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Knowledge & Insights News & Views Volume 16 | Issue17 | Issue 1X MonthJanuary 2019 2020 In this issue British Columbia adopts 1 British Columbia adopts DB funding DB funding reform and reform and introduces single employer target benefit plans introduces single employer 3 Ontario permits variable benefits target benefit plans in DC pension plans 4 Developments affecting federally On December 12, 2019, British Columbia amended regulated pension plans its Pension Benefits Standards Regulation to increase 5 Update: Proposed changes to going concern funding requirements and reduce employee stock option tax rules solvency funding requirements for provincially- delayed regulated defined benefit (DB) pension plans. 6 New and extended employment leave provisions in Saskatchewan 7 Tracking the funded status of pension plans as at December 31, 2019 9 Impact on pension expense under international accounting as at December 31, 2019 The amendments also permit single employers The solvency relief options that had previously been to offer target benefit plans on a go-forward basis. offered to pension plans will no longer be available The amendments are summarized in the BC Financial as of December 31, 2019. Any previously elected Services Authority (FSA) Information Bulletin PENS solvency relief options will cease to apply as of the 19-004 and are generally in line with the proposals first review date on or after December 31, 2019. that were summarized in the September 2019 Furthermore, the FSA has advised that it will cease to News & Views. approve applications for extensions of the solvency funding period under its general authority to extend Solvency funding regulatory deadlines. The revised solvency funding rules require DB pension plans to be funded to a reduced level of 85% Target benefit plans of their solvency liability. Any solvency deficit will Single employer target benefit plans are now be consolidated at each valuation and amortized possible in British Columbia. The target benefit over five years. provisions of the legislation were previously limited to multi-employer pension plans. Since the right to A DB plan must maintain a solvency ratio of at least convert past benefits to target benefits is restricted 85% after a plan amendment providing for benefit to multi-employer negotiated cost pension plans, improvements. single employer target benefit provisions would Going concern funding only be possible in respect of future benefits. The going concern funding rules include a provision for adverse deviation (PfAD). The PfAD is generally equal to the monthly long-term Comment benchmark Government of Canada bond yield Although we would have preferred not to see as at the valuation date, multiplied by five. the PfAD solely based on interest rate risk, the changes are broadly positive for DB plan The PfAD is subject to a minimum of 5%, but sponsors in British Columbia and should improve no maximum. A downward adjustment to the PfAD the sustainability of DB plans in the province. is made for plans with an exposure of at least 70% British Columbia employers who sponsor DB to traditional fixed income investments. The PfAD pension plans may wish to file early actuarial is calculated and funded on both going-concern valuations as of December 31, 2019, in order liabilities and the normal cost. to take advantage of the new provisions. Any unfunded going concern liability is consolidated The reduced amortization period for going- at each valuation and amortized over 10 years, concern deficits and introduction of the PfAD instead of the current 15 years. The unfunded going is reflective of the shift in emphasis away concern liability to be amortized must include an from solvency funding and towards enhanced allowance for the PfAD. funding on a going concern basis across Canada, For actuarial valuations as at December 31, 2019, as enacted in Ontario and Quebec, and as the required PfAD for plans with at least 30% of proposed in Manitoba and Nova Scotia. their target asset mix in non-fixed-income asset classes is equal to 8.35% of going-concern liabilities The introduction of single employer target and of the normal cost. benefit plans gives employers greater flexibility to offer retirement programs that best meet Application of the new funding their needs, but it remains to be seen how many framework employers choose to take advantage of these provisions. The new regulations apply to actuarial valuations with effective dates on or after December 31, 2019. News & Views | January 2020 | Volume 17 | Issue 1 Morneau Shepell 2 Ontario permits variable After the establishment of a variable benefit account, the retired member will receive a statement benefits in DC pension plans requiring the retired member to elect the amount to be paid during the calendar year, the method of Following the publication of Regulations 368/19 and payment and the frequency of payments, if the plan 369/19 under the Ontario Pension Benefits Act (PBA), permits more than one payment per year. If the Ontario’s rules permitting defined contribution (DC) retired member does not make an initial election, pension plans to offer variable benefits to their the minimum amount will be paid. The retired former members came into force on January 1, 2020. member may be restricted to changing the election The variable benefit rules permit former members only once annually, but a pension plan may also to receive a retirement income directly from a DC permit a retired member to make more than one pension plan, rather than transferring a member’s change annually. pension benefit to a prescribed savings arrangement or using it to fund the purchase of an annuity. The amount paid from a variable benefit account in a given year must be at least equal to the annual The province of Ontario first published a description minimum amount set under the Income Tax Act, of the variable benefits regulation on March 20, 2018 while the maximum amount that can be paid out and a draft regulation on April 11, 2019 (as described in a calendar year mirrors the limits applicable in the April 2018 and May 2019 News & Views, to life income funds in Ontario. respectively). For retired members with variable benefit accounts, Rules for administering variable benefit the administrator must provide annual statements, accounts including the amount and nature of the fees and DC pension plans offering variable benefits are expenses charged to the variable benefit account, required to give prescribed information about if any. variable benefits as part of the former member’s retirement option statement. The statement must Death benefits include a statement that the retired member will A retired member’s spouse who is not living have the option of transferring up to 50% of the separate and apart is entitled to the variable benefit amount transferred to the variable benefit account account upon the retired member’s death, unless at the time it was established to an unlocked the spouse waives the right to the death benefit. registered retirement savings arrangement within A spouse who was designated a specified beneficiary 60 days of establishing the variable benefit account. by the member has the right to continue to receive an income from the pension plan. A retired member A DC plan may permit the transfer of only a portion and a specified beneficiary also have the right to of a former member’s DC account to a variable designate a beneficiary who is not a spouse. account, in which case a former member may elect to transfer part of the account to a variable benefit Upon the death of a retired member who was account. Otherwise, the entire amount credited to receiving variable benefits, a surviving spouse the former member will be transferred to the former whom the member had designated as a specified member’s variable benefit account. beneficiary may elect to continue receiving variable benefits rather than a lump sum benefit. A spouse’s consent is required to establish a variable benefit account, unless the spouse is living separate and apart from the former member. News & Views | January 2020 | Volume 17 | Issue 1 Morneau Shepell 3 Updated returns for regular annual Commentary filings The introduction of variable benefit OSFI announced changes to some of the annual accounts allows DC pension plans to offer regulatory returns that federally-registered pension Ontario members the option of receiving plans must file. variable benefits in retirement directly from The Actuarial Information Summary and the the pension plan. By providing this option, Solvency Information Return have been amended a DC pension plan can make the pension for plan years ending October 31, 2019 or later. For plan more attractive to members, offer lower plan years ending December 31, 2019, a revised AIR, investment management fees throughout Certified Financial Statement, Pension Plan Annual retirement, and retain assets in the pension Corporate Certification and Replicating Portfolio plan, potentially providing greater negotiating Information Summary are to be used. power with service providers. Pension plans are not required to offer variable benefit OSFI has also developed a new Auditor’s Report accounts to their members. Filing Confirmation that all plans must complete in order to determine whether the plan will be required With the introduction of variable benefit to submit an auditor’s report. accounts in Ontario, such accounts are now permitted everywhere in Canada except Revised instruction guides are expected to be posted in New Brunswick and Newfoundland and in the spring of 2020. Labrador. Contributions schedule In an effort to address issues arising from late contributions, OSFI has posted a Schedule of Expected Contributions Form that may be used to inform trustees or custodians of amounts to Developments affecting be remitted to the pension fund, as pension plan federally regulated administrators are required to do under section 9.1 of the Pension Benefits Standards Act, 1985.

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