Originally published in Blakes Bulletin on Pension &
Employee Benefits, October 2009
The proposed changes are aimed at federally regulated private
pension plans governed by the Pension Benefits Standards Act,
1985 (the Act), with one exception noted.
1. Increased Minimum Standards
Plan sponsors will be required to fully fund pension benefits on
plan termination. Any solvency deficit that exists at the time of
termination will be required to be amortized in equal payments over
no more than five years.
Contribution holidays will only be permitted if the pension plan
is more than fully funded by a 5% solvency margin. Annual
valuations will be required for pension plans in surplus.
Amendments to a plan that has, or would have, a solvency ratio
of 0.85 or less will be voided.
Sponsor-declared partial terminations will be eliminated from
There will be immediate vesting of benefits.
Disclosure requirements will be enhanced. The information that
must be provided in annual member statements, and the type of other
information statements, will be expanded. Electronic provision of
disclosure requirements will be permitted on a positive consent
2. Funding Changes
The government will introduce a new standard for establishing
minimum funding requirements on a solvency basis that will use
average – rather than current – solvency ratios
to determine minimum funding requirements.
Sponsors will be permitted to use properly structured letters of
credit to satisfy solvency payments up to a limit of 15% of plan
The 10% pension surplus threshold in the Income Tax Act
for permitted tax sheltering will be increased to 25%. This applies
to both federally and provincially regulated defined benefit
A workout scheme for distressed pension plans (including
eligibility for a short moratorium on special payments) will be
established to help facilitate the resolution of plan-specific
problems that arise in some circumstances when a particular plan
sponsor cannot meet near-term funding requirements.
4. Defined contribution pension plans and negotiated
contribution defined benefit plans
Provisions of the Act and the Regulations will be revised to
provide clarity on the responsibilities and accountabilities of the
parties involved with defined contribution plans, including the
elimination of the requirement for a Statement of Investment Policy
and Procedures for a defined contribution plan that provides
investment option to its members.
Pension plans will have the option to permit members to receive
Life Income Fund style retirement benefit payments directly from a
defined contribution pension fund.
The framework respecting negotiated contribution defined benefit
plans, which are common in multiemployer pension plan arrangements,
will be improved.
5. Investment Rules
The present pension fund investment framework, which imposes a
prudent person standard supplemented with quantitative investment
limits, will be amended as follows:
Remove the quantitative limits in respect of resource and real
Amend the 10% concentration limit to limit pension funds to
investing a maximum of 10% of the market value of assets of the
pension fund (rather than the book value) in any one entity. An
exception to this rule will exist for pooled investments over which
the employer does not exercise direct control, such as mutual fund
Prohibit direct self investment (e.g., an employer would no
longer be permitted to invest any amount of its pension
fund in its own debt or shares).
6. Other Changes
The benefits of members who cannot be located will be permitted
to be transferred to a central repository.
The Office of the Superintendent of Financial Institutions will
be given additional powers to intervene when there are concerns
about the work of a plan's actuary.
A number of other technical improvements to the Act and the
Regulations will be made to align the framework more explicitly
with what is seen to be the common interpretation and
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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