On March 29, 2010, the Canadian government introduced a series
of proposed amendments to the legislation governing
federally-registered pension plans, the Pension Benefits
Standards Act, 1985 (PBSA). The amendments were slipped
quietly into omnibus legislation (Bill C-9) covering a multitude of
tax and other matters and stretching some 1,000 pages. However,
this stealth introduction should not obscure the fact that these
amendments constitute the most extensive reform of federal pension
legislation, which applies to some of the largest pension plans in
the country, since the PBSA was enacted all the way back in the
The proposed amendments are designed for the most part to implement a number of the measures announced in the Department of Finance's October 27, 2009 backgrounder (which measures were considered in our November 5, 2009 newsletter entitled Ottawa takes a swing at pension reform). Because the federal government has decided to move to immediate vesting of pension benefits, it has become necessary to revise numerous provisions of the PBSA that currently contemplate the refund of employee contributions to unvested plan members. The deletion of the various references to such refunds, as well as certain changes around the notions of plan beneficiaries and former members, account for by far the largest number of PBSA provisions affected by Bill C-9.
Once those revisions (some of which will have quasi-material cost implications for plan sponsors) are factored out, the number of actual modifications and additions becomes much more modest. That being said, many of the remaining changes will have profound implications in certain cases.
Some of the key PBSA amendments, roughly in the order of their appearance in Bill C-9, are the following:
- the addition of new powers for the Superintendent of Financial
Institutions (i.e. OSFI, the Canadian federal pension regulator) to
appoint a replacement plan administrator and/or replacement actuary
for particular pension plans.
- minor tweaks to the "deemed trust" provisions of the
PBSA, which should have the effect of clarifying the application of
those provisions in certain circumstances.
- an expansion and restatement of the funding requirements for
pension plans, with a clear delineation of the requirements that
will apply to single-employer plans versus those that will apply to
- detailed new rules around the provision by the employer of a
letter of credit to cover a portion of the plan's liabilities.
Whether or not the plan itself is structured as a trust, the letter
of credit will have to be provided to a trustee. This requirement
is similar in principle to the letter of credit provisions in the
special 2006 and 2009 solvency funding relief regulations, albeit
the new PBSA provisions contemplate somewhat different mechanics,
plus an express waiver of civil liability against the trustee when
it takes or omits to take certain actions in regard to the letter
of credit in prescribed circumstances.
- an exemption for Crown corporations from certain,
as-yet-unspecified PBSA funding obligations. While the extent to
which Crown corporations may benefit from reduced funding
obligations will be set out in new regulations, presumably any such
reduction will apply only to solvency and/or going concern special
payments, and not to current service contributions.
- two new "void amendment" rules pursuant to which
pension plan amendments that would reduce the plan's solvency
ratio below a prescribed level or would increase benefits when such
ratio is already below this prescribed level will not be permitted,
without express OSFI consent. It is expected that the prescribed
solvency ratio level for these purposes will be 0.85.
- express permission for multi-employer plan administrators to
make amendments that would reduce pension benefits or the value
thereof, notwithstanding the PBSA's general prohibition against
- a new exemption from the requirement for OSFI consent to asset
transfers between pension plans, where such assets relate only to
defined contribution (DC) accounts. This will be a welcome
development for plan sponsors that are party to commercial
transactions involving pension asset transfers, as it will remove a
regulatory impediment to prompt completion of the terms of such
transactions. It should be noted that:
- the PBSA requirement for OSFI consent will continue in regard
to plan assets backing defined benefits (DB); and
- the new exemption will apply to DC accounts both in pure DC plans and in hybrid DB-DC plans.
- the PBSA requirement for OSFI consent will continue in regard to plan assets backing defined benefits (DB); and
- the repeal of an outdated requirement for the filing with OSFI
of information relating to pension indexing.
- a detailed new regime contemplating the payment of variable
benefits out of DC plans and the periodic post-retirement right to
transfer the remaining balance out of a DC account to another
- a new statutory requirement for OSFI consent to transfer assets
out of a pension fund in satisfaction of terminating members'
portability rights, where OSFI believes such transfer could impair
the pension fund's solvency.
- enhanced disclosure obligations to plan members, including a
new requirement to give pensioners information regarding the
plan's funded status.
- discretion for OSFI to declare the termination of a pension
plan if "benefits" cease to be credited to plan members.
It is interesting to note that the expression "benefits"
is not defined in the PBSA, leading to some potential ambiguity as
to the circumstances in which this new power could be exercised.
Presumably, however, the use of such a broad term as opposed to,
for example, the more narrow defined term "pension benefit
credits" means that if credited service ceases but
continuous service still accrues for purposes of benefit
milestone eligibility, this provision should not
- a modification to clarify that along with OSFI, the power to
terminate a pension plan in full will rest not just with the plan
administrator, but also with the sponsoring
- the addition of a new requirement to fully fund a pension
plan's wind-up deficit over an as-yet-unspecified period (but
likely five years) following plan termination. The amendments state
clearly that the deemed trust rules will not apply to the amount of
this deficit per se. However, in what appears to be one of the
most questionable and potentially controversial aspects of
the amendment package, Bill C-9 goes on to provide that once each
instalment on the deficit becomes due, any such instalment that is
not remitted by the employer will henceforth become subject to a
deemed trust. This provision appears to be inconsistent
with the statement in Finance's October 2009 backgrounder that
the new federal requirement to fully fund pension plans on
termination would not give rise to any secured debt. While
Bill C-9 goes on to state that the deemed trust will not apply in a
bankruptcy context, such proviso could therefore have the
unintended affect of triggering bankruptcies that might otherwise
- an extremely detailed code relating to the new concept of
"distressed pension plan workout schemes". A thorough
review of these new provisions lies beyond the scope of this
newsletter. However, some of the highlights include:
- these rules will automatically become applicable to a plan upon
election of the sponsoring employer;
- the employer must certify as to its financial need for the
- the election will be followed by a mandatory, finite
negotiation period that can be extended by the Minister of Finance
by no more than three months;
- during the negotiation period, current service contributions
must continue but other employer contributions will be
- the deferral will end and the missed contributions will become
due immediately on the happening of certain events;
- a representative of the plan beneficiaries to negotiate a more
definitive funding workout arrangement must be appointed by court
- such definitive funding relief must be approved by the Minister of Finance and opposed by no more than one-third of the beneficiaries.
- these rules will automatically become applicable to a plan upon election of the sponsoring employer;
- enhanced regulation-making power.
It is unclear when Bill C-9 will be adopted by Parliament (it has just received second reading in the House of Commons), and details on the coming-into-force dates for the various provisions have yet to be released. Neither have the regulations that will be necessary to implement many of the measures yet seen the light of day. Accordingly, the path to actual pension reform still has many steps ahead.
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.