Temporary Solvency Payment Relief for Pensions

Summary#

The Solvency Special Payments Relief Regulations, 2020 temporarily pause or reduce required solvency special payments for some federally regulated defined benefit pension plans. The regulations were registered on May 27, 2020 and apply to instalments and payments tied to the period from April 1, 2020 through December 30, 2020, with some related limits running to November 30, 2020.

What it does#

• Suspends monthly solvency special payment instalments from the day the regulations come into force until December 30, 2020.
• Reduces a plan year’s solvency special payment requirement by the total of instalments that were due or would have been due between April 1, 2020 and December 30, 2020.
• Allows instalments paid after March 31, 2020 but before the regulations came into force to be deducted from the reduced total for the same plan year.
• States no interest is payable on solvency instalments that became due after March 31, 2020 but before the regulations came into force.
• Lets the face value of a letter of credit used for solvency funding be reduced by an amount up to the instalments covered by the moratorium, and says reducing that face value won’t be treated as a default.
• Sets the prescribed solvency ratio threshold at 1.05 for the period from coming into force until November 30, 2020 for certain plan amendments.
• Keeps all normal cost contributions and going concern special payments required under the Pension Benefits Standards Regulations, 1985 in force.
• Requires plan administrators to disclose, in the annual statement, both the amount by which solvency special payments were reduced and what those payments would have been without the relief.

Who's affected#

• Sponsors of federally regulated defined benefit pension plans — roughly 400 plans supervised federally, including about 278 defined benefit plans and 122 combination plans.
• Members, former members and retirees of those plans, because less money may flow into plan funding in the short term.
• Plan administrators and the Office of the Superintendent of Financial Institutions, which oversees compliance.
• The regulations apply to plans covered by the Pension Benefits Standards Act, 1985 — roughly 7% of Canadian private pension plans are federally regulated.
• It is unclear from the text whether any specific individual employers or sectors are exempt; the relief is aimed at federally regulated single-employer defined benefit plans generally.

Why it matters#

• The relief frees up cash for employers facing short-term financial stress from the COVID‑19 pandemic. That can help firms keep operating and protect jobs in the short term.
• Less solvency funding into pension plans increases short‑term risk to benefit security if a sponsoring employer later becomes insolvent. The rules keep going concern funding in place to limit that risk.
• Members will get a required disclosure showing how much their plan’s solvency payments were reduced so they can see the impact.
• The pause is temporary; monthly solvency payments were expected to resume with the December 2020 payment (due by January 30, 2021), and sponsors may still choose to make payments during the moratorium if they want.