On March 12, 2019, the Nova Scotia legislature introduced long anticipated amendments to the Pension Benefits Act ("PBA") which, according to a statement by Finance Minister Karen Casey, are aimed to "provide more flexibility and improve the stability of defined-benefit pension plans".
In pursuit of this goal, Bill 109, which has passed its first reading, would amend the PBA as follows:
- Reserve Accounts – Allowing for the establishment of "reserve accounts", similar in many respects to the solvency reserve accounts allowed in Alberta and British Columbia but will not be limited to only solvency deficiency payments. The reserve accounts would be able to hold solvency deficiency payments as well as other contributions to be prescribed in regulations. However, transfers from other accounts in a pension fund would be prohibited. Withdrawals would be subject to approval by the Superintendent of Pensions and other requirements to be set in regulations.
- Letters of Credit – Removal of limits on the use of letters of credit. The Bill would remove the cap on the total value of letters of credit which is currently 15% of a plan's solvency liabilities.
- Annuity Purchase – Allowing the discharge of liability for annuity buyouts for a defined benefit ("DB") plan that is not wound up. The administrator must first provide notice to the person for whom the annuity is purchased, and ensure that the annuity and its vendor meets certain prescribed requirements. The administrator would then be discharged by preparing a compliance certificate in prescribed form, signed by an actuary. If it should later be found that the annuity purchase did not comply with PBA requirements, the insurance company may be required to repay the purchase price plus interest.
These changes follow a DB funding framework review beginning in fall 2017 when the Province solicited input on potential changes. Proposals considered in that consultation included the elimination of solvency funding, allowing for establishment of solvency reserve accounts, and creating a legislative framework for target benefit plans. While other changes like those in Ontario and Quebec have not been introduced in the Bill, more may be coming in regulations.
The new Bill leaves certain details to regulations, including certain substantive and procedural requirements for an administrator's discharge of liability via annuity purchase, the required conditions and procedure for a reserve account withdrawal, and the "other prescribed contributions" that may be paid into a reserve account.
The Bill also includes the following enhancements:
- Deemed Trust – Clarification of deemed trusts under the PBA, along with an additional provision deeming such amounts to be held separately from an employer's other assets in the event of liquidation, assignment or bankruptcy.
- Information Requests – An amendment clarifying that all information "filed, collected by or submitted to the Superintendent in relation to a pension or a pension plan" must be kept confidential, and cannot be disclosed, except to members, beneficiaries or certain others who are provided that information through the process under the PBA. This amendment comes in the context of a recent Nova Scotia Privacy Commissioner decision which found that information in annual information returns may be requested through access to information legislation.
When enacted, the amended PBA will offer options for DB plan sponsors, including reserve accounts, annuity buyouts and greater use of letters of credit. Plan sponsors should consider whether to implement some or all of these options as they should afford greater flexibility in funding of DB pension plans.
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