Eliminating the solvency-funding requirement is among the possibilities as the Ontario government launches consultations on revamping the funding rules for the province’s defined benefit pension plans.

In a consultation paper released yesterday, the Ministry of Finance laid out the many options on the table as the government considers what to do about the concerns raised about the viability of its solvency-funding rules. “Despite the various modifications made to Ontario’s solvency funding rules over the years, many plan sponsors have found solvency funding requirements particularly onerous since the 2008 economic downturn, compared to previous periods when equity returns were stronger and long term interest rates were higher,” the consultation paper states.

Read: 2016 Top Pension Funds Report: Solvency reform on the agenda

One of the options under consideration is enhancing the existing going-concern funding requirements while eliminating solvency funding. The government is also considering maintaining the solvency-funding framework while modifying the requirements.

The potential changes to the going-concern requirements include:

  • Requiring a funding cushion, known as a provision for adverse deviation. Typically expressed as a percentage of a plan’s liabilities, such a provision can “protect plan beneficiaries against the risks associated with actuarial assumptions, benefit improvements and investment strategies,” the consultation paper noted.
  • A shortened amortization paper to fund any unfunded going-concern liability from the current 15 years.
  • Restrictions on assumptions about return on investment to set a “maximum best estimate interest rate.”
  • A solvency trigger for enhanced funding. Under that option, falling below a certain solvency threshold could trigger additional funding requirements, such as a lump-sum contribution.
  • Enhancing Ontario’s pension benefits guarantee fund. “An enhanced going concern funding regime complemented by increased PBGF coverage balances stakeholders’ interests and could reduce overall costs for plan sponsors, potentially encouraging current plan sponsors to maintain their existing workplace pension plans,” the consultation paper stated.

Read: Median solvency ratio of Ontario pension plans rises 2%: FSCO

The government is also considering keeping a modified solvency-funding requirement. The potential modifications include:

  • Using average solvency ratios rather than requiring plans to fund a deficiency identified in any one year.
  • Lengthening the amortization period for plans to fund solvency deficiencies from the current five years under the Pension Benefits Act.
  • Consolidation of solvency deficiencies to allow for a fresh start at each valuation date.
  • Funding a percentage of a solvency liability, while maintaining benefit security through an improvement to the pension benefits guarantee fund.
  • Solvency funding for certain benefits only to, for example, have normal retirement benefits funded on a going-concern basis only. That option again includes the possibility of boosting the pension benefits guarantee fund to improve benefit security.
  • Solvency reserve accounts to protect against the risk of an underfunded plan winding up with an insolvent employer. Under that option, plan sponsors may be able to withdraw some surplus under certain conditions.
  • A higher limit on the use of letters of credit to cover solvency special payments, up from the current 15 per cent of solvency liabilities.

Read: Quebec shakes up pension landscape with shift to going-concern funding

David Marshall, former president and chief executive officer of the Workplace Safety and Insurance Board, is leading the solvency review. The government is accepting feedback on the issue at pension.feedback@ontario.ca until Sept. 30, 2016.


Copyright © 2021 Transcontinental Media G.P. Originally published on benefitscanada.com
See all comments Recent Comments


Eliminating the measure entirely has zero probability of happening. Mr. Marshall is too responsible a professional to forfeit his credibility by even broaching it and Mr. Souza, though perhaps challenged by the technicalities, would see that there is nil political upside to even considering it.

It would be akin to Radiologists sending patients home because more than one fracture or neoplasm appears on their imaging scans.

Organized labour won’t allow it and well-informed non-unionized members will fight it.

As a trial balloons go, if that is what it is, it’s pretty dumb.

Wednesday, July 27 at 12:26 pm |

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