Nova Scotia announces changes to defined benefit pension funding
On March 12, 2019, the Nova Scotia legislature introduced long anticipated amendments to the Pension Benefits Act (“PBA”) which, according to a statement by Finance Minister Karen Casey, are aimed to “provide more flexibility and improve the stability of defined-benefit pension plans”.
In pursuit of this goal, Bill 109, which has passed its first reading, would amend the PBA as follows:
- Reserve Accounts – Allowing for the establishment of “reserve accounts”, similar in many respects to the solvency reserve accounts allowed in Alberta and British Columbia but will not be limited to only solvency deficiency payments. The reserve accounts would be able to hold solvency deficiency payments as well as other contributions to be prescribed in regulations. However, transfers from other accounts in a pension fund would be prohibited. Withdrawals would be subject to approval by the Superintendent of Pensions and other requirements to be set in regulations.
- Letters of Credit – Removal of limits on the use of letters of credit. The Bill would remove the cap on the total value of letters of credit which is currently 15% of a plan’s solvency liabilities.
- Annuity Purchase – Allowing the discharge of liability for annuity buyouts for a defined benefit (“DB”) plan that is not wound up. The administrator must first provide notice to the person for whom the annuity is purchased, and ensure that the annuity and its vendor meets certain prescribed requirements. The administrator would then be discharged by preparing a compliance certificate in prescribed form, signed by an actuary. If it should later be found that the annuity purchase did not comply with PBA requirements, the insurance company may be required to repay the purchase price plus interest.
These changes follow a DB funding framework review beginning in fall 2017 when the Province solicited input on potential changes. Proposals considered in that consultation included the elimination of solvency funding, allowing for establishment of solvency reserve accounts, and creating a legislative framework for target benefit plans. While other changes like those in Ontario and Quebec have not been introduced in the Bill, more may be coming in regulations.
The new Bill leaves certain details to regulations, including certain substantive and procedural requirements for an administrator’s discharge of liability via annuity purchase, the required conditions and procedure for a reserve account withdrawal, and the “other prescribed contributions” that may be paid into a reserve account.
The Bill also includes the following enhancements:
- Deemed Trust – Clarification of deemed trusts under the PBA, along with an additional provision deeming such amounts to be held separately from an employer’s other assets in the event of liquidation, assignment or bankruptcy.
- Information Requests – An amendment clarifying that all information “filed, collected by or submitted to the Superintendent in relation to a pension or a pension plan” must be kept confidential, and cannot be disclosed, except to members, beneficiaries or certain others who are provided that information through the process under the PBA. This amendment comes in the context of a recent Nova Scotia Privacy Commissioner decision which found that information in annual information returns may be requested through access to information legislation.
When enacted, the amended PBA will offer options for DB plan sponsors, including reserve accounts, annuity buyouts and greater use of letters of credit. Plan sponsors should consider whether to implement some or all of these options as they should afford greater flexibility in funding of DB pension plans.
This update is intended for general information only. If you have questions about the above information, and how it applies to your specific situation, please contact a member of our Pensions & Benefits group.
By Christine Pound, ICD.D., Twila Reid, ICD.D., Sarah Dever Letson, CIPP/C, Hilary Newman and Daniel Roth Introduction As we reported on November 30, 2023, the Fighting Against Forced Labour and Child Labour in Supply Chains…Read More
By Richard Niedermayer, K.C., TEP & Rackelle Awad New trust disclosure rules originally announced on February 27, 2018, are now in force, and trusts with taxation years ending on or after December 31, 2023 are…Read More
By David Wedlake and Andrew Paul In late December 2023, the Federal Government issued draft Criminal Interest Rate Regulations under the Criminal Code. These proposed regulations follow the Budget Implementation Act, 2023, No. 1 which…Read More
By Brendan Sheridan and Tiegan Scott The Government of Canada recently announced further changes to the international student program that not only limits the number of new study permit applicants per year, but also increases…Read More
By Tauna Staniland, K.C., ICD.D, Joe Thorne, and Nadine Otten What can you do when your corporation wants to complete a complex transaction requiring significant corporate restructuring that cannot be easily completed under the corporation’s…Read More
By Perlene Morrison, K.C., Hilary Newman & Curtis Doyle Once again, the time has come to review the year that was and to chart the course for the year ahead. For municipalities and planning professionals…Read More
By Dave Randell, John Samms & Jayna Green A recent Government of Newfoundland and Labrador (“GNL”) announcement affirms the Province’s swift and ambitious approach to offshore wind development. While it may come as a shock…Read More