Amendments are void if they reduce pension benefits accrued prior to the making of the amendment unless the Superintendent authorizes the amendment (section 10.1 of the Pension Benefits Standards Act, 1985). Generally, an accrued pension benefit is the periodic amount that a member or former member is or may become entitled to under the terms of the pension plan. For more information, please see OSFI’s instruction guide related to amendments reducing accrued pension benefits.
In addition, for other amendments that do not reduce accrued pension benefits, an amendment is void if
- it has the effect of reducing the solvency ratio; and
- the solvency ratio following the amendment (as described below) is less than 0.85; and
- the Superintendent has not authorized the amendment.
The solvency ratio following the amendment is the solvency ratio set out in the most recent actuarial report adjusted to reflect
- the effect on the solvency ratio of the increase in solvency liabilities as a result of the amendment, determined in accordance with subsection 9(13) of the Pension Benefits Standards Regulations, 1985 (PBSR); and
- the effect of any lump sum payment paid to the pension fund before the later of:
- the effective date of the amendment, and
- the date on which the actuarial report for the amendment was filed with OSFI.
A letter of credit may be obtained to fund any lump sum payment, referred to above, as long as the total face value of all letters of credit does not exceed 15% of the solvency liabilities of the plan as determined at the valuation date.
If the plan administrator is funding the pension plan under funding relief regulations or a distressed pension plan workout agreement, the void amendment rules are more stringent. Please see section 9.3 of the PBSR.