Revenue Agency.
  • SRAs can be established for single employer plans, as well as multi-employer plans.
  • Only solvency deficiency payments and related s. 90(3)(a)(ii) top ups may be deposited into an SRA. Previously made solvency deficiency payments cannot be transferred into an SRA, however, the face amount of existing letters of credit being used to secure pre-September 1, 2014 unfunded solvency liabilities may be deposited into an SRA in conjunction with eliminating letter of credit security in favour of actual funding.
  • A withdrawal of surplus funds from an SRA in an ongoing plan is permitted, with Superintendent consent, when the solvency asset value exceeds 105% of the solvency liability value, as determined in the most recently filed plan valuation per the requirements of s. 65 of the EPPA regulations. (Section 65 also requires disclosure to members in their annual statements).
  • If the plan is terminating, or in the case of a multi-employer plan, a participating employer is terminating its membership, then the employer may, with Superintendent consent and in accordance with s. 66 of the EPPA regulations, withdraw surplus funds in the SRA once all related benefits have been paid.

The SRA surplus withdrawal provisions referred to in the last two bullets require further analysis, particularly given the Superintendent consent requirements. The objective of establishing an SRA is to eliminate any uncertainty over an employer's ability to take money out of the account to the extent it is not needed for pension funding or security, based exclusively on the prescribed quantitative and benefit payment tests. Does Superintendent consent introduce a discretionary unknown that could restrict or defeat an SRA withdrawal application that has otherwise complied with the quantitative and benefit payment rules in s. 65 and 66 of the regulations? These sections deserve a closer look.

Section 65 of the regulations deals with ongoing plan withdrawals as follows:

  • Section 65(2)(d) requires Superintendent consent that has not been revoked under s. 65(3);
  • Section. 65(3) states that if "the Superintendent is of the opinion that it is appropriate to do so, the Superintendent may revoke his or her consent to a withdrawal of "actuarial excess" (surplus) and direct the administrator to cease" the withdrawal from the SRA.

Section 66 of the regulations deals with withdrawals from a terminated plan. It requires Superintendent consent and that the Superintendent be provided with certain information.

In both sections 65 and 66 the Superintendent's consent appears to be discretionary, subject we assume to the over-riding provisions of the EPPA (s. 54) to the effect that withdrawals can occur despite any wording in the plan text. Other than taking comfort from s. 54, however, an employer reading the regulations may be legitimately concerned over how the Superintendent's discretion could be exercised and whether any extraneous factors might creep into the process to cause a problem.

After reviewing this issue with the Alberta regulator, our view is that the current intention is to administer sections 65 and 66 as conferring a gatekeeper function on the Superintendent – that is, to treat the consent requirement as being in place to ensure administrator compliance with the prescribed actuarial and benefit payment requirements under the sections as opposed to conferring a broader discretionary power on the Superintendent. Hopefully this will eventually be clarified in the Guideline.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.