Canada: Solvency Special Payments For Federally Regulated DB Plans Suspended To End Of 2020, Consultation Promised For 2021

On April 15, 2020, Finance Minister Bill Morneau announced that "the government will provide immediate, temporary relief to sponsors of federally regulated, defined benefit pension plans. This relief will be in the form of a moratorium, through the remainder of 2020, on solvency payment requirements for defined benefit plans."  According to the government, this relief is being granted to "ensure that employers have the financial resources they need to maintain their operations and their pension plans, and to protect the retirement security of their workers and retirees."

The government also committed to consult with stakeholders over the coming months on options to provide relief from 2021 funding obligations.  The federal jurisdiction is one of the last remaining major jurisdictions of Canadian pension regulation to require that solvency liabilities be fully funded.  The commitment to consult on funding obligations for 2021 may signal the federal government's willingness to adopt a funding model similar to Ontario (and others) which require that solvency liabilities be funded to 85% with an enhanced going-concern funding obligation, or that of Quebec which requires only enhanced going-concern funding.

It should be noted that previous rounds of solvency funding relief from the federal government (for example, those to deal with the 2008/2009 crisis) included complex rules regarding the treatment of letters of credit and enhanced member disclosure. Although no such measures are mentioned in the April 15^th announcement, the precise regulatory measures necessary to effect the solvency funding relief contemplated by the federal government's announcement have not yet been released. Careful attention to those regulatory measures will therefore be needed.

The announcement comes on the heels of OSFI, the federal pension regulator, taking measures to limit commuted value transfers and annuity purchases from pension plans in a March 27, 2020 announcement.  An FAQ regarding the announcement was also published and is expected to be updated with additional information and questions in the coming days.

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