Solvency Funding Review
As most DB plan sponsors know, the low long-term interest rates have placed an inordinate amount of funding pressure on their pension plans. In the 2016 Ontario budget, it was announced that a solvency funding review would take place to develop a set of solvency reforms.
The first glimpses of what that means was announced today:
- Plans will be required to fund their plans on an enhanced going concern basis; all changes to the going concern funding rules will likely be announced in the coming months; one change is the shortening of the amortization period to 10 years from 15 years
- A funding reserve will be required; called a Provision for Adverse Deviation
- Plans whose funded status fall below 85% will be required to fund their plan on a solvency basis; those above 85% are to fund the plan on the enhanced going concern basis
- The monthly pension guarantee provided by the PBGF will increase to $1500 from $1000
- Provide for a discharge of liabilities if annuities are purchased on behalf of deferred or retired plan members.
What do we do now?
The short answer is wait for more information.
- The Ministry of finance has indicated that there will be more announcements in the coming weeks related to valuation reports with effective dates on or after December 31, 2016 and prior to December 31, 2017.
- The government intends to introduce legislation in the fall to enable these changes and will be consulting on the details of new regulations.
The links below provides some more commentary
https://news.ontario.ca/mof/en/2017/05/strengthening-and-modernizing-workplace-pensions.html
https://news.ontario.ca/mof/en/2017/05/making-workplace-pension-plans-more-sustainable.html
If you have any questions, please contact https://mondelis.com/contact/ one of our actuaries at Mondelis and we’d be happy to speak to you.
