Solvency Reserve Accounts and MEPPs

Summary#

The Department of Finance has published proposed changes to the Pension Benefits Standards Regulations, 1985 on September 14, 2024. The proposal would (1) create rules for so‑called solvency reserve accounts that let some extra employer payments be set aside and later withdrawn, and (2) lower the solvency target for certain multi‑employer pension plans from 100% to 85%. This is a proposal, not law, and comments are open for 30 days.

What it does#

• Sets up rules for a new type of account inside a pension plan called a solvency reserve account (SRA):
  • Employers could put into an SRA: required solvency special payments, extra solvency payments after a plan change, and any contributions above what’s needed to meet solvency tests.
  • Withdrawals are limited so the plan’s funding does not fall below 1.05 (i.e. 105% funded) on either a going‑concern or solvency basis, based on the most recent actuarial report.
  • An employer may withdraw at most 20% of the SRA’s eligible surplus in any one year.
  • Administrators must report SRA balances and movements to plan members in annual statements and valuation reports.
  • Any SRA funds left at plan termination may only be taken by employers after all benefit obligations are satisfied and the Superintendent has approved the termination report.
• Changes solvency rules for some multi‑employer pension plans:
  • For federally regulated defined benefit multi‑employer pension plans that are not negotiated contribution plans, the solvency target used in the rules would be reduced from 100% to 85%.
• Keeps existing amortization practices for deficits (previously described as 15 years for going‑concern deficits and 5 years for solvency deficits) under the broader funding framework.

Who's affected#

• Employers who sponsor federally regulated defined benefit pension plans and their plan administrators.
• Members and retirees of those plans, who will receive new disclosures about any SRA.
• Federally regulated multi‑employer pension plans (MEPPs) that are not negotiated contribution plans — the federal government notes there are five such plans, including First Nations plans.
• The Office of the Superintendent of Financial Institutions (OSFI), which supervises federally regulated private pension plans, will apply and monitor the new rules.
• Small businesses are not expected to be affected because they generally do not offer these types of federally regulated defined benefit plans.

Why it matters#

• Encourages extra contributions: Employers may be more willing to make larger payments into a plan if they can put some of that money into an SRA and access it later. That could help plans get through funding ups and downs more smoothly.
• Protects retirees while giving flexibility: The rules include limits (the 1.05 / 105% floor and 20% annual withdrawal cap) intended to prevent employers from withdrawing so much that benefit security is harmed.
• Eases pressure on multi‑employer plans: Lowering the solvency target to 85% for some MEPPs could reduce the need for immediate benefit cuts or big employer payments and aligns federal practice more closely with several provinces.
• This is a proposed regulation, not yet law: stakeholders have a chance to comment for 30 days after publication. The final details, timing, and effects will depend on the final text and any changes made after consultation.