The federal Ministry of Finance proposed new regulations on Friday to provide temporary solvency funding relief for federally regulated defined benefit pension plans.

“The measures will offer temporary relief to sponsors, while also protecting pension benefits,” said Finance Minister Jim Flaherty.

The proposed regulations set out various options that plan sponsors could choose for funding relief. One option is to extend the solvency funding period by one year for deficiencies reported as of year-end between Nov. 1, 2008 and Oct. 31, 2009.

Another option is to extend the solvency funding payment to 10 years from five. This option applies to agent Crown Corporations, plans that receive the support of at least two-thirds of members and retirees, or plans that secure the difference with a letter of credit.

In addition, the new regulations would allow plans to use asset smoothing to stabilize short-term fluctuations in asset values above the 110% limit. The difference in payments would be subject to a deemed trust.

The measures cover plans established for employees working in areas that fall under federal jurisdiction, which includes 7% of all private pension plans in Canada. According to the Ministry of Finance, the proposals would provide immediate relief to plan sponsors that have faced significant solvency deficits in recent months thanks to the sharp decline in global equity markets.

The government estimates that “modest additional costs” would come from administering the proposed regulations, since the Office of the Superintendent of Financial Institutions would face a more complex supervision process.

The regulations also include terms and conditions intended to mitigate potential risks to plan members, to avoid any harmful impacts on plan beneficiaries.

The regulations come after the government’s proposal in the November 2008 Economic and Fiscal Statement to provide temporary solvency funding relief. In the 2009 budget, the government announced that it would assist the Office of the Superintendent of Financial Institutions to provide further funding relief by allowing plans to use asset smoothing with values above the current 110% limit, by making any payment differential subject to a deemed trust.

Meanwhile, the government is continuing national consultations on Canada’s legislative and regulatory framework for federally regulated private pension plans. The government plans to introduce comprehensive new regulations in the fall.

“Once we have heard from Canadians, we will take steps to improve the legislation in order to ensure the framework is balanced and appropriate,” said Flaherty.

IE