Filing Instructions & Returns
General Questions
Do the Regulations apply only to pure defined benefit plans or do they also apply to combination or hybrid plans that include both defined benefit and defined contribution provisions?
The Act defines a “defined benefit plan” as any plan with a defined benefit provision. The Regulations apply to all plans that contain a defined benefit provision and meet the conditions of the Regulations, regardless of whether the plan also contains a defined contribution provision.
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Are there any other conditions that a plan must meet to qualify under any of the funding relief options?
To qualify for Part 1 of the Funding Relief Regulations, 2009, a plan must be up to date in its required contributions with respect to any amounts owed up to the date of filing of the valuation report used for funding relief. For multi-employer pension plans, the requirement applies to the negotiated contribution amounts. The Regulations also require that written notification and the actuarial report used for funding relief be filed with the Superintendent.
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Are there restrictions on benefit improvements while a plan is using funding relief?
Yes, if the plan is funding under Parts 1 or 2 of the Solvency Funding Relief Regulations 2009, benefit improvements cannot be made if the solvency ratio is reduced as a result of the improvement:
Paragraph 10.1(2)(b) of the PBSA provides that any amendment that results in the reduction of a plan’s solvency ratio below the prescribed level is void unless authorized by the Superintendent.
Sections 7 and 13 of the Solvency Funding Relief Regulation, 2009 sets the prescribed level for plans funding under Parts 1 and 2 as the ratio reported in the most recent report filed with OSFI, for the first five plan years of funding under Parts 1 and 2 (except Crown corporations).
Benefits may be improved if the cost of the improvement is immediately funded on the effective date of the improvement so that the ratio is not reduced.
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In what form should the administrator file notification to the Superintendent that the plan will be funded under the Solvency funding relief Regulations, 2009?
The administrator should use the notification form posted on OSFI’s web site.
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If a plan opts to use solvency funding relief, what, if any, additional information should be given to members in annual statements?
In general, clause 23(1)(q)(i)(B) of the Pension Benefits Standards Regulations, 1985 calls for a description of the measures the administrator has implemented or will implement to bring the solvency ratio to 1. Where a plan is being funded under the Solvency Funding Relief Regulations, 2009, it is expected that the administrator will describe annually how the solvency deficiency is funded as per the Relief Regulations. The Regulations also specify what the administrator must disclose if using Letters of Credit (section 27) and in the case of Crown Corporations (subsection 20(2)).
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According to the March 2009 OSFI Specification, smoothing of assets producing asset values up to 115% of market value will be permitted for reports that are prepared in accordance with the 2009 Funding Relief Regulations. What funding relief options are available to these plans?
These plans may take advantage of:
- 10 year funding of the solvency deficiency; or
- asset smoothing up to 115% of market value for the reports with a valuation dates from November 1, 2008 to October 31, 2009; or
- both.
A plan that used 115% of market for the year-end 2008 report must (for the following report) revert to the 110% maximum provided by the March 2009 General Specification, which may entail an experience loss to be amortized over 5 years.
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When smoothing produces an asset value that exceeds 110% of market value at the valuation date, what information should be disclosed in the valuation report, and what happens to the difference between the special payments based on assets equal to 110% of market value and those based on assets in excess of 110% of market value? (deemed trust provision; Section 5 (4))?
The actuarial report should show the special payments that would have been required under the General Specification, as well as those recommended by the actuary for the year following the valuation date.
The accumulated difference between the payments actually paid during the 2009 and subsequent plan years and those required under the PBSR General Specification constitutes an amount accrued and due to the pension fund by the employer. Section 15 of the Regulation specifies the payment required on plan termination. Pursuant to section 8 of the Act, if this amount is not paid to the pension fund, a deemed trust for the benefit of the plan beneficiaries attaches to the employer’s assets.
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When does the deemed trust arising from the use of smoothing above 110% of market value expire?
Section 5 (5) specifies that the deemed trust is considered to expire five years after the end of the 2009 plan year (defined in section 1(1) of the Funding Relief Regulations, 2009). However, an actuarial report filed with the Superintendent may demonstrate that the deemed trust expires sooner than the automatic date provided under the 2009 Regulations.
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Does the deemed trust provision for the difference between special payments based on assets equal to 110% of market value and those based on assets in excess of 110% of market value apply to multi-employer pension plans?
No, the deemed trust provision does not apply to multi-employer pension plans.
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Can previously established special payments be consolidated into the special payments created under the 2009 Regulations?
No, previously established special payment schedules remain in place, and a new schedule is created to amortize any 2008 solvency deficiency.
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Will it be possible to apply future actuarial gains to reduce special payments established under the Funding Relief Regulation?
Yes, subsequent valuation reports are prepared in accordance with the PBSR and actuarial gains can be applied as per subsection 9(9) of the PBSR to previously established special payment schedules, including special payments established under funding relief.
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Under any of the funding relief options, must the special payments be equal dollar amounts during the payment schedule or can they be structured as a level percentage of members’ pay?
The payments must be expressed as equal dollar amounts.
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What are the conditions required for the 10 year special payment schedule to continue after the first year of funding relief?
In order for the 10 year amortization to continue the plan must, by the end of the 2009 plan year (defined in section 1(1) of the Funding Relief Regulations, 2009):
- obtain the members’ consent to the plan’s continuation of funding relief (Part 2); or
- obtain a Letter of Credit (Part 3).
If the conditions stated in Parts 2 or 3 are not met, the remaining deficiency at the end of the 2009 plan year must be amortized over the following 5 years.
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PART 2- related QUESTIONS
If some plan members are represented by a union or court-appointed representative does the union or representative speak on behalf of those members in expressing any objection to funding under Part 2 of the Regulations?
Yes, where the union or court-appointed representative expresses an objection to 10-year funding under Part 2 on behalf of all the persons they represent, that objection shall be counted as a separate objection for each person that they represent.
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If members are represented by a union or court-appointed representative must the plan administrator provide the information required under Section 10 to both the representative and individual members?
No, the administrator can provide the information to the representative only.
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What type of disclosure is to be included under paragraph 10(1)(c) to satisfy the description of the extent to which benefits would be reduced if the plan were terminated?
OSFI expects disclosure similar to that required for member annual statements where a plan is not fully funded (paragraph 23(1)(q) of the PBSR).
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Is it necessary for a valuation report of a plan funding under Part 2 to also show the payments required under a five-year schedule?
No, a valuation report of a plan funding under Part 2 need not show the payments required under a five-year schedule.
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PART 3- related QUESTIONS
Can the holder of the letter of credit be a different trust company from the trustee or custodian of the pension fund?
Yes. The holder of the letter of credit can be the same trust company or a different trust company, and this trust company must be licensed to carry on business in Canada. Where the employer is not the plan administrator, the administrator must be a party to the trust agreement.
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Where a plan is funding under Part 3, do amounts secured under letters of credit count as plan assets in actuarial valuations or financial statements of the plan?
No, amounts secured under letters of credit are not counted as plan assets in actuarial valuations or in plan financial statements, as including them would improperly distort future contribution requirements. They also cannot be counted in calculating the plan’s solvency ratio. However, the amounts of letters of credit should be disclosed in the valuation report.
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Can the trust agreement required for letters of credit be an amendment to an existing trust agreement or must it be a separate agreement?
The trust agreement may be a separate agreement or an amendment to an existing agreement, as the parties to the agreement may decide. A separate or new trust agreement would be required where the holder of the letter of credit is not the same institution as the trustee or where the current custodian for the pension fund is not a trust company that is licensed to carry on business in Canada.
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Is the fee payable to the financial institution for securing a letter of credit an acceptable administration expense to be charged to the pension fund?
No, OSFI is of the view that it would not be appropriate to charge such fees to the pension fund, as fees payable to a financial institution for securing a letter of credit do not relate to the administration of the pension plan.
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Is it necessary for a valuation report of a plan funding under Part 3 to also show the payments required under a five-year schedule?
Yes, OSFI expects that reports for a plan funded under Part 3 show the payments that would be required under a five-year schedule in each report as long as funding under Part 3 continues, as these are needed to determine the annual face amounts of the Letter of Credit. If actuarial gains are used in subsequent reports to reduce the 10-year schedule of special payments, the report would show how the five-year schedule would also have been reduced under the same reduction method.
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Where a plan is funding under Part 3, what special payments should be included in the calculation to determine the face amount of the letter of credit in accordance with section 21 of the Funding Relief Regulation, 2009 if, at the plan valuation date, there are pre-existing going concern special payments?
As stated in OSFI’s Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans, all existing special payments (going concern and solvency) should be considered to determine whether an initial unfunded liability or solvency deficiency exists at the valuation date.
Where a plan is funding under Part 3, the value of existing special payments payable within the 10 years following the date of the valuation report used for funding relief may be included in the Solvency Assets used to determine whether new solvency special payments are required at the valuation date. Note that these existing special payments include any new special payments resulting from the going-concern valuation performed at that date.
Here are some examples:
1. The plan has a 2008 solvency deficiency if solvency assets, including existing special payments payable within the 10 years following the valuation date, are lower than the solvency liabilities determined on that date.
In this case (Section 21(1)), the 2008 solvency deficiency - the excess of solvency liabilities over solvency assets – is amortized by new solvency special payments over no more than10 years from the valuation date, and the Part 3 special payments used to determine the face amount of the letter of credit include all special payments payable within the 10 years following the valuation date.
2. If solvency assets, including existing special payments payable within the 10 years following the valuation date, exceed the solvency liabilities determined on that date, there is no 2008 solvency deficiency. Plans may, however, still benefit from the Funding Relief Regulations, 2009 if there is at the valuation date a solvency deficiency, as defined in subsection 9?(1) of the Pension Benefits Standards Regulations, 1985.
In this case (Section 21(2)) no new solvency special payments are needed, and the solvency shortfall (excess of solvency liabilities over solvency assets, including the value of existing solvency special payments) must be amortized by the going concern special payments over no more than 10 years from the valuation date. Note that ‘existing solvency special payments’ refer not only to those needed to fund a solvency deficiency as defined in subsection 9?(1) of the PBSR but, as well, those used to determine the Initial Solvency Deficiency under the 2006 Solvency Funding Relief Regulations.
Here, Part 3 special payments used to determine the face amount of the letter of credit should include (in addition to the existing solvency special payments) only those going-concern special payments payable for a period such that their present value equals the solvency shortfall.
Illustration of Case 2
Valuation at date of Report using Funding relief
Going-concern deficit: $13,000
Going-concern special payment: $1,350 / yr.
Present Value (Solvency basis) of going-concern special payments payable within
5 years from the valuation date: $6,025
10 years from the valuation date: $10,861
Solvency shortfall: $7,000
Going-concern special payments to be considered for purposes of the face amount of the letter of credit include only those payable for a period such that their present value equals the solvency shortfall i.e. $1,350 / yr. for 5 years, followed by $1,248 in year 6.
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