Pension funding relief regulation
On Nov. 11, 2009, the Quebec government published a regulation aimed at reducing the impact of the financial crisis. Eagerly anticipated by many pension plan sponsors, this regulation aims to supplement the relief measures in Bill 1, which was adopted on Jan. 15, 2009.
In order to effectively reduce the financial burden brought on by the financial crisis, plan sponsors can choose from four relief measures:
1. Smoothing of plan assets for solvency purposes;
2. Consolidation of previous deficiencies for solvency purposes;
3. Extension of the solvency deficiency amortization period; and
4. Early application of the new Canadian Institute of Actuaries standard (in the case of an actuarial valuation prior to April 1, 2009).
Like the measures that were adopted in 2005 in the context of Bill 102, the measures in this new regulation are temporary. Their main effect is to reduce required employer contributions in 2009, 2010 and 2011, as the regular rules will be restored in 2012. Therefore, unless a pension fund enjoys more than significant gains during this
three-year period, the measures will substantially increase the contributions required during the subsequent five-year period
(i.e., Jan. 1, 2012 to Dec. 31, 2016).
The decision on whether or not to implement one of the measures must be made during the preparation of the first actuarial valuation after Dec. 30, 2008. If the plan sponsor does not take advantage of the measures at that time, it will not be permitted to do so later.
Also, the funding relief in this regulation applies exclusively to solvency rules. It has no practical effect on plans if the employer is a municipality or a university, because these types of plans are already exempt from solvency funding.
Practical considerations for defined benefit plan sponsors 1. How will the plan payments evolve with or without relief measures until 2012 when these measures expire? 2. How do you plan to use letters of credit if there is a deficiency on a going- concern basis? 3. How should you plan to reduce or eliminate letters of credit if the plan’s financial situation improves? 4. Would it be desirable to pay off deficiencies quickly and avoid the annual filing of a full actuarial valuation? 5. How should payments in excess of the minimum requirements be planned under the new rules? 6. How should the plan’s investment policy be revised to ensure that the PfAD corresponds with the goals of the sponsor and the plan members? 7. How do the new funding rules fit with accounting principles? 8. Should the funding strategy be revised with the adoption of international accounting standards, which are mandatory for some plan sponsors? 9. How can new risk management approaches and tools be assimilated in order to avoid a recurrence of the negative experiences of the past few years? |
Municipal and university sectors regulation
On Dec. 23, 2009, the Quebec government published a regulation to lessen the impact of the financial crisis on municipalities and universities. It is unlikely that the final version of this draft regulation will be published before May 2010, but the proposed regulation will apply retroactively to Dec. 31, 2008.
Designed to complement the relief measures contained in Bill 1, this regulation also seeks to tailor the new funding rules prescribed in Bill 30 to the municipal and university sectors. However, for many, the big surprise of the draft regulation will be the addition of a PfAD that will affect how surplus is used.
