The Ontario government announced today that it will
introduce legislation next Spring to provide temporary solvency
funding relief to pension plans, primarily through an extension of
the solvency amortization period from five to 10 years with member
or union consent. The relief, if passed, would be retroactive to
September 30, 2008. However, the Ontario government's
announcement was thin on details, so Ontario plan sponsors will
need to wait for further announcements or the actual legislation to
fully appreciate the extent and impact of the proposed measures.
Unfortunately, the proposed measures may be too little, too late
given the delay in implementation and the complexities and
uncertainties plan sponsors will likely face when attempting to
obtain member consent.
Solvency Funding Relief
The primary component of the relief will be an extension of
solvency amortization periods from five to 10 years, with the
consent of active plan members, or their collective bargaining
agent, and retired members. While the announcement did not give
specifics on the consent required, we anticipate that the threshold
for consent will be two-thirds consent from both members and
retirees, as is currently the case for member consent to surplus
withdrawals. A requirement to obtain consent from both classes,
whose interests may not be fully aligned, may make obtaining such
consent difficult for plan sponsors. In addition, plan sponsors may
have to meet certain (possibly time consuming) notice and
disclosure requirements in order to demonstrate that such consents
are informed and valid. Interestingly, unlike other jurisdictions,
the announcement did not mention using letters of credit as an
alternate way to secure 10-year amortization periods absent member
Other Measures to Balance Interests
There are a number of other aspects of the proposed funding
relief that may be of benefit to employers (and which would appear
to operate independent of the amortization period extension).
The consolidation of previous funding schedules. Presumably
this would only apply to previously disclosed solvency funding
deficiencies, as was the case with past federal funding
One year deferral of the start of catch-up payments required on
the filing of valuation reports until the beginning of the next
fiscal year, in the same manner as jointly sponsored pension plans.
Whether such a payment would be required to be in the form of a
single lump sum or spread out over time is not clear from the
Permitting greater flexibility in the use of actuarial gains to
reduce annual cash payments by plan sponsors.
The adoption of the revised Canadian Institute of
Actuaries' Standard of Practice for Pension Commuted
Values for solvency valuations. We understand that this change
would reduce solvency liabilities somewhat.
The remaining proposals appear to be aimed at ensuring benefit
security and encouraging transparency of pension funding:
Enhanced notice to active and retired plan members. Presumably
this applies to the financial health of the pension plan.
Accelerated funding of benefit improvements. It is not known
whether this would only apply to plans which avail themselves of
the extended solvency amortization period.
Temporary limitations going-forward on certain contribution
holidays where the plan actuary indicates that the plan is no
longer in surplus position.
Given the limited information provided, the delay in
implementation until the spring of 2009, and the likely
complexities of the consent requirements it is questionable whether
these proposals go far enough and will be implemented in sufficient
time to effectively provide the funding relief many employers are
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