In our client memo dated May 23, 2017, we discussed the Ontario Government’s announcement of the changes to the funding framework for Defined Benefit Pension Plans. As noted in that client memo, the May 19, 2017 announcement from the Ontario Government only outlined the broad framework for the changes to the funding rules for Ontario registered pension plans – as the specific details of how the enhanced going-concern funding basis will operate is expected to be outlined in detailed regulations that will be released by the Ontario Government in the months ahead.
While it is our expectation that this new funding framework will come into force as at December 31, 2017, the May 19, 2017 announcement indicated that there would be transitional measures that would be available to plan sponsors that are required to file valuation reports between December 31, 2016 and December 30, 2017. These transitional measures have recently been made public, and come into force on July 1, 2017. The remainder of this blog will discuss these transitional measures.
The transitional measure is applicable to the first valuation performed on or after December 31, 2016 and before December 31, 2017, and provides for a Solvency Relief “Option 8” described as follows:
However, this Solvency Relief Option 8 (i.e. the 24-Month Deferral of the New Solvency Deficiency Payments), cannot be implemented if Solvency Relief Option 7 (i.e. the 10-year Amortization of the New Solvency Deficiency, outlined in the 2016 Solvency Funding Relief Measures) is implemented in the same valuation report.
As with previous versions of the Solvency Relief measures, plan administrators who wish to implement Solvency Relief Measure Option 8 will need to provide a Solvency Relief Notice to active, former, and retired members, as well as any applicable Union. For clarity, this notice is not subject to member consent or objection (as is the case for Solvency Relief Option 7).
Solvency Relief Measure Option 8 will only be applicable to plans that perform a valuation during the period December 31, 2016 and December 30, 2017 and have a new solvency deficiency in this valuation. Thus, this transitional measure will not be applicable to all Ontario registered DB plans.
Nevertheless, by allowing a 24-month delay for the funding any new solvency deficiency that is outlined in a new valuation, the Ontario Government is providing a meaningful transitional measure as we wait for further details on the new funding framework. It is conceivable that this 24-month delay will allow for sufficient time for a plan sponsor to prepare a valuation using the new funding framework on or after December 31, 2017, and thereby avoid needing to make a special payment in respect of a new solvency deficiency outlined in a report prepared between December 31, 2016 and December 30, 2017.
As noted in our client memo dated May 23, 2017, there are still many unanswered questions regarding Ontario’s new funding framework. Be assured we will keep you informed as future developments on this topic unfold.