Negotiated Contribution Pension Plan Funding Changes

Summary#

These are final changes called the Regulations Amending the Pension Benefits Standards Regulations, 1985 (Negotiated Contribution Plans), published in the Canada Gazette, Part II on June 5, 2024. They exempt certain multi-employer “negotiated contribution” pension plans from solvency funding rules and replace that requirement with stronger ongoing (going concern) funding and governance standards.

What it does#

• Removes the requirement for affected plans to make extra solvency special payments when a solvency shortfall exists.
• Requires stronger going-concern funding measures instead, including:
  • adding a buffer to the cost of benefits that must be at least 5% of normal cost for negotiated contribution plans; and
  • requiring a provision for adverse deviations in the going-concern liabilities (the exact size of that liability buffer is set by the plan’s actuary and administrator).
• Adds a new formal definition of “going concern ratio” (assets ÷ going-concern liabilities) for use in valuations.
• Sets numeric funding thresholds used when a plan wants to improve benefits:
  • a going-concern ratio must not fall below 1.05 after an amendment that would increase benefits; and
  • other solvency-related benchmark levels are set at 0.85 and 1.0 for specific legal tests.
• Requires negotiated contribution plans to have written funding and governance policies that cover things like:
  • funding objectives, risks and how surplus is used; and
  • governance roles, performance measures, conflict-of-interest rules, education for administrators, dispute resolution, and risk controls.
• Changes member-facing disclosures so plan administrators must warn that pension benefits may need to be reduced if negotiated contributions are not enough.
• Allows people who have inspection rights under the main pension law to see the plan’s funding and governance policies.
• Comes into force on the same day that Division 8 of the Budget Implementation Act, 2021, No. 1 comes into force, or on registration day if that already happened.

Who's affected#

• Federally regulated multi-employer negotiated contribution pension plans. The government says there are 14 active plans covering about 45,000 members, retirees and beneficiaries.
• Plan members and retirees in those negotiated contribution plans, because the rules change how funding shortfalls are handled and how benefit changes are approved.
• Plan administrators and employers who participate in these plans, since they must adopt the new funding and governance policies and follow the new funding buffers.
• The federal regulator, the Office of the Superintendent of Financial Institutions (OSFI), which supervises compliance under the pension law.

Why it matters#

• The change moves these plans away from short-term solvency tests that often forced benefit cuts. That is intended to make benefits steadier and more sustainable while a plan continues to operate.
• At the same time, plans must hold explicit buffers and adopt clearer funding and governance rules. That aims to reduce the risk that benefit levels become unsupportable later.
• For members and retirees, the practical effect could be fewer benefit reductions triggered by solvency snapshots, but benefit security still depends on the size of the new buffers and how well plans are governed.
• The new rules only apply once the linked section of the Budget Implementation Act, 2021, No. 1 comes into force (or on registration), so the timing of the change is conditional.