Less than two months after Quebec changed the funding rules for its private defined benefit pension plans, the government of Ontario says it will proceed with a review of the province’s solvency funding framework for single-employer defined benefit pension plans. The government also plans to extend temporary solvency funding relief measures.
The announcement came on Thursday, Feb. 25, when the province unveiled its 2016 budget.
Read: Quebec shakes up pension landscape with shift to going-concern funding
The government has appointed David Marshall, former president and CEO of The Workplace Safety and Insurance Board, to lead the review, which aims to create “solvency funding reforms that would focus on plan sustainability, affordability and benefit security, and take into account the interests of pension stakeholders — including sponsors, unions, members and retirees,” according to the budget.
A consultation paper highlighting the possible measures will be released in spring 2016.
“The fact that there is going to be a consultation paper in the spring is great,” said Ian Edelist, principal and Toronto practice leader at Eckler. “I’ve always felt the solvency funding regime has not done what it was intended to do.
“In particular, in my conversations with Ontario officials, they’ve always been very hesitant to do anything that would be less conservative, whereas Quebec has gone a completely different way. I think Ontario would be well-served by looking at what Quebec has done and what other jurisdictions are thinking of doing.”
The budget also notes that Ontario plans to extend the temporary solvency funding relief measures introduced in 2009 and 2012 for private-sector defined benefit plan sponsors in an effort to offer them more immediate help. A draft of the regulations will become available for consultation in spring 2016.
Following in Quebec’s footsteps?
In January, Quebec removed the requirement for the province’s private defined benefit plans to fund themselves on a solvency basis. A valuation on the basis of solvency assumes the plan folds suddenly and looks at whether or not it holds enough assets to pay out immediately all obligations accumulated until that time.
Read: Why Canada’s pension funding regime needs an overhaul
Quebec’s private defined benefit plans now have to fund themselves only on a going-concern basis. A going-concern valuation assumes the plan will exist indefinitely and therefore lessens the impact of short-term market fluctuations on its funded status.
As a trade-off for eliminating the need for solvency funding, Quebec plan sponsors have to put money in a reserve even when their plans are fully funded on a going-concern basis. The requirement is the law’s so-called stabilization provision, which aims to help pension plans withstand financial shocks.
Even before the change, Quebec’s public sector plans were for the most part exempt from the solvency funding requirement. While certain pension plans in other parts of the country are also exempt from funding their solvency deficits, Quebec was the first province to introduce that exemption across the board.