Effective May 27, 2020, new Solvency Special Payments Relief Regulations, 2020 issued under the Pension Benefits Standards Act, 1985 provide funding relief to sponsors of federally regulated pension plans with solvency deficiencies who are normally required to make monthly special payments to fund such deficiencies and/or address their obligations through the use of letters of credit.
The Relief Regulations implement solvency funding relief measures that were previously announced by the Minister of Finance on April 15, 2020. As further guidance respecting the Relief Regulations, the Office of the Superintendent of Financial Institutions (OSFI) has published questions and answers on the measures within the Funding Relief section of OSFI's COVID-19 FAQs series.
Highlights from the Relief Regulations and OSFI's COVID-19 FAQs are as follows:
- Relief provided: Under the Relief Regulations, federally regulated defined benefit pension plan sponsors are not required to make solvency special payments from May 27, 2020, until December 30, 2020. The amounts of any solvency special payments that become due during this period are to be reduced to zero and will not become due after December 30, 2020, once the moratorium is lifted, but current service contributions and going concern special payments must continue to be made.
The amounts of any solvency special payments made from April 1 until May 27 may be deducted from the plan's required current service (or normal cost) contributions and/or going concern special payments in the period beginning on May 27, 2020, and ending on December 30, 2020. Interest is not payable on any unpaid solvency special payment instalments that became due between March 31, 2020, and May 27, 2020.
When a new actuarial report is filed with OSFI, any resulting "catch-up" payment (i.e., amount equal to the difference between the new and the previous solvency special payments, plus interest) that would normally be made between May 27, 2020, and December 30, 2020, will not be required to be paid.
If an employer has obtained letters of credit to cover solvency special payments for all of 2020, the Relief Regulations allow the employer to reduce the face value of the letters of credit, provided that, after the reduction, the letters of credit are sufficient to cover the 2020 solvency special payments not subject to the moratorium.
- Solvency payments made during the moratorium: Employers may continue to make solvency special payments during the moratorium. As solvency special payment requirements are determined on an average solvency ratio basis, plans with a solvency ratio of 1.0 or greater should contact the Canada Revenue Agency before making solvency special payments during the moratorium, as there may be tax implications. The Relief Regulations specify that solvency special payments made during the moratorium are not considered to be an 'additional payment' under the Pension Benefits Standards Regulations, 1985 (PBSR) unless the payments are in excess of the solvency special payments that would have been required but for the Relief Regulations.
- Later remittance of solvency payments subject to the moratorium: The Relief Regulations do not set out a separate amortization schedule for the solvency special payments that are foregone during the moratorium. At the end of the moratorium, if there are no further changes to the PBSR, pension plans will be subject to the normal funding rules, which provide that any solvency deficiency is to be amortized at least through monthly instalments over a five-year period.
- Restrictions on plan amendments: The Relief Regulations place restrictions on certain types of plan amendments in order to ensure that an amendment does not negatively impact a plan's solvency position and/or improve benefits while reduced funding requirements are in place, unless the plan is well-funded on a solvency basis after the plan amendment.
- Notice to OSFI not required: There is no requirement for a plan sponsor or administrator to give notice to OSFI of solvency funding relief measures taken as permitted by the Relief Regulations.
- Disclosure requirements for annual statements: The Relief Regulations set out that, for plan years in which the moratorium applies, plan administrators must provide information on the amounts of solvency special payments that were made during the plan year, and the amounts of solvency special payments that would have been required but for the Regulations.
The Relief Regulations do not apply to defined contribution plans.