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On May 28, 2020, the federal government released regulations making good on its promise to lift the requirement for federally regulated employers to make solvency special payments to their DB pension plans.  The regulations are effective as of May 27, 2020 and are expected to be published on June 10, 2020 in the Canada Gazette.  A copy of the regulations can be viewed here. 

What the regulations do

The regulations relieve employers from the obligation to make solvency special payments to federally regulated DB pension plans from the effective date (May 27, 2020) to December 30, 2020.  This means that no further solvency special payments will be required to the end of 2020.  Because solvency special payments are due no later than the 30th of the month after the month to which they relate, April's solvency special payment (due May 30th) was technically not required.  May - November's payments (due June - December) are similarly not required.  

In addition, solvency special payments due and made after March 31 but on or before May 27, may be repurposed as normal cost contributions or going-concern special payments due during the moratorium period (i.e. after March 31 and before December 30).  If solvency special payments were made by letter of credit, the face value of the letter of credit may be reduced by the amount of the special payments due on or after March 31.

Payments made after May 27 and before December 30 cannot be repurposed. 

Administrators are required to disclose the amount of the reduced solvency payments made during the moratorium period to members in the 2020 member statement.   

What the regulations don't do  

Employers cannot seek a refund of solvency special payments made after March 31 and before May 27 - such payments can only be repurposed, and only to the extent of the normal cost and going-concern special payments due during the moratorium period. 

Payments made voluntarily during the moratorium period cannot be repurposed, and are not treated as a pre-payment, meaning that employers will get no "credit" for voluntary payments.

Unless and until OSFI takes a position that it is permitted, it is unlikely that payments made between March 31 and May 27 are eligible to be repurposed as a transfer deficiency payment.  Although it would make very good sense to allow for such recharacterization, given the specificity of the regulations, OSFI may not view itself as having the flexibility to do so.     

No "strings" are attached to the relief.  It is blanket relief available to all employers without any need to show financial need or the restrictions on business activities that have accompanied other forms of relief from the federal government.  

There is no relief from December 2020's special payment, due no later than January 30, 2021.

End of May Contribution

Given the release of the regulation very late in the month and the fact that it is still not yet widely available, employers may have made April's special payment on May 28 or 29 (on or before its due date of May 30, a Saturday).   A technical reading of the regulation would prohibit a solvency special payment remitted after May 27 from being repurposed at all, and there is no mechanism for such an amount to be refunded.  A technical fix could be made, but would require regulatory intervention.  Employers in this situation should contact their legal and actuarial advisors to determine what, if anything, can be done. 

Originally published 1 June 2020.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.