Canada: The Road Forward: Nova Scotia Government Announces And Seeks Input On Further Regulatory Changes Regarding Funding Of Defined Benefit Pension Plans

The Province of Nova Scotia is soliciting stakeholder input on significant regulatory changes to the Pension Benefits Act ("PBA") and Pension Benefits Regulations ("PBR"). The solicitation is accompanied by a paper entitled "Improved Funding Framework for Nova Scotia Pension Plans: The Road Forward", published May 13, 2019. The paper contains an overview of the legislative and regulatory changes that may be made, as well as seeking input on "technical issues", to determine the "best road forward for regulatory provisions".

Review of Bill 109 changes

The paper reviews recent changes to defined benefit ("DB") plan funding introduced through Bill 109 in March 2019. That Bill added PBA provisions allowing for the establishment of "reserve accounts", removing the limits on the use of letters of credit, and allowing the discharge of liability for annuity buyouts for a DB plan that is not wound up. These changes follow a review begun in Fall 2017 with a solicitation for input on potential changes to DB funding rules.

The changes made under Bill 109 are set to come into effect upon proclamation. The paper indicates that is anticipated to happen in Fall 2019, along with the regulatory changes described below.

Planned regulatory changes

The paper outlines the planned changes to the PBR:

  • Permanent Solvency Funding Relief – DB plan sponsors will be permitted, on a go-forward basis, to elect to permanently fund their plans to an 85% solvency standard (rather than the current standard of 100%), subject to 5-year amortization and information requirements. The election will not be permitted to move forward if at least one third of eligible participants objects. Existing solvency funding exemptions will continue under the new regime.
  • Enhanced Going Concern Funding (PfAD) – Going concern deficiencies must be funded over 10 years (rather than 15) and special payments will be allowed to consolidate with prior deficiencies. A provision for adverse deviation ("PfAD") must be established (applied to liabilities, but not current service cost), and funded in the same manner as the other going concern obligations. Much of the input sought by the Province is with respect to PfAD; see below.
  • Contribution Holiday Limitations – Contribution holidays will be restricted to plans with a going concern funding level of at least 110% and solvency funding level of at least 110% after the holiday is taken.
  • PfAD Calculations – The Province is considering two options for the required methodology for calculating a plan's PfAD. Both proposed options depend on the proportion of assets held in variable income securities.
    • Option 1 – Under this option the PfAD ranges between 0% and 22%, determined by (a) the ratio of asset duration to liability duration and (b) the percentage of assets invested in variable income securities. The PfAD amount generally increases with a decrease in (a) or an increase in (b). This option is analogous to the PfAD calculation currently employed in Quebec.
    • Option 2 – The PfAD ranges between 5% and 22%, increasing in proportion to the percentage of assets in variable income securities. In contrast to Option 1, the method does not take asset-to-liability ratio into account, and there is a fixed base PfAD of 5% that applies to all plans. This option is comparable to the Ontario PfAD calculation methodology.
  • Additional PfAD for Plans with Aggressive Discount Rates – It is proposed that the PfAD as calculated above would be supplemented by an additional amount if the pension plan were to use a discount rate exceeding a certain level. The level currently considered is the Ontario Benchmark Discount Rate.
  • Transition – A three-year transition period is proposed for plans where the contribution requirements will increase as a result of the new funding regime.
  • PfADs for Solvency Exempt Pension Plans – It is proposed that PfADs apply to all plans, including those exempt from solvency funding.
  • Frequency of Valuations for Solvency Exempt Pension Plans – Exempt plans with solvency concerns will no longer be required to submit annual valuations; instead, in an effort to "reduce cost and red tape", the requirement will be triennial valuations and annual cost certificates, subject to the Superintendent's discretion to require valuations more frequently.
  • IPP Exemptions – It is proposed that individual pension plans for owners and significant shareholders will be exempt from solvency funding and certain filing requirements. The paper does not mention any special notice or other requirements like those adopted in Newfoundland and Labrador, but they could be addressed in the PBR.
  • FIR Incorporation by Reference – Federal permitted investment rules will be incorporated by reference into the PBR so that any changes made to the former will automatically apply in Nova Scotia.
  • Benefit Improvements for Solvency Exempt Pension Plans – Solvency exempt plans will be able to improve benefits funded over five years if, at the time of the improvement, they are fully funded on a going concern basis and 85% funded on a solvency basis.

Summary of feedback requested

In summary, the Province is seeking feedback on the following:

  1. Types of employer contributions that should be permitted to be paid into a reserve account – as we noted in an earlier update, "reserve accounts" are not limited to solvency deficiency payments. The Province is considering allowing payments in respect of a going concern PfAD to be paid into a reserve account.
  2. Most appropriate form of going concern PfAD/margin
    1. Preference between Option 1 and Option 2 (and rationale)
    2. Other options that should be considered (and rationale)
    3. Whether there should be a different PfAD for solvency exempt or public sector plans
    4. Use of an additional PfAD to apply for pension plans using aggressive discount rates
    5. Definition of variable income securities
  3. Proposed three-year transition period for pension plans that must pay increased contributions under the new rules
  4. Proposed contribution holiday threshold (110% funded on both going concern and solvency bases)

We anticipate most stakeholders will see the value in providing input on the issues outlined above, as they will affect plan costs and options.

Feedback must be received by June 21, 2019 in order to be considered.

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 Mondaq.com.

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions