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Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Standards Act, 1985
Financial Sector Division
Department of Finance
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There is a broad range of challenges facing defined benefit pension plans in Canada. The Government of Canada is committed to regularly reviewing the legislative and regulatory framework for pension plans to ensure that it remains effective and responsive to changing market conditions.
The objective of this consultation paper is to seek the views of Canadians on how to strengthen the legislative and regulatory framework for defined benefit pension plans registered under the Pension Benefits Standards Act, 1985 (PBSA) in order to improve the security of pension plan benefits and ensure the viability of defined benefit pension plans. While the list of issues raised herein is not exhaustive, this paper identifies a number of key questions related to these goals and how to balance the interests and incentives of plan sponsors and plan members in advancing them.
Submissions should be received by September 15, 2005. Subject to the consent of submitting parties, comments received will be made available on the Department of Finance’s Web site for greater transparency.
Ensuring a robust retirement framework has been an ongoing focus of the Government of Canada. The two public pension pillars (Old Age Security and the Canada Pension Plan) of Canada’s three pillar retirement income system ensure a minimum level of income in retirement for Canadian seniors. The third pillar, tax-deferred private retirement savings, is comprised of Registered Retirement Savings Plans (RRSPs) and registered pension plans, and helps Canadians supplement their retirement income by providing incentives to save for retirement and filling the gap between public pension benefits and their desired post retirement income objectives.
Pension plans registered under the PBSA include defined contribution and defined benefit pension plans. Under defined contribution plans, plan sponsors, and in most cases the employees, make contributions to an individual account for each member, with benefits on retirement based on the amount contributed to the account plus any investment income, expenses, gains and losses; benefits paid are therefore subject to the return on investment. Defined benefit pension plans provide members with benefits related to their earnings and years of service. As a result, defined benefit plans are designed to provide more predictable retirement income for plan members because the employer commits to delivering a certain level of benefits and incurs the risk associated with delivering on that promise.
While private pension plans are voluntary, they must generally be registered, either federally or provincially. Private pension plans established for employees working in areas that fall under federal jurisdiction are subject to the PBSA. The PBSA covers some 1,200 pension plans or close to 10 per cent of the asset value of all registered plans in Canada; 428 of the federal plans are defined benefit pension plans. One of the main purposes of the PBSA is to set out minimum standards for federally registered pension plans to ensure that the rights and interests of pension plan members, retirees, and their beneficiaries are protected. Private pension plans, however, represent an agreement between stakeholders and the Government of Canada’s role is to ensure that the framework is appropriate and enables all parties to make informed decisions.
In recent years, there have been growing concerns that defined benefit pension plans have had to deal with adverse market conditions, funding deficits, legal rulings creating uncertainty, some lack of clarity regarding pension rights under insolvency and questions regarding the impact of pension accounting rules. Experts say this is creating incentives to shift from defined benefit to defined contribution pension plans, which in general, shifts much of the risk of financing retirement income from the plan sponsor to the plan member. It is important to note that defined benefit pension plans in the United States (U.S.) and the United Kingdom (U.K.) are facing similar challenges. Indeed, the U.S. has recently proposed changes to its defined benefit pension plan framework and the U.K. is developing long-term pension reform proposals.
As a result of the challenges facing defined benefit pension plans, the Office of the Superintendent of Financial Institutions (OSFI) has stepped up its efforts to more proactively identify plans that pose higher levels of risk and ensure that plan administrators take prompt corrective action where needed. While about half of the defined benefit plans that OSFI regulates currently have solvency funding deficits, almost all are actively funding their deficits and the Superintendent of Financial Institutions has described the current situation as stable and manageable.
It has been suggested that pension accounting rules could also be a factor affecting the incentives to start up or maintain a defined benefit pension plan given the impact a plan’s funding status can have on a company’s financial statements. Most countries have adopted accounting standards that eliminate a company’s ability to smooth gains and losses in order to recognize the pension liability of the company based on market value. However, this introduces significant volatility into the financial statements of the company. While Canada’s current accounting rules allow for the smoothing of pension obligations and assets, the Accounting Standard Board has indicated that it will review its rules once there is substantial international convergence.
Issues for Discussion
The PBSA requires that pension plans be funded, in accordance with the prescribed tests and standards, so that pension and other benefits required to be paid under the terms of the plan are backed by the financial assets of the plan. This requirement helps secure the promised benefits to the plan members.
Although the PBSA provides for minimum funding requirements, pension plans that fund above the minimum can improve the stability of pension contributions over the business cycle by building up a cushion against market shocks. This can help relieve funding pressure on sponsoring companies during economic downturns and periods of poor market returns.
At the same time, the income tax rules currently require that employer contributions cease once the amount of surplus in a plan exceeds a specified level. This allows a moderate amount of surplus to be retained in a plan while limiting the government revenue cost associated with deferrals of tax on amounts over and above those required to fund the promised pension benefits.
Many plan sponsors and pension experts have argued that there may be an "apparent" asymmetry in surplus ownership under the PBSA. They argue that, in the absence of contractual clarity, the PBSA has the effect of requiring the plan sponsors to share any surplus while remaining fully responsible for pension plan deficits. There is also the uncertainty of surplus distribution during partial termination, where the surplus is notional until the full termination of the plan. As a result, plan sponsors claim that they are discouraged from contributing more than the required minimum.
On the other hand, some members of PBSA registered plans have argued that pension benefits are deferred compensation, paid as a consequence of contract negotiations that would otherwise have been paid in another form. Plan members bear some risk of not obtaining fully promised benefits and may be exposed to increased contributions, reduced benefits, or wage concessions as a result of the sponsor being forced to fund its pension deficits. In this context, it is argued that plan members ought to have a claim to the surplus.
This section seeks views on possible changes to the regulatory framework for private pension plans that could provide more certainty about surplus distribution and how to improve incentives for plan sponsors to help fund their plans beyond the minimum requirements.
The Government of Canada is seeking views as to whether there are any disincentives or obstacles preventing plan sponsors from adequately funding their plans and building up a funding cushion.
The Dispute Settlement Mechanism for Surplus Distribution
While most modern private pension plans typically have clear wording concerning the ownership of pension surplus, many older private pension plans are unclear or silent concerning surplus ownership, which has led to uncertainty as to how surplus should be handled. While surplus ownership rules could be part of the contractual agreement between plan sponsors and plan members, a dispute settlement mechanism for surplus distribution was introduced into the PBSA in 1998.
Under the PBSA, if an employer can demonstrate that it is entitled to the surplus, regulatory requirements would have to be met and the consent of the Superintendent of Financial Institutions would have to be given before the employer would be able to withdraw any of the surplus. An employer that is unable to demonstrate such entitlement would be able to gain access to the surplus by gaining support for a proposal for it to do so from (1) at least two thirds of the members of the plan and (2) at least two thirds of former members of the plan, and others entitled to a benefit under the plan.
If the employer’s proposal does not receive the two-thirds support necessary to gain access to the surplus but does receive support from more than half of each of the above groups, the employer can submit the proposal to arbitration. If the employer and the two groups voting do not agree on an acceptable arbitrator, one is chosen by the Superintendent and the arbitrator’s decision is final.
These rules and guidelines are generally working well. However, in the context of this broad review, the Government of Canada is seeking views as to whether there could be improvements to the dispute settlement mechanism under the PBSA.
|The Government of Canada is seeking views on whether the dispute settlement mechanism for surplus distribution contained in the PBSA requires improvement or clarification.|
Distribution on Partial Termination
On July 29, 2004, the Supreme Court of Canada upheld the decision of the Ontario Court of Appeal in the Monsanto Canada Inc. v. Ontario (Superintendent of Financial Institutions)(the "Monsanto case"). The decision of the Supreme Court involves the interpretation of Ontario’s Pension Benefits Act (PBA), and sets out certain rights that members of pension plans registered under that legislation have in the event that they are affected by a partial wind up of their plan. Specifically, where pension plan members are entitled to a distribution of surplus on full wind up of their plan, Ontario’s PBA requires the distribution of a pro rata share of surplus to members affected by a partial plan wind up, as if the plan was being fully wound up on the date of the partial wind up.
Until the Monsanto case, the approach taken by most regulators in Canada was not to require a wind up or distribution of assets, including surplus assets, in respect of a private plan that was otherwise ongoing. It has been argued that surplus is a notional amount and that surplus is subject to actuarial assumptions, which will lead to actuarial surpluses at different times. In addition, a distribution of a surplus could have potential impacts on the ability of a plan sponsor to meet future pension obligations. On the other hand, plan members argue that they have contributed to the surplus and are therefore entitled to share in it rather than having the surplus used for other reasons (e.g. benefit improvements), over which the former members would have no say, and which they may not benefit from.
Although the decision applies to Ontario legislation, questions have been raised about its application to the PBSA. Currently, private pension plan sponsors must file a report for approval by OSFI when they partially terminate a federally registered pension plan. Consistent with the provisions of the PBSA dealing with partial plan terminations, OSFI requires that these reports respect the rights that the PBSA provides to plan members affected by partial plan terminations. Consistent with most other jurisdictions, there has been no requirement to distribute a surplus on partial termination. Instead, OSFI has required that pension benefits of members affected by a partial plan termination be vested (regardless of whether the plan’s normal vesting requirements have been met) and that the affected members receive their share of surplus, if and when there is a distribution of surplus to members on the full termination of the plan.
One approach for addressing the surplus distribution issue is to confirm OSFI’s current interpretation of the PBSA that the rights assigned to persons affected by a partial plan termination do not include the distribution of surpluses at the time of the partial termination.
Another approach would be not to permit partial terminations. An example of this approach is adopted under the Quebec Supplemental Pension Plan Act, which instead of providing for partial terminations, requires immediate vesting of pension benefits for all plan members. By doing so, the Quebec approach ensures that the more generous treatment, which is provided under the PBSA to affected members of partial plan terminations, is given to all plan members that terminate employment.
The Government of Canada is seeking views on whether the PBSA should allow partial plan termination or should incorporate an approach similar to Quebec pension legislation. If the PBSA should allow partial plan termination, the Government of Canada is seeking views on whether the surplus should be distributed at the time of the partial plan termination or whether the Government of Canada should adopt a different approach.
|The Government of Canada is seeking views on whether there should be partial plan terminations under the PBSA and if so, should there be a requirement to distribute surplus at the time of the partial termination.|
The PBSA requires that defined benefit pension plans be funded based on both "solvency valuations" and "going-concern valuations" of plan assets and liabilities. Solvency valuations use assumptions consistent with the plan being terminated, while going-concern valuations are based on the plan continuing. Solvency funding requirements are meant to reduce the risk of a loss of benefits in the event that a plan is terminated, including as a result of the failure of the plan sponsor. If a solvency valuation reveals a shortfall of plan assets to plan liabilities, the Pensions Benefits Standards Regulations, 1985 (PBSR) require the plan sponsor to make equal special payments into the plan sufficient to eliminate the deficiency over 5 years.
In recent years, the significant decline in long-term interest rates has resulted in increased pension liabilities and poor investment returns have led to lower pension assets, which have resulted in significant solvency deficits. As the PBSR requires that these solvency deficits be funded, this has raised concerns that excessive levels of cash flow are being driven to pension funding rather than to expenditures that could benefit the growth of companies and the economy more generally. For financially vulnerable companies, these cash demands could have significant implications for their viability. There is also a concern that funding solvency deficits over a short period of time, if long-term interest rates increase and/or investment returns continue to improve, could lead to significant surpluses that could be too large to effectively use.
To address these issues, some plan sponsors have suggested relaxing the solvency funding requirements. They argue that the best security for pensioners is a financially viable sponsor, and that for some companies pension demands potentially affect their viability. However, it is important that any funding flexibility be balanced against benefit security for plan members.
It should be noted that similar funding challenges are being experienced internationally, where a significant number of pension funds in Japan, the U.K., and the U.S. were underfunded at the end of 2002. In response, legislative proposals have been developed to address these challenges. For example, the U.S. has proposed changes to its disclosure and solvency funding requirements, and has proposed increasing its maximum allowable surplus limit under tax and pension rules. In the U.K., a Pension Protection Fund has been established and a Pension Commission has been created to make recommendations regarding potential changes.
This section raises a number of questions to address these issues with the objective of providing more flexibility for plan sponsors to fund their plans, while at the same time protecting the benefits of plan members.
Letters of Credit
One proposal to help address solvency funding issues is to amend the PBSR to permit letters of credit with certain characteristics to be recognized as pension assets in solvency valuations. Currently, a letter of credit would not be recognized as an asset in solvency valuations, and therefore it would not reduce the contributions required to fund any deficit in the plan.
There are a number of issues to consider in deciding whether letters of credit should be recognized as pension assets in solvency valuations. For instance, it would be important that each letter of credit used for solvency funding contain appropriate terms and conditions to ensure the protection of pension benefits. Another consideration would be to determine what limits, if any, should be placed on the use of letters of credit as a proportion of total assets required for solvency funding purposes.
It would also be important to consider how long a letter of credit would remain in effect. For instance, the rules could permit a letter of credit to be withdrawn by the plan sponsor if a solvency surplus emerged, or could treat a letter of credit like other plan assets. If letters of credit could be withdrawn, this could provide additional flexibility to plan sponsors to respond in the event that market conditions continue to improve and long-term interest rates increase.
The Government of Canada is seeking views on whether there are alternative financial vehicles, such as letters of credit, that could allow for greater funding flexibility.
What types of conditions or rules should be required if greater funding flexibility is given to plan sponsors, to ensure that the risk to benefit security is minimized?
Extending Solvency Funding Period to 10 Years
Historically, federally regulated pension plans have generally not had significant solvency deficits and the 5-year funding requirement has not been of concern for most plans; going concern deficits, which must be funded over a 15-year period, have been more significant.
In April 2003, Air Canada filed for protection from its creditors under the Companies' Creditors Arrangement Act (CCAA). As part of the restructuring plan, changes to the pension regulations were made to permit Air Canada to fund the solvency deficiencies in its pension plans over a 10-year period rather than the maximum 5 years permitted by the PBSR. In putting forward the regulations, the Minister of Finance asked the Department and OSFI to develop proposals to apply this type of funding flexibility more broadly to other companies that are restructuring under the protection of the CCAA or the Bankruptcy and Insolvency Act (BIA).
For the sponsor of an underfunded defined benefit pension plan in serious financial difficulty, extending the solvency funding period can reduce the company’s annual pension payments to a level that facilitates its emergence from bankruptcy protection. Facilitating the company’s restructuring in this way may be in the best interest of plan beneficiaries. However, extending the funding period also entails certain risks.
Changes in funding rules to provide extended solvency funding flexibility for plans that file under the CCAA or BIA would need to recognize the risk that the plan sponsor could fail before the plan’s solvency deficiency has been eliminated. In the case of Air Canada, a number of terms and conditions were placed on the funding relief. These included a requirement to disclose appropriate information to plan beneficiaries, proper representation of different beneficiary groups, and an indication of beneficiaries’ consent. Certain restrictions, such as controls on benefit improvements, were also imposed to mitigate the risk of plan beneficiaries receiving less than the full value of promised benefits. Consideration could also be given to mechanisms that would provide additional protection for plan beneficiaries in the event of default by a plan sponsor that has been granted funding relief.
Given that the particulars of each pension plan and plan sponsor seeking this form of funding relief will differ, one option may be to set out certain parameters in legislation and/or regulations while providing the Superintendent of Financial Institutions with the authority to approve applications for relief as terms and conditions would need to be applied to each case.
Some plan sponsors that are financially strong have also argued that, as in other jurisdictions, similar solvency funding relief should be available to them because they are at a lower risk of not meeting their pension obligations. For example, plan sponsors have noted that New Brunswick has provided temporary relief by extending the amortization period until December 31, 2018 for plans that apply for such relief. In addition, Quebec has recently proposed to provide temporary funding relief by extending its amortization period to 10 years under certain conditions. The Government of Canada is seeking views on whether a temporary measure that would extend the amortization period should be granted more generally to other pension plans, as has been done in other jurisdictions. Any relaxation of funding requirements must have conditions attached to recognize the potential increase in risk. The Government of Canada is seeking views on what these conditions could be.
The Government of Canada is seeking views on what the appropriate amortization period is and whether it is different for financially vulnerable and financially strong companies.
The Government of Canada is seeking views on what types of conditions or rules should be attached to any extended amortization period for solvency funding for companies under CCAA or BIA.
Alternatives to Relaxing Funding Requirements
In order to address the funding challenges facing plan sponsors, some experts have suggested alternatives to relaxing funding requirements. For example, one option proposed is to continue to require plan sponsors to make solvency payments based on a 5-year amortization of a plan’s solvency deficiency, but to provide a mechanism so that, on plan termination, solvency payments that are in excess of what is needed to pay promised benefits would be returned to the employer. A special notional account into which solvency payments could be made by a plan sponsor may be one way of achieving this objective and may make it more attractive for plan sponsors to make solvency funding payments. Another proposal is to create a special account that would include the amounts paid in excess of the minimum funding requirement that could be returned to sponsors if they are no longer needed to fund the plans.
|The Government of Canada is seeking views on whether there are alternatives to address funding issues other than relaxing funding requirements. For example, would special accounts for pension plans be feasible?|
Disclosure of Funding Information
The PBSA currently requires that, on an annual basis, a plan member receive a statement outlining the member's individual contributions, the benefits to which the member is entitled, the solvency ratio of the plan where applicable and other prescribed information. In addition, members have authority under the PBSA to see the administrator's copy of certain regulatory information filed with OSFI. The PBSA also requires that plan members be advised of any amendments to their plan within six months of the amendment becoming effective.
The Government of Canada believes that plan members should have timely and accurate information regarding the funded status of their pension plan and the financial condition of the plan sponsor. This could include knowing when their plan is underfunded and when the sponsor’s financial condition may impair the ability of the company to fund or maintain the plan. Consideration could be given to requiring plan sponsors to adopt a statement of funding policy available to all members, which would document the sponsor’s approach with respect to funding the plan. This could also include a policy statement on contribution holidays of the plan sponsors.
|The Government of Canada is seeking views on whether there should be greater disclosure provided to plan members regarding a plan sponsor’s financial condition, funding decisions and contribution holidays and how this may be done.|
C. Void Amendments
While pension regulations require that pension plans make special payments to fund solvency deficiencies over 5 years, they do not restrict even significantly underfunded plans from making plan improvements that would further weaken the plan’s funded status.
In 1998, a provision was added to the PBSA that would, subject to the necessary regulations being made, void plan amendments that reduce a plan’s solvency ratio below a prescribed level. Consultations were conducted prior to this provision being added and again in 2000, but regulations implementing the provision have not been made.
The Government of Canada is proposing to develop regulations to implement paragraph 10.1(2)(b) of the void amendments provision of the PBSA in order to reduce the risk that the underfunding of defined benefit pension plans could lead to less than the full pay-out of promised benefits. The Government of Canada is seeking stakeholders’ views on a proposal to set the prescribed solvency ratio at 85 per cent. A solvency ratio threshold of 85 per cent is proposed on the basis that plans with solvency ratios below this level could generally be considered significantly underfunded, and it is reasonable to apply restrictions and conditions on benefits improvements by such plans.
The Government of Canada would also like to consult stakeholders on a complementary proposal to amend pension regulations to give lower priority to recent plan improvements. In situations where a pension plan has a deficit at plan termination, benefits that result from plan amendments that came into effect less than 5 years before a plan terminates would have a lower priority claim on pension plan assets than other benefits, based on the extent to which these recent benefits have been funded. This measure would enhance the security of longer established benefits.
The Government of Canada is seeking views on its proposal to implement the void amendments of the PBSA based on a prescribed solvency ratio level of 85 per cent, and to reduce the priority of claims against pension plan assets for recent benefit improvements that have not been fully funded. Specifically:
D. Full Funding on Plan Termination
Under current pension regulations, if a defined benefit pension plan is terminated for any reason, the plan sponsor is required to pay any outstanding payments to the plan - such as contributions that have been deducted from employees but not yet paid into the plan, and/or employer contributions owing but not yet remitted.
Public consultations were conducted in 2001 on a proposal to strengthen pension funding requirements so that, on plan termination, plan sponsors would have an obligation to pay into the plan the amount necessary to provide the full benefits promised to plan members at the date of termination of the plan. There was broad support for the concept at that time. This requirement would mean that plan sponsors would not be able to terminate an underfunded defined benefit plan without addressing the plan’s funding shortfall. For financially vulnerable plan sponsors, the obligation to make up a funding shortfall on plan termination could impact the ability of these plan sponsors to secure financing. The Government of Canada is therefore interested in stakeholders’ views on whether this obligation should be different for financially vulnerable plan sponsors.
|The Government of Canada is seeking views on full funding on plan termination, and in particular how it should be applied to financially vulnerable sponsors.|
E. Pension Benefit Guarantee Fund
Given the recent difficulties facing defined benefit plans, providing greater benefit security for employees is currently an issue for several countries. While some countries, such as the Netherlands, have chosen to focus on strengthening funding rules and ensuring strong regulatory regimes, other countries such as the U.K., have recently chosen to operate a pension benefit guarantee fund (PBGF). While other countries such as the U.S. have a PBGF, Ontario is currently the only jurisdiction in Canada to have one.
The attraction of a PBGF is that it provides pension compensation to employees, retirees, and beneficiaries if an employer becomes bankrupt or insolvent and its pension plan is underfunded. A PBGF may also reduce the propensity of employees from leaving companies experiencing financial difficulty because employees have greater confidence that the PBGF will provide them with benefits in the event that their employer becomes bankrupt.
While there are potentially a number of benefits to a PBGF, there are also potential drawbacks. One major consideration is that a PBGF could provide a disincentive for employers in financial difficulty to properly manage their pension plans to control risks if their pension liabilities will be covered. It may also be difficult to efficiently spread the insurance risk in a PBGF at the federal level because federally registered pension plans account for only 10 per cent of pension plan assets in Canada, with 10 plans accounting for about 63 per cent of the assets. Moreover, there would be an increase in cost to plan sponsors through insurance premiums. This additional cost could contribute to the shift to defined contribution plans. There is also a risk the PBGF has insufficient funds to cover its pension liabilities. This could lead to pressure for government funding, the extent of which could have broader implications for government policies and the economy. Indeed, the PBGFs in Ontario and the U.S. are experiencing significant deficits.
|The Government of Canada is seeking views on the viability of a federal pension guarantee fund including any comments on its possible design, operation, and powers.|
Written comments regarding any element of this paper are invited and should be forwarded by September 15, 2005, to:
Financial Sector Policy Branch
Department of Finance
20th Floor, East Tower
140 O’Connor Street
Comments can also be emailed to email@example.com.
Subject to the consent of the submitting party, comments will be posted on the Department of Finance Web site to add to the transparency and interactivity of the process. Once received by the Department of Finance, all submissions will be subject to the Access to Information Act and may be disclosed in accordance with its provisions. Should you express an intention that your submission be considered confidential, the Department will make all efforts to protect this information within the legal requirements of the law.
Statistics of Federally Regulated Pension Plans
Number of Defined Benefit and Defined Contribution Plans
Number of Members Covered by Plan Type
Total Assets by Plan Type ($ Billions)
Assets and Membership of the 10 Largest Defined Benefit Plans,
|Total Defined Benefit Pension Plans||89||482,605|
|10 Largest Defined Benefit Pension Plans||56||246,592|
1. In 1996, the Office of the Superintendent of Financial Institutions released a discussion paper, Enhancing the Supervision of Pension Plans under the Pension Benefits Standards Act, 1985, which dealt with changes to the prudential and supervisory framework for federally regulated private pension plans. Following this consultation, Bill S-3, an Act to amend the Pension Benefits Standards Act (1985) and the Office of the Superintendent of Financial Institutions Act, received Royal Assent on June 11,1998. [Return]
2. Budget 2005 reinforced the Government of Canada’s commitment to the three pillars by (1) strengthening income assistance through an increase in the Guaranteed Income Supplement of the Old Age Security Program, (2) providing additional investment flexibility to the Canada Pension Plan Investment Board, and (3) enhancing private savings plans by increasing the RRSP and registered pension plan limits. [Return]
4. Other reasons can also explain this potential shift from defined benefit to defined contribution pension plans. For example, in the 1990s, with the mobility of workers and the relatively high market returns, many employees put pressure on their employers to change their pension plans to defined contribution pension plans. [Return]
5. OSFI is responsible for supervising federally registered pension plans to monitor compliance with funding and requirements, and takes a range of actions aimed at enhancing the security of pension benefits. [Return]
6. Estimated solvency ratios calculated by OSFI as at December 31, 2003, and December 31, 2004, showed that approximately 53 per cent and 54 per cent, respectively, of all defined benefit pension plans supervised by OSFI were underfunded (solvency ratio less than one). A solvency ratio compares the assets of the plan to the liabilities of the plan using assumptions consistent with the plan being terminated. [Return]
7. The tax rules generally permit pension plans to hold surplus assets equal to at least 10 per cent of going-concern liabilities (or 2 times current service cost up to 20 per cent of liabilities, if greater) before requiring that employer contributions be suspended. [Return]
8. Subsection 2(1) of the PBSA and subsection 16(1) of the Pensions Benefits Standard Regulations, 1985 (PBSR) define surplus as the amount by which assets of the plan exceed the liabilities of the plan, as shown in an actuarial report filed with the Superintendent. [Return]
9. Sections 16, 16(1) and 16(2) of the PBSR set out the requirements that must be satisfied for a surplus to be refunded including that the administrator must give notice to plan beneficiaries that the employer believes it has entitlement to the plan’s surplus and is requesting the Superintendent’s consent for a refund of the surplus. [Return]
11. Section 10.1(1) requires the administrator to file with the Superintendent an amendment to any plan document referred to in subsection 10(1). Unless the Superintendent authorizes the amendment, an amendment is void under 10.1(2)(b) "if the solvency ratio of the pension plan would fall below the prescribed ratio level." [Return]