New Brunswick regulator seeks input on changes to defined benefit pension plan funding

Christopher Marr, TEP & Lauren Henderson

As defined benefit pension plans (“DB Plans”) throughout Canada continue to face funding challenges due to mounting solvency deficits, the New Brunswick Financial and Consumer Services Commission (“FCNB”) is proposing amendments to the General Regulation (the “Regulation”) under the Pension Benefits Act (“Act”), meant to reduce the volatility of funding requirements placed on plan sponsors and eliminate the need for funding relief measures. Many of the revisions reflect recent amendments in other provinces of Canada, though some differ.

FCNB is seeking public input on the proposed amendments, with a July 13, 2020 deadline for submissions.

Summary of proposed changes:

The following are highlights of the proposed amendments:

• Enhanced going concern funding and introduction of PfAD – The period of time to fund going concern deficiencies has been reduced from fifteen years to ten years. As a new requirement, a provision for adverse deviation (“PfAD”) must be established (applied to liabilities, but not current service cost), and funded in the same manner as the other going concern obligations. The PfAD approach proposed is the same as that recently adopted in Nova Scotia.
• Permanent solvency funding relief – DB plan sponsors will be permitted, on a go-forward basis, to elect to permanently fund their plans to an 85% solvency standard (rather than the current standard of 100%), still with a maximum five-year amortization period. Existing solvency funding exemptions will continue under the new regime.
• Use of letters of credit – Instead of making payments into DB plans to fund solvency deficits, plan sponsors, for plans that are not multi-employer plans, will be permitted to use a letter(s) of credit, so long as it satisfies the requirements set out in the Regulation, including a cap on the total amount of all letters of credit of 15% of the solvency liabilities of the plan. This will provide more flexibility to plan sponsors and diminish the risk of trapped surpluses.
• Governance policy – Plan administrators will now be required to adopt and follow a written governance policy that meets the specific criteria set out in the Regulations, and which generally sets out the structures and processes involved in overseeing, managing and administering the plan.
• Individual Pension Plan (“IPP”) recognition and exemption – New in the Regulation is the recognition of IPPs. It is proposed that IPPs will be exempt from all requirements set out in the Act and Regulations.

The full text of the amendments is available here.

This article is provided for general information only. If you have any questions about the above, please contact a member of our Pensions and Benefits group.

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