The legislation for solvency funding relief proposed by the Ontario government on Dec. 16 is likely to be welcomed by plan sponsors. But according to experts, whether or not the criteria will ever be met is unclear.
While the full details of the legislation have yet to be released, the proposal matches the federal government’s November announcement that it would extend the solvency payment deadline from five to 10 years. In fact, it exceeds the original announcement in that the legislation would defer the start of catch-up payments, permit the use of actuarial gains to reduce annual cash payments and provide temporary limitations going forward on certain contribution holidays.
However, Gary Nachshen, a partner in the employment, labour and pension group with Stikeman Elliott LLP, says the prerequisite of acquiring plan member and retiree approval in order to qualify for a solvency payment deadline extension may be problematic.
“If the only way to get an extended amortization period is to get consent of the members, I anticipate that will be difficult in a lot of cases,” he says. “If it were possible to provide an extended amortization period either on request or without a threshold number of members, it would be more likely to be used.”
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Nachshen explains that retirees in particular have little reason to go along with such an approach, and that it would be a particularly hard sell for plan sponsors.
“For retirees, it’s hard to see why they would want the money to go in slower rather than faster.”
Kevin Sorhaitz, a principal with Buck Consultants in Toronto, agrees.
“Are the older actives and retirees really going to vote in favour of the company getting cost relief at this time when they’re nervous and they’re seeing all these offices and plants being closed?” he asks. “I don’t know if many companies will be able to utilize the relief being proposed if it’s contingent on the actives and retirees granting consent.”
While the proposal is well intended, says Sorhaitz, the ideas are very similar to those in the federal government’s announcement, which was not well-received. He believes it doesn’t go far enough to cover all plan members, and is heavily tilted in favour of plan sponsors.
“My concern is, for those companies that have a 50/50 chance of not making it through this economic episode, certain plan members aren’t going to be protected,” he says. “We still have the situation where the plan member is at the point that they could end up with a lower benefit due to relief measures.”
Nachshen has praise for the proposal in that it’s the first time that Ontario has looked at comprehensive funding relief, but wonders if it goes far enough.
“I think it’s a helpful start. But, this is definitely not a panacea. It’s somewhere between a band-aid and a bandage.”
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