Solvency Reserve Accounts and MEPP Funding

Summary#

The Canada Gazette (Part I) published the proposed Regulations Amending the Pension Benefits Standards Regulations, 1985 (Solvency Reserve Accounts and Multi‑Employer Pension Plans) on September 14, 2024. The rules would allow federally regulated defined benefit pension plans to create solvency reserve accounts (SRAs) and would lower the solvency funding target for certain multi‑employer pension plans from 100% to 85%. Comments are invited for 30 days from publication.

What it does#

• Creates a framework for a new tool called a solvency reserve account (SRA) inside a pension fund:
  • Employers can put only specific payments into an SRA: solvency special payments, certain workout‑agreement payments, and any contributions above what’s needed for solvency tests.
  • Employers could withdraw from the SRA only if the plan stays well funded:
    • withdrawals cannot leave the plan with a going‑concern or solvency ratio below 1.05 (i.e. 105%),
    • and an employer may not take more than 20% of the SRA’s eligible surplus in a single year.
  • Plan administrators must report SRA balances and the year’s payments in and out in member statements and actuarial reports.
  • On plan termination, any remaining SRA money can be withdrawn only after all benefit obligations are met and the regulator has approved the termination.
• Lowers solvency funding requirements for federally regulated defined benefit multi‑employer pension plans (MEPPs) that are not negotiated contribution plans:
  • the solvency target would change from 100% to 85%.
  • the rules and member reporting are adjusted to reflect the 85% target.

Who's affected#

• Employers that sponsor federally regulated defined benefit pension plans who may choose to establish an SRA.
• Plan administrators who would set up SRAs and handle extra reporting.
• Plan members and retirees of federally regulated plans, especially participants in multi‑employer pension plans (MEPPs).
• Office of the Superintendent of Financial Institutions (OSFI), the federal regulator that supervises these plans.
• The federal Department of Finance, which sponsored the proposal.
• The change to MEPPs specifically targets non‑negotiated contribution MEPPs — there are five such federally regulated MEPPs and two of them are First Nations plans.
• Small businesses are not expected to be affected, since these types of plans are not offered by small employers under current rules.

Why it matters#

• Solvency reserve accounts are meant to reduce “trapped” surplus. Employers may be more willing to pay down deficits if they can record certain extra payments in an SRA and reclaim some of that money later. That could strengthen plan funding over time and improve retirees’ security.
• The withdrawal limits (minimum funding of 105% and a 20% annual cap) are designed to balance employer flexibility with protection for members’ benefits.
• Lowering the MEPP solvency target to 85% aims to give multi‑employer plans more breathing room and to align federal rules with many provinces. The intended effect is to reduce the chance that plans would cut benefits to meet solvency rules.
• Some retiree and union groups pushed for tighter limits; some plan administrators wanted fewer restrictions. The proposal reflects a compromise and is open for public comment for 30 days from September 14, 2024.
• This is a proposed regulation, not yet law. If you are a plan sponsor, administrator, or member who cares about how your pension is funded or about surplus refunds, this proposal could change the options and risks that affect plan funding and benefit stability.