EPPA Update Issued September 2012 / Updated October, 2012 Defined Benefit Funding Relief Provisions

Transcription

1 EPPA Update Issued September 2012 / Updated Octber, 2012 Defined Benefit Funding Relief Prvisins In respnse t the decline f slvency discunt rates, the Emplyment Pensin Plans (Partial Exemptin and Cnslidatin f Slvency Deficiencies) Amendment Regulatin was enacted n September 19, This amendment intrduces shrt term funding relief prvisins t the Emplyment Pensin Plans Regulatin (the Regulatin). These new prvisins are intended t assist plan spnsrs with the financial pressures assciated with funding a defined benefit pensin plan. The new relief prvisins can be fund in Schedule 0.2, sectin 3.21 f the Regulatin. The slvency relief ptin is nly applicable t pensin plans which are nt specified multiemplyer pensin plans. (Existing funding relief prvisins fr SMEPPs are detailed in Plicy Bulletin #17). This Update is designed t instruct plan administratrs n the requirements f the legislatin, and the Superintendent, in rder t avail themselves f the funding relief prvisin, and identify any special filing requirements related t thse ptins. This Update has n legal authrity. The Act and Regulatin shuld be used t determine specific legislative requirements. Slvency Deficiency Cnslidatin and Amrtizatin Perid Extensin The amendment t the regulatin permits a plan administratr, n written applicatin t the Superintendent f Pensins, t cnslidate all existing pensin plan slvency deficiencies int ne new slvency deficiency. The regulatin amendment then further allws fr that slvency deficiency t be amrtized ver a perid nt exceeding a maximum f 10 years (rather than the usual 5 year requirement). The amendment requirement has nt changed the perid required by the Regulatin in which t amrtize unfunded liabilities. Plan administratrs are permitted t make nly ne applicatin fr the cnslidatin f slvency deficiencies and extensin f the amrtizatin perid. The applicatin may be made in respect f any actuarial valuatin reprt that has a review date between December 31, 2011 and December 31, 2012, inclusive. EPPA Update 12-01

2 Cnditins and Requirements fr Funding Relief Any applicatin fr the cnslidatin f slvency deficiencies, and extensin f the amrtizatin perid, must be made in writing, must include the fllwing details and infrmatin, and is subject t the fllwing cnditins: A valuatin reprt is prepared as at a review date, which becmes the date f applicatin. Please nte that fr the purpses f determining slvency assets: the actuary is permitted t include the actuarial present value f 10 years wrth f ging cncern unfunded liability special payments (instead f the usual five) as a slvency asset adjustment, and Using this slvency asset adjustment, the crrespnding new slvency deficiency recgnized as at the review date may be amrtized ver a 10 year perid. Where an applicant btains the Superintendent s cnsent fr the funding relief ptin, subsequent valuatin reprts filed after the initial applicatin valuatin may cntinue t carry frward the extended slvency asset adjustment t be cmmensurate with the number f remaining years in the 10 year amrtizatin perid. As a simple example, the slvency asset adjustment f a December 31, 2011 applicatin valuatin wuld be the actuarial present value f the lesser f: the number f years remaining t amrtize any particular unfunded liability, r 10 years f unfunded liability payments, based n unfunded liabilities that were established n r befre December 31, If this same plan als files a December 31, 2012 actuarial valuatin reprt, and a new slvency deficiency is created in that valuatin, the slvency asset adjustment wuld be the actuarial present value f: Up t 9 years wrth f unfunded liability special payments (based n unfunded liabilities that were established n / befre December 31, 2011), and 5 years wrth f unfunded liability special payments based n any unfunded liability established as at December 31, 2012). 2 Page

3 Where a persn is entitled t a benefit payment, either a tp up payment (equal t the transfer deficiency) will be made t the plan befre paying ut the benefit, OR the tp up payment will be included in the next remittance f cntributins. Nte, this requirement des nt extend t nging mnthly pensin payments, Cnfirmatin that the next annual member disclsure will include a statement that the Plan has received the extensin n making slvency deficiency special payments. In additin, the Plan administratr must cnfirm that they will als agree t cmply with any ther cnditins that are set by the Superintendent, which may apply n a plan-by-plan basis, fllwing the Superintendent s review f the applicatin valuatin. Instructins fr December 31, 2011 Applicatins Althugh the amendment regulatin applies t valuatins with review dates n and after December 31, 2011, a number f pensin plans have already filed a December 31, 2011 valuatin reprt and have started t make cntributins based n the recmmendatins made by the plan actuary, n the basis f the funding requirements in frce prir t the amendment regulatin. Fr any pensin plan administratr wishing t make an applicatin fr funding relief as f December 31, 2011, the fllwing is required dcumentatin: 1. The written applicatin fr funding relief must still be prvided t the Superintendent, alng with cnfirmatin that all f the ther cnditins will be met. 2. Rather than a full replacement actuarial valuatin, it wuld be acceptable t file replacement pages fr the already filed valuatin reprt, t reflect the change in the required slvency deficiency payments as a result f the cnslidatin f slvency deficiencies, and extensin f the amrtizatin perid. 3. Similarly, a replacement page fr the cst certificate wuld als be filed, and 4. A replacement Frm 7 shuld be filed with the respective fund hlder / custdian. While the amendment regulatin is intended t prvide meaningful funding relief fr plan spnsrs; the likelihd is that pensin plans have already been making slvency deficiency payments under the usual funding requirements, and in sme cases, the cntributins t amrtize slvency deficiencies which have already been made t date will exceed thse that wuld therwise have been required under the funding relief ptin. 3 Page

4 Unless the Canada Revenue Agency wuld deem that the cntributins already made t date wuld cause the plan s registratin status t be revcable, all cntributins already made by the plan spnsr must be retained in the plan fund. If the ttal amunt already remitted t the pensin plan exceeds what wuld have been required under the funding relief ptin, plan spnsrs are permitted t cease making additinal cntributins until the excess cntributins have been used up. Frequently Asked Questins (NEW Added Octber 2012) The Superintendent s ffice has received a number f questins related the temprary funding relief prvisins. Fr the benefit f stakehlders, the mst cmmn questins and answers are replicated belw. Q1 Fr a pensin plan that has nt already filed a December 31, 2011 valuatin reprt (fr example), is the administratr f that plan still able t make a retractive applicatin fr funding relief, even thugh the nrmal valuatin reprt filing deadline (180 days frm the review date) has already passed? A1 T be cnsistent with the intent behind f the temprary funding relief prvisins, and in recgnitin that the funding relief regulatins were nt enacted until after the usual valuatin reprt filing deadline, the Superintendent s ffice will allw a pensin plan t apply / file a retractive funding relief applicatin, prvided that the applicatin fr funding relief, and the supprting valuatin reprt, is filed prir t the end f Q2 One cnditin f the temprary funding relief, as described in sectin 3.21(6) f Schedule 0.2 f the Emplyment Pensin Plans Regulatin, is that during the extensin perid all lump sum payments/transfers ut f the plan require a tp-up payment. Des this cnditin cntinue t apply n individual member terminatins that ccur even after subsequent valuatin reprts have been filed (i.e. in which any pssible new slvency deficiency identified in that reprt again reverts t a 5 year amrtizatin requirement)? A2 Yes, the requirement t make a tp up payment cntinues t apply during the whle f the extensin perid. Q3 Cnsider the situatin f a pensin plan that has an established letter f credit, the face value amunt f which was based n that plan s riginal December 31, 2011 slvency funding requirements. 4 Page

5 If this same pensin plan makes a retractive applicatin fr the funding relief, and it results in a reductin in the annual slvency deficiency payments, can the face value amunt f the letter f credit be reduced? A3 Sectin 48.1 f the Emplyment Pensin Plans Regulatin nly permits a renewed r replaced letter f credit fr a lesser amunt where (a) a previusly established letter f credit is abut t expire, and (b) a valuatin reprt is submitted t demnstrate that a revised and reduced letter f credit is apprpriate. Unless an already established letter f credit is set t expire, a renewal f the letter f credit fr a lesser amunt wuld nt be permitted as bth a cnditin f the legislatin as well as a cnditin f the letter f credit itself. Q4 Particularly in situatins where a pensin plan must file an annual valuatin reprt, it may nt be pssible fr that plan t fully use up (i.e. take a cntributin hliday) any additinal cntributins* between the date the applicatin fr funding relief was made, and the next actuarial valuatin review date. * = The additinal cntributins will arise as a result f differences between amunts that were remitted under the riginal valuatin reprt until the date the funding relief applicatin was made, and the amunts that are nw required as a result f funding relief being granted. T the extent that any f these additinal cntributins remain unused as at the next valuatin review date, can they cntinue t be used as cntributin hliday against any future cntributin bligatins f the plan, r must these additinal amunts be recgnized as an experience gain? A4 Sectin 48 f the Emplyment Pensin Plans Regulatin requires any additinal / ver cntributins t be recgnized as an actuarial gain as ecnmic experience in this case, actual cntributins remitted which are greater than thse required in the prir valuatin reprt. Cnsequently, the Superintendent des nt have the flexibility t permit a pensin plan t cntinue t take a cntributin hliday in respect f these additinal cntributins. Q5 Fr a plan that has already filed a December 31, 2011 valuatin reprt and is nw ging t apply fr retractive funding relief, what must the plan spnsr cntinue t cntribute between the date that the applicatin fr funding relief is made, and the date that the Superintendent cnfirms acceptance f that applicatin? A5 The funding requirements fr any defined benefit plan is based n cntributin bligatin utlined in the actuarial valuatin reprt that has been filed with the Superintendent, fr the perid f time that is cvered by that reprt. 5 Page

6 Since a retractive applicatin fr funding relief as at December 31, 2011 must als include replacement pages fr the already filed valuatin reprt, it is sufficient fr the plan spnsr t fund based n the revised / updated slvency deficiency figures nce submitted t the Superintendent s ffice. Q6 In a situatin where a pensin plan makes an amendment t the plan that has a financial impact (see sectin 9(7) f the Emplyment Pensin Plans Regulatin), is that date eligible as a review date fr the purpses f the funding relief prvisin? A6 The funding relief prvisins apply t any review date between December 31, 2011 and December 31, 2012, inclusive. Cnsequently, the review date that arises as a result f the applicatin f sectin 9(7) f the Regulatin wuld qualify fr the purpse f an applicatin fr funding relief. Q7 Is there a restrictin frm imprving benefits under this rund f funding relief? A7 These funding relief prvisins d NOT impse a restrictin n benefit imprvements. Fr further infrmatin please cntact: Superintendent f Pensins Alberta Treasury Bard and Finance Rm 402, Street Edmntn, AB T5K 2C3 Telephne: (780) Fax: (780) Internet: Fr tll-free dialling within Alberta, call and then dial Page