Solvency Reserve Accounts and MEPP Funding

Summary#

These are proposed changes to the Pension Benefits Standards Regulations, 1985 called the Regulations Amending the Pension Benefits Standards Regulations, 1985 (Solvency Reserve Accounts and Multi-Employer Pension Plans). Published on September 14, 2024, the proposal would let some pension plan sponsors set up “solvency reserve accounts” to hold certain extra payments and would lower the solvency funding target for some multi‑employer plans from 100% to 85%. This is a proposal open for comment, not final law.

What it does#

• Creates rules for a new solvency reserve account (SRA) inside a pension plan’s fund:
  • Employers could put in certain payments only: required solvency special payments, solvency payments under a workout agreement, and any extra payments above what solvency rules require.
  • Employers could withdraw money from the SRA only under set limits:
    • Withdrawals cannot cause the plan’s going‑concern or solvency ratio to fall below 1.05 (i.e. 105% funded).
    • An employer may not withdraw more than 20% of the SRA’s eligible surplus in a year.
  • Plan administrators must report SRA balances, contributions and withdrawals to members in the annual statement.
• Lowers the solvency funding requirement for federally regulated defined benefit multi‑employer pension plans that are not “negotiated contribution” plans from 100% to 85%.
• Changes the regulatory definitions and reporting requirements tied to solvency and plan funding.
• These are draft rules published by the Department of Finance for public comment (there is a 30‑day comment period from publication).

Who's affected#

• Employers that sponsor federally regulated defined benefit pension plans. That includes employers in sectors like banking, telecommunications, and interprovincial transportation, and all private sector employers in the territories.
• Members and retirees of those federally regulated defined benefit plans. They are the people whose benefits and plan security the rules aim to protect.
• Administrators of federally regulated plans, who would decide whether to set up an SRA and must include the new reporting details in member statements.
• Federally regulated multi‑employer pension plans (the small number that are not negotiated contribution plans). Two of these five plans are First Nations plans; their members would be affected if those plans choose to use the new rules.

Why it matters#

• SRAs aim to reduce the problem of “trapped” surplus. Employers who can make extra contributions when times are good would be able to place some of that money into an SRA and retrieve it later under limits. That could encourage bigger contributions and help plans recover from deficits faster.
• The withdrawal limits and the 1.05 / 105% safeguard are meant to protect members by keeping plans well funded even after withdrawals.
• Lowering the solvency target to 85% for certain multi‑employer plans gives those plans more flexibility. That could help avoid cutting benefits or forcing unaffordable employer contributions, and would bring federal rules closer to many provincial rules.
• These are proposed rules and could change after the consultation. The government asked for input within 30 days of the notice, so the final rules may differ from what’s described here.