Strengthening Canadians' Retirement Security - Proposals to Support the Sustainability of and Strengthen the Framework for Federally Regulated Private Pension Plans

Consultation Paper

Department of Finance Canada

Table of Contents


Temporary Broad-based Solvency Funding Relief for 2021

Measures to Further Strengthen the Framework for Federally Regulated Pension Plans

Plan Governance and Administration

Solvency Reserve Accounts

Variable Payment Life Annuities

Ministerial Guidelines for Defined Benefit Pension Plan Sponsors


Promoting the retirement income security of Canadians is an important goal of the Government of Canada. Canada has a sound retirement income system that is internationally recognized for its adequacy, affordability and sustainability. Private employment-based registered pension plans form an essential component of that system.

The federal Pension Benefits Standards Act, 1985 (PBSA) governs private pension plans linked to federally regulated areas of employment, such as banking, telecommunications, inter-provincial transportation, and navigation and shipping, as well as private sector employment in Yukon, the Northwest Territories and Nunavut, and employment at certain federal Crown corporations. Approximately seven per cent of private pension plans in Canada are federally regulated, with the remainder being provincial regulated.

As part of the Government of Canada’s COVID-19 Economic Response Plan, the Government enacted a temporary moratorium on solvency special payments for federally regulated defined benefit (DB) pension plans from April 1, 2020 to December 30, 2020. The Solvency Special Payment Relief Regulations, 2020 came into force on May 27, 2020 to help ensure plan sponsors have the financial resources they need to maintain their business operations and pension plans. In addition to this immediate relief, the Government committed to consult with stakeholders on options to provide additional solvency funding relief in 2021, as necessary. Following on that commitment, this consultation paper seeks views and feedback on potential options for temporary broad-based solvency funding relief in 2021.

To further support the sustainability of DB pension plans and enhance retirement security, this consultation paper also seeks views and feedback on proposals to further strengthen the framework for federally regulated pension plans. Specifically, the paper seeks views on the following measures that build off the legislative changes announced in Budget 2019 and the Government’s 2018 consultation on Enhancing Retirement Security:

The Government recognizes the importance of promoting the efficient funding of pension plans and pension benefit security for plan members, especially in light of the global COVID-19 outbreak. The proposals contained in this consultation paper support these objectives. Interested stakeholders, including pension plan sponsors, unions, the actuarial and legal professions, and retiree groups are invited to indicate whether they support the proposals contained in this paper in general, comment on any specific elements, respond to the consultation questions posed, and identify and comment on any additional questions that they consider relevant. Written comments can be sent to by January 14, 2021.

The Department of Finance may make public some or all of the comments received or may provide summaries in its public documents. Stakeholders providing comments are asked to indicate clearly the name of the individual or the organization that should be identified as having made the submission.

In order to respect privacy and confidentiality, please advise when providing your comments whether you:

Information received through this comment process is subject to the Access to Information Act and the Privacy Act. Should you express an intention that your comments, or any portions thereof, be considered confidential, the Department of Finance will make all reasonable efforts to protect this information.

Temporary Broad-based Solvency Funding Relief for 2021

The Pension Benefits Standards Act, 1985 (PBSA) requires that federally regulated DB pension plans fund promised benefits in accordance with the standards set out in the Pension Benefits Standards Regulations, 1985 (PBSR). DB pension plans are required to meet minimum funding standards using two different sets of assumptions: “solvency valuations” assume the plan is being terminated on the valuation date, while “going concern valuations” assume the plan continues indefinitely. Federally regulated DB plans are required to be 100 per cent funded on a solvency basis, with any shortfall paid by the employer to help ensure that plans have sufficient assets to provide for all benefits in the event of plan termination. Solvency funding requirements help to ensure that DB plans are able to provide beneficiaries with their promised pensions.

Previous Temporary Special Funding Relief

The Government has previously provided temporary broad-based solvency funding relief in exceptional circumstances, which have applied to all federally regulated pension plans.

In 2006, in response to the significant drop in long-term interest rates that increased solvency liabilities, the Government introduced temporary solvency relief measures for federally regulated DB plans. For the first valuation showing a solvency deficit before 2008, plan sponsors could utilize the following relief measures: 

  1. Consolidation of solvency payments over a new five-year schedule; 
  2. Extension of the solvency amortization period from five years to ten years, either with buy-in from plan members and retirees or secured by a letter of credit; and 
  3. Extension of the solvency amortization period for agent Crown corporations from five years to ten years with the acknowledgement of the government and a fee.

As an additional support to DB plan sponsors to help mitigate the impact of the financial crisis, the Government enacted another set of temporary solvency relief regulations in 2009, in which the majority of the 2006 temporary solvency funding relief measures were renewed. The 2009 regulations also extended the solvency funding payment period by one year and permitted asset smoothing above 110 per cent with the difference in payments subjected to a deemed trust. 

The federal broad-based solvency relief measures were intended to provide funding flexibility for plan sponsors to help sustain their businesses, as well as their pension plans.

Federal Pension Law Reforms

Since 2009, the Government has modernized the legislative and regulatory framework for federally regulated private pension plans by implementing a number of changes to the PBSA and PBSR to reduce funding volatility for employers and help improve the sustainability of their DB plans. The following federal pension law amendments help alleviate financial pressures and provide flexibility for DB plans in deficit to improve their solvency funded position:

  1. Calculation of solvency special payments based on three-year average adjusted solvency ratios;
  2. Use of letters of credit from financial institutions at up to 15 per cent of the solvency liabilities in place of solvency special payments;
  3. For agent Crown corporations, use of solvency special payment reductions with Ministerial acknowledgement and a fee to the government similar to the fee that would be paid to obtain a letter of credit; and
  4. Access to the Distressed Pension Plan Workout Scheme (DPPWS) to facilitate the resolution of plan-specific problems when standard funding requirements cannot reasonably be met.

Impacts of COVID-19 on Federally Regulated Pension Plans

The federal pension framework’s solvency funding requirements have contributed to relatively well-funded DB plans in recent years, with the Office of the Superintendent of Financial Institutions (OSFI) estimating an average solvency ratio of 0.98 and 1.01 at the end of 2018 and 2019, respectively. Due to the impacts of the COVID-19 pandemic, pension plans have seen reductions in their asset values due to the stock market decline as well as increased liabilities due to lower interest rates. As a result, the estimated solvency ratios (ESR) for federally regulated DB plans dropped significantly in March 2020 but have been improving in recent months due to the recovery in equity markets.

This past spring, the federal government put in place a temporary solvency special payment moratorium that is intended to help DB plan sponsors facing financial constraints as a result of the pandemic. The temporary relief is targeted to address plan sponsors experiencing short-term liquidity issues which may threaten the long-term viability of their businesses. Ensuring that employers have the financial resources they need to maintain their operations and pension plans also helps to ensure the retirement security of workers and retirees. The moratorium on solvency special payments is in place until December 30, 2020. Starting in January 2021, plan sponsors will once again be required to remit any solvency special payments into their DB plans. 

While solvency ratios have somewhat recovered from the lows of March, solvency funding requirements are currently expected to be higher in 2021 than in 2020. Plan sponsors’ monthly solvency special payment requirements are determined based on the pension plan’s most recent actuarial valuation report filed with the Superintendent of Financial Institutions. The vast majority of federal plans conduct their actuarial valuations as of either December 31st or Jan 1st, and are required to file them six months later. Starting in July 2021, plans’ monthly solvency special payments would be adjusted to account for 2020 year-end valuations when they are filed on June 30, 2021. If year-end 2020 valuations report large solvency funding deficits at that time, plan sponsors may face material increases in their solvency funding obligations in 2021. However, it is difficult to project what the funded position of plans will be at 2020 year-end as the nature and pace of the economic recovery remains uncertain.

If markets experience another significant downturn or long-term interest rates drop further, DB plan sponsors may face increased solvency funding obligations in the latter half of 2021 that divert money from their core business. Even if conditions remain largely the same, an increase in solvency special payments could represent a material increase in expenses for some organizations. This could also exacerbate short-term liquidity challenges faced by some federal plan sponsors facing significant and/or continuing declines in revenue.

Potential Options for 2021

The Government is considering further relief measures as appropriate to mitigate the impacts of the ongoing pandemic on the business operations of DB plan sponsors, thereby maintaining the long-term sustainability of their pension plans for plan members and retirees. The Government wishes to hear the views of stakeholders on measures that could be adopted to provide temporary funding relief, if necessary, while continuing to provide sufficient safeguards for pension benefits.

Stakeholders are invited to provide their comments and views on the following particular options, as well as propose additional approaches for consideration. Approaches should be considered based on their effectiveness in providing financial flexibility to deal with ongoing challenges for plans and plan sponsors related to the COVID-19 pandemic as well as in assisting DB plans’ return to fully funded positions on a solvency basis, to ensure that the rights and interests of plan beneficiaries remain protected.  

  1. Extension of the solvency amortization period, with conditions: Allow federally regulated DB plans to extend their amortization period for solvency special payments from five years to ten years with either buy-in from plan beneficiaries or with a letter of credit covering the difference in payments resulting from longer amortization. Given the extended duration of this relief option, the Government would require informed consent from plan beneficiaries as the extended amortization period could potentially reduce plan members’ and retirees’ benefit security for a longer timeframe.
  2. One-time extension of solvency amortization period: Allow a plan to extend its amortization schedule to ten years for the 2021 plan year only (i.e., solvency funding requirements for 2021 would be one-tenth the plan’s solvency deficiency, instead of one-fifth). The amortization schedule would revert to the current five years starting in 2022.
  3. Extension of the letter of credit limit: Under the current provisions of the PBSA, plan providers may use letters of credits from financial institutions at up to 15 per cent of the solvency liabilities in place of solvency special payments. This option would temporarily extend the current letter of credit limit beyond 15 per cent of solvency liabilities. The letter of credit limit would be determined at the discretion of the qualified issuer.
  4. Alternative valuation methodologies: This option could allow plan sponsors to utilize an alternative methodology in solvency valuations to shield plans against drastic market changes, and consequent volatility in funding contribution levels. For example, plan sponsors could be permitted to use a discount rate averaged over three years rather than the market-discount rate as of the valuation date, or calculate the average solvency ratio over five years instead of three. Alternatively, the requirement to file a valuation report at the end of 2020 could be deferred or made optional.  


  1. What are your views on the potential challenges that could be facing federally regulated DB plans in 2021?  
  2. Should further temporary relief options be considered? What principles or criteria should guide the consideration of the relief measures?
  3. If further relief measures are viewed as necessary, which potential temporary measures are best suited to address the challenges facing federally regulated DB plans?
  4. Is there one particular relief measure that is preferable, or should consideration be given to providing a suite of measures that plan sponsors could choose from?
  5. For the one-time extension of the solvency amortization period (i.e. for 2021 plan year only), should consent from plan beneficiaries be required? Are there other conditions or requirements that should be considered?
  6. Should the qualified issuer determine the letter of credit limit, or should the limit be set by the special regulations? If the letter of credit limit is set by the special regulations, what are your views on an appropriate limit?  
  7. What are some alternative valuation methodologies that could be considered to mitigate the volatility in solvency funding contribution requirements? Which ones could be most effective at providing relief while maintaining adequate funding to protect benefits?

Measures to Further Strengthen the Framework for Federally Regulated Pension Plans

Federal pension law reforms since 2009 have been aimed at enhancing protections for plan members and retirees and reducing funding volatility for employers. The federal framework for private pension plans continually strives to strike an appropriate balance between financial flexibility for plan sponsors and benefit security for members and retirees.

Most recently, in Budget 2019, the Government announced a number of measures aimed at enhancing the security of workplace pension in the event of corporate insolvency. As part of those measures, the Government introduced changes to federal pension legislation to allow DB plans to purchase ‘buy-out annuities’ to transfer the obligation to provide pensions to a regulated life insurance company, improving plan sustainability and better protecting retirees’ pensions from the risk of employer insolvency. In addition, the Government committed to continue to engage with Canadians on further ways to support the sustainability of DB plans. 

Budget 2019 also proposed changes to federal tax legislation to permit Pooled Retirement Pension Plans (PRPPs) and defined contribution (DC) pension plans to offer Variable Payment Life Annuities (VPLAs) to provide Canadians with greater flexibility in managing their retirement savings. The Budget also committed to consult with stakeholders on how VPLAs may be accommodated in federal pension legislation.

The objective of the remaining sections of this paper is to meet the Budget 2019 commitments to seek views on a number of measures to further strengthen the legislative and regulatory framework for federally regulated pension plans subject to the PBSA. 

The first section discusses areas to enhance the governance and administration of federally regulated pension plans, such as expanding plan member and retiree representation in plan governance, considering requirements for governance and funding policies, exploring ways to encourage plans to consider environmental, social and governance factors in investment strategies and proposing to facilitate the use of electronic communications by plan administrators.

The following two sections set out detailed proposed legislative frameworks for solvency reserve accounts (SRAs) and VPLAs. Allowing for the use of SRAs can help DB plan sponsors better manage the volatility of plan funding requirements and may provide greater incentives for keeping pension plans well funded, which helps improve benefit security for members and retirees. The proposed framework sets out how SRA funds would be set aside within the pension plan and how sponsors would be able to access any surplus funds in a SRA in a way that provides the needed flexibility while ensuring that the benefits of members and retirees continue to be protected.

Enabling PRPPs and DC plan sponsors to offer VPLAs would provide members and retirees of those plans with the opportunity to better manage their retirement savings by allowing them to turn their account balances into a lifetime stream of retirement income, albeit one that can vary. The proposed framework establishes requirements for plans offering VPLAs, such as how benefits may be adjusted and what information needs to be provided to potential members to ensure they can make an informed decision.

The last section of the paper seeks views on draft Ministerial guidelines on special funding relief. The finalized guidelines will be posted on the Department of Finance’s website to provide increased transparency for plan sponsors, members and retirees on the process of requesting special funding relief from the Minister of Finance. 

Plan Governance and Administration

The PBSA includes a series of measures that together serve to regulate the governance practices of federally regulated pension plans. Strong pension plan governance can help plan administrators meet their fiduciary duties and other responsibilities, ensure that DB plan members and retirees receive their promised pension benefits, and help DC plan members save enough for retirement. Governance practices involve all aspects of pension plan operations, including plan design, administration, funding, and communications. In each of these areas, a key focus is decision-making that is based on well-documented and regularly monitored processes, and is transparent for plan beneficiaries and stakeholders. How decisions are made can be as important as what is decided.

Plan Administrator

Pension plan administrators are tasked with overseeing the strategic direction and day-to-day management of pension plans. They administer the pension plan and pension fund as a trustee and owe a fiduciary duty to the employer, plan members and retirees. Federally regulated pension plans are subject to varying requirements depending on what party is considered to be the administrator under the PBSA and on the type of plan. Single-employer plans are administered either by the sponsoring employer or a Board of Trustees (unionized pension plans) or the sponsoring employer (non-unionized pension plans). Multi-employer plans are administered by either a Board of Trustees (unionized pension plans) or a pension committee (non-unionized pension plans).

Under the PBSA, pension committees must include plan member and retiree representatives if certain conditions are met. In contrast, pension plans administered by a sponsoring employer or a Board of Trustees are not required to include plan members or retirees in plan governance processes. It is proposed to extend the pension committee representation requirements to all single-employer and multi-employer Boards of Trustees in order to better promote shared governance practices for these pension plans.


1) What are your views on requiring plan member and retiree representation for all federally regulated pension plan Board of Trustees, for both single- and multi-employer pension plans?

2) What other approaches could be considered to increase plan member and retiree representation in plan governance?

Governance policy

Establishing and documenting a governance framework can serve to clarify plan governance processes and assist plan administrators in their fiduciary duties. Further to this, it can improve communications and transparency with plan members and retirees on how plans are governed and operate.

The PBSA does not require pension plans to have a governance policy, however, the Canadian Association of Pension Supervisory Authorities (CAPSA) guidance encourages plans to establish one as a best practice. Requiring federally regulated plans to maintain an up-to-date governance policy would ensure that these plans establish this important document.

Governance policies may address various elements ranging from administrator composition to risk management and internal controls. The CAPSA Pension Plan Governance Guideline (the CAPSA Governance Guideline) recommends that plan administrators clearly describe and document a governance framework that includes topics such as, roles and responsibilities, knowledge and skill requirements, and code of conduct and conflict of interest procedures.

The CAPSA Governance Guideline provides a broad, flexible outline of key governance principles. It acknowledges that different types and sizes of plans may require different governance practices and that pension plan administrators need to adapt their governance practices to specific circumstances and resources.

It is proposed that all federally regulated pension plans would be required establish a governance policy at plan registration that would be made available to the Superintendent of Financial Institutions on request. Plans already in operation on the day the new requirement comes into force would have to establish a governance policy within the prescribed time.


3) Would it be appropriate to require all federally regulated pension plans to establish a governance policy with the minimum prescribed content? If yes, should the prescribed content align with the CAPSA Governance Guideline?

Funding policy

Funding policies establish a strategic approach to funding DB plans and form part of a pension plan’s overarching approach to managing risk and meeting funding obligations. They take into account a broad set of considerations and external factors, such as funding objectives, plan sponsor sustainability and capital market movements, in order for plans to better understand and manage risks that could affect benefit security. In this way, the process of developing a funding policy is itself a useful exercise that can help pension plans shift from measuring success based on investment returns and the plan’s current funded ratio, to ensuring plan sustainability over a long time horizon.

Some pension experts note, however, that while a funding policy is a vital tool for plans with defined benefits that may be increased or decreased in response to funding ratios, it may not be necessary for single-employer DB plans where benefits are guaranteed and employers are required to make special payments to address funding deficits.  

The Government’s proposed new framework for multi-employer negotiated contribution (NC) plans, which are a type of DB plan, would require all NC plans to establish and maintain a funding policy. This requirement reflects that these plans generally have fixed contributions and benefits may be reduced to address funding deficits. In this case, a funding policy is an important tool for NC plans to manage risk and benefit security. It is proposed that, with respect to single-employer and non-NC multi-employer DB plans, the establishment of a funding policy continues to be encouraged, but not required.


4) To encourage a strategic and transparent approach to funding, should single-employer and non-NC multi-employer DB plans be required to establish and maintain a funding policy?

Environmental, social and governance factors

Environmental, social and governance (ESG) factors, including climate change, can serve an important role in pension plans’ investment strategies through their ability to influence individual plan investment performance and broader market conditions over short-, medium- and long-term time horizons. A growing international consensus is emerging related to the financial nature of ESG factors, despite current gaps in ESG market pricing. In this way, factoring ESG issues into pension investment analysis is increasingly considered to align with plan administrators’ fiduciary duties to plan members and beneficiaries.

Jurisdictions worldwide are implementing measures through regulations or guidelines with regards to how pension plans account for ESG factors in their investment strategies. For example, since 2016, Ontario has required pension plans to file their statement of investment policies and procedures (SIP&P) with the pensions regulator and include a disclosure about whether ESG factors are incorporated into the pension plan’s investment strategy and, if so, how. Similar regulations in the United Kingdom (UK) require pension plans to set out in their investment policies how they account for financially material ESG factors, including climate change.

In 2019, the Canadian Expert Panel on Sustainable Finance recommended in its final report – Mobilizing Finance for Sustainable Growth – that the federal government require federally regulated pension plans to disclose in their SIP&P whether and how climate issues are considered. In line with the Expert Panel’s recommendation, the federal government could take measures to encourage federally regulated pension plans to consider ESG factors in their investment and risk management strategies, including the risks and opportunities of climate change. One approach could be to prescribe in legislation or regulations that pension plans disclose through their SIP&P whether and how they consider ESG, similar to Ontario and the UK. Plans could be required to submit their SIP&Ps annually to OSFI or to have the SIP&P available to the Superintendent of Financial Institutions upon request.


5) In light of the growing international focus on ESG factors in investing, what would be an appropriate approach to encourage pension plans to consider ESG factors?

6) What are your views on the relationship between ESG factors and a pension plan administrator’s fiduciary duty?

Electronic communications

Since 2010, under the PBSA, plan administrators can provide any information required under the Act to plan members, retirees, and other beneficiaries electronically, given the addressee’s express consent. The requirement for express consent also applies to a member or retiree’s spouse or common-law partner where the PBSA requires information to be made available to them. Should plan administrators fail to receive express consent, communications must continue to be issued in a written form.

Recently, stakeholders have indicated that the requirement for express consent has created barriers to plan sponsors’ ability to proceed with wide-spread use of electronic communications, in particular with respect to obtaining the consent of members’ spouses or common-law partners, as not all plan sponsors maintain records of employees’ spouse or common-law partner addresses. In order to allow plan administrators to communicate with plan members and retirees in an efficient and effective manner, it has been suggested to allow federally regulated pension plans to send e-communications on a deemed consent basis.

CAPSA Guideline No. 2 Electronic Communication in the Pension Industry, which was updated in May 2019, encourages jurisdictions to adopt legislation that permits electronic communications as a default form of communication (with requisite safeguards) or at least recognize ‘deemed consent’. Deemed consent has been recognized in jurisdictions such as Ontario, where plan administrators must first provide a written notice to members and retirees to specify the date on which documents will begin to be sent electronically and confirm the addressees’ contact information. Under deemed consent, plan members and retirees would have the right to revoke their consent to receiving electronic communications at anytime.

It is proposed that pension plan administrators be permitted to use deemed consent in order to facilitate the use of electronic communications to plan members and their spouses or common-law partners.


7) What are your views on allowing federally regulated pension plans to provide required information electronically to plan members and retirees on a deemed consent basis?

8) What are your views on the current legislative requirement to make federally regulated pension plans provide required communications to spouses and common law partners? Is it feasible for plan administrators to provide electronic communications to spouses and common-law partners on a deemed consent basis? If not, what other options could be considered?

Solvency Reserve Accounts

Under the PBSA, employers sponsoring DB plans (other than negotiated contribution plans) are responsible for funding any solvency deficiencies and going concern deficits arising in the plan over five years and fifteen years, respectively, by contributing special payments to the plan. The PBSA’s funding rules protect the rights and interests of plan members and beneficiaries by seeking to ensure that DB plans have sufficient assets to cover their liabilities, which supports benefit security and long-term plan sustainability. At the same time, the PBSA provides the flexibility for employers to amortize pension deficits over time, in recognition that deficits may be too large to eliminate all at once without harming the financial integrity of the employer.

In addition to special payments, external conditions, such as better-than-expected investment returns or higher interest rates, may help plans to eliminate pension deficits at a faster pace and can potentially give rise to a pension surplus. In circumstances where a plan experiences a pension surplus following a period of required employer special payments, some employer special payments may have proven to be unnecessary to secure pension benefits. These special payments may now be “trapped” in the plan as surplus, as under the PBSA refund of surplus provisions, employers may be unable to recover previously contributed special payments once the plan is in surplus.

The PBSA provides strict requirements for a refund of plan surplus to the employer. For an ongoing plan, the refund of surplus to the employer is limited to the amount of surplus in excess of the greater of: (a) two times the employer’s current service cost, and (b) 25 per cent of the plan’s solvency liabilities. Additionally, the employer may only seek the consent of the Superintendent of Financial Institutions for a refund of surplus after establishing either an entitlement to the surplus under the plan documents or a claim to the surplus. An employer can establish a claim to the surplus by obtaining the consent of two-thirds of the plan members and two-thirds of the group consisting of former members (i.e., retirees and vested deferred members) and any persons within a class prescribed by regulations.1

Given these requirements, employers can face a pension funding asymmetry by bearing the downside funding risk, while having highly restricted access to any plan surplus that may arise. This can create an opportunity cost for employers that could have used the special payment amounts contributed for other purposes, such as investing in the business.

Role of Solvency Reserve Accounts

A federal Solvency Reserve Account (SRA) would be a separate or notional account within the DB pension fund into which an employer could remit solvency special payments that could later be recovered when the plan is in surplus, subject to certain conditions. In this way, SRAs could provide a greater incentive for employers to pay off pension deficits faster when they have the means, thereby aligning with plan members’ and retirees’ interests. Additionally, SRAs would improve employers’ flexibility in managing their pension funding obligations by lessening the current funding asymmetry. As such, SRAs could help make DB plans more viable and sustainable for employers, promote the retention of DB plans and, as a result, better support retirement security for plan members and retirees.

Recently, due to impacts of the COVID-19 pandemic, federally regulated DB plans have seen reductions in their asset values due to the stock market volatility as well as increased liabilities due to low interest rates. This has negatively affected the funded status of federally regulated DB plans, reversing some of the improvements made over the past decade. While it is unclear when the economic and financial conditions will improve, addressing the risks of trapped surplus through a SRA may mitigate the need to make higher solvency funding payments in the short-term. In this way, a SRA could help improve the funded status of plans during the anticipated recovery period while allowing plan sponsors a means to access those funds when conditions improve and they are no longer required to secure pension benefits.

While SRAs would provide employers with clearer access to plan surplus, important restrictions would apply to the framework in order to protect benefit security and balance considerations regarding surplus ownership. Funds in the SRA would be protected for the primary benefit of plan members and retirees, with an employer only able to withdraw funds when the plan’s surplus reaches a prescribed level. An employer’s access to surplus from a SRA would be limited, at maximum, to recovering the amounts of solvency special payments contributed that are no longer required to secure all pension benefits. This approach would recognize that employers are solely responsible for making special payments in respect of deficits. In addition, strict conditions and further limits would apply to SRA withdrawals to ensure that the plan’s funded position would not be unduly affected.

Provincial provisions

British Columbia, Alberta and Nova Scotia permit SRA accounts for both single-employer and multi-employer pension plans with DB provisions, while Manitoba has introduced SRA legislation. In British Columbia and Alberta, plans with DB provisions can create a separate SRA within the pension plan fund to hold solvency special payments. Employers are allowed to withdraw surplus from the SRA while the plan is ongoing, provided that an amount equal to five per cent of the solvency liabilities remains as a buffer. In addition, no more than 20 per cent of the accessible solvency excess may be withdrawn per fiscal year, for no more than the earlier of three consecutive years or until the next actuarial valuation is filed. Withdrawals require the consent of the Superintendent and are not permitted if there is an existing going concern unfunded liability, or if the withdrawal would create one. SRAs in Nova Scotia may hold both solvency special payments and payments to fund a funding buffer, or provision for adverse deviation (PfAD). However, surplus may only be withdrawn from the SRA on plan termination once all pension benefits have been paid and the Superintendent has given consent.

Proposed Elements of a Federal Solvency Reserve Account Framework

Establishment and contributions to SRAs

As federal SRAs would only be applicable to DB plans where the employer is responsible for making special payments to the plan in respect of deficits, the proposed SRA framework would be limited to single-employer DB plans. The decision to establish a SRA would rest with the employer, however, this would be permitted only if the plan text allows for the establishment of a SRA and for the employer to withdraw funds from a SRA. 

An important consideration for the SRA framework is to ensure that SRA funds are used primarily for the benefit of plan members and retirees, notwithstanding an employer’s right to claim eligible surplus from a SRA under certain conditions. As such, the framework would require the pension plan administrator to administer the SRA in its capacity to act as a trustee on behalf of plan members and retirees. The framework would allow pension benefits to be paid from the SRA and for funds to be transferred from the SRA into the main pension fund (but not vice versa). Funds in the SRA would count as plan assets for all actuarial valuation purposes,2 and would be subject to the same treatment and protections as other plan assets (e.g., held separate and apart from the employer’s assets and subject to the deemed trust provision).

Solvency special payments are generally more volatile than going concern special payments and represent a heavier burden for employers in the current low interest rate environment. Therefore, current financial market conditions may have increased the risk for solvency special payments of becoming trapped in the plan as surplus. Stakeholders expressing support for SRAs have almost exclusively focused on their use in connection to solvency special payments. The SRA provisions in Alberta and British Columbia and proposed provisions in Manitoba apply only in respect of solvency payments.

Eligible SRA payments would be limited to employer solvency special payments (i.e., one-fifth of the solvency deficiency minus going concern special payments) and additional payments in respect of a solvency deficiency above the minimum legislated requirements.3 All other employer payments (i.e., normal cost contributions, going concern special payments and additional payments in respect of a going concern deficit in excess of minimum funding requirements) would not be made or allocated to the SRA, and would continue to be subject to the existing surplus utilization rules. The SRA framework would not apply retroactively to previous employer solvency special payments and employers would not be permitted to transfer funds from the main pension fund into the SRA.


1) To encourage more prudential employer funding, should consideration be given to permitting employer normal cost contributions to be made to a SRA where an employer is in a position to reduce normal cost contributions under subsection 9(5) of the PBSR?

2) What would be an appropriate legal structure for SRAs – for example, establishing a SRA as a separate account of the pension fund within the same trust agreement, or under a separate trust agreement? Would different arrangements pose administrative or operational difficulties? Should employers be permitted to choose their preferred approach?

3) The proposed SRA framework would apply to single-employer DB plans. Should the SRA framework also apply to multi-employer DB plans, other than negotiated contribution plans? How might this work in practice?

Withdrawals from SRAs

The solvency position of pension plans can change rapidly as a result of economic and financial conditions, moving from surplus to deficit or vice-versa from one year to the next. Given this volatility, the SRA framework would have safeguards to protect benefit security by prohibiting SRA withdrawals that could unduly impair the plan’s funded position. Employers would be permitted to withdraw funds from SRAs only if the plan reaches a specified solvency funding ratio threshold above 100 per cent and is fully funded on a going concern basis. Additionally, the framework would not permit withdrawals that would reduce the plan’s solvency ratio below the specified threshold or create a going concern funding deficit. To further reduce the risk of economic and financial conditions creating a plan deficit following a withdrawal from a SRA, any withdrawals would be limited to a maximum annual amount (as a percentage of eligible surplus in the SRA) such that the full amount of eligible surplus could not be withdrawn all at once.

Employer withdrawals from SRAs would be optional, subject to meeting the necessary criteria. The employer’s entitlement to withdraw funds would be based on the most recent actuarial valuation report (AVR) filed with OSFI. Employers would then have the option to withdraw an amount from the SRA, up to the allowable annual limit, until the valuation date of the next AVR.

The SRA framework would require that AVRs contain information on a plan’s SRA, such as a reconciliation of funds (which would include new payments and any withdrawals) the impact of any withdrawals on the plan’s funded ratio and the maximum annual amount that could be withdrawn from the SRA until the next AVR is filed. On plan termination, after the Superintendent’s approval of the termination report and after all pension benefit obligations have been satisfied, any remaining funds in the SRA could be withdrawn by the employer, subject to plan documents, without the consent of the Superintendent. 

The PBSA currently requires OSFI’s approval for a refund of surplus to the employer. Employers would not have to seek OSFI’s approval to withdraw funds from a SRA, given that the SRA framework’s rules on withdrawals would already protect benefit security and reduce the risk of withdrawals creating adverse impacts for plans. OSFI’s role regarding SRAs would be consistent with its current role of supervising pension plans and ensuring they are in compliance with all PBSA requirements, which would include the SRA rules.

Annual notices sent to plan members, retirees and other individuals entitled to benefits under the plan would be required to disclose details of any employer withdrawals from the SRA in the previous year, such as the amount of any withdrawal and its impact on the plan’s funded ratio.


4) Would it be appropriate to set a minimum required solvency ratio threshold of 105 per cent before and after any SRA withdrawal is permitted for on-going pension plans? Should a similar threshold apply to the plan’s going concern funded level?

5) Would limiting annual withdrawals from a SRA to one-fifth of the eligible surplus be appropriate? This would align with the approach in Alberta and British Columbia, and would mirror the 5-year amortization period allowed for solvency deficits.

6) Should additional restrictions or safeguards apply to SRA withdrawals?

7) Should any specific disclosure requirements to plan members and beneficiaries or OSFI apply in respect of withdrawals from or payments to a SRA? Should the notice provided to plan beneficiaries be separate from their annual statement?

8) Should other limits or restrictions apply to SRA withdrawals to help ensure that withdrawals are based on up-to-date information (e.g., withdrawals only allowed within six months following the AVR being filed, or prohibiting SRA withdrawals if the employer had reason to believe that the plan’s funded position had changed significantly to the downside)?

Variable Payment Life Annuities

Unlike DB plan retirees, who receive a predictable, lifetime pension, PRPP and DC plan retirees are responsible for managing the drawdown of their pension savings in retirement and balancing retirement income security and adequacy.

Budget 2019 proposed to amend the tax rules to permit VPLAs for PRPPs and DC plans, and announced that it would consult on potential changes to federal pension legislation to accommodate VPLAs for federally regulated PRPPs and DC plans. VPLAs will provide plan members with lifetime retirement income payments that vary based on investment returns and the mortality experience of the fund. VPLAs will allow pooling of investment and longevity risks (i.e., the risk of outliving one’s retirement savings) by allowing PRPPs and DC plans to establish a separate annuities fund under the plan. While the payments provided by a VPLA could fluctuate, the benefits would provide lifetime payments, similar to DB plans, which could help improve the retirement security of PRPP and DC plan members and retirees in Canada.

Current retirement income options

A PRPP or DC plan generally offers members the option at retirement to: transfer their savings into a locked-in retirement savings plan or income vehicle, such as a locked-in Registered Retirement Savings Plan (RRSP), Life Income Fund (LIF) or Restricted Life Income Fund (RLIF); or purchase an immediate or deferred life annuity from a regulated insurance provider. A PRPP or DC plan may also offer members the option to leave the funds within the plan and draw them down as variable benefits.

Locked-in retirement income vehicles and variable benefit arrangements provide retirees with the flexibility to manage the drawdown of their retirement income (subject to minimum and maximum withdrawal rules under tax and pension legislation) and keep funds invested to generate additional returns throughout retirement. However, under these arrangements retirees must also assume the longevity and investment risks.

Life annuities purchased from a regulated insurance provider, in contrast, provide protection against longevity and investment risks by providing guaranteed lifetime retirement income regardless of changes to the retiree’s life expectancy or market returns. Of the options available to PRPP and DC plan retirees, life annuities bear the closest resemblance to the lifetime stream of income provided by DB plans. However, interest in purchasing annuities can be highly dependent on the price at the time of the purchase and the price is, in turn, dependent on interest rates. Given the current low interest rate environment, these prices may appear high to many retirees.

Role of VPLAs

A VPLA retirement option could be offered by PRPPs or DC plans as a separate fund within the plan that would pool investment and longevity risks to provide retirees with a stream of lifetime income payments that would fluctuate based on the fund’s investment returns and mortality experience, and would allow retirees to maintain their relationship with their pension plan sponsor throughout retirement. By joining a pooled account, retirees would maintain access to the generally lower fees and economies of scale associated with a pension plan compared to individual investments.

Proposed VPLA tax rules

Following the Budget 2019 announcement on the proposed tax legislation changes to permit VPLAs, the Government released draft legislative proposals to the Income Tax Act (ITA) and Income Tax Regulations (ITR) to accommodate VPLAs. The draft legislation and regulations permit PRPPs and DC plans to offer VPLAs directly from the plan, and set out rules and requirements associated with VPLAs.  

VPLA Framework under the Income Tax Act


  • VPLA funds may only receive funds via direct transfers from PRPP and DC plan member accounts. No direct employee or employer contributions may be made to the VPLA.


  • Only VPLA benefits may be paid from the VPLA fund.
  • VPLA payments must commence no later than the end of the year the member attains 71 years of age and the end of the year the VPLA was acquired.
  • VPLAs must provide a lifetime retirement benefit whose value varies to the extent that changes to the investment and mortality experience of the fund differ from the actuarial assumptions.
  • VPLAs may provide:
    • Inflation indexing corresponding to changes in the Consumer Price Index, or at a specified rate not exceeding two per cent annually;
    • Bridge benefits (i.e., portions of benefits provided from the date a member retires to the date of entitlement to receive Canada Pension Plan or Quebec Pension Plan benefits and/or Old Age Security benefits);
    • Bridging benefits for a period ending no later than the end of the month following the month in which the member attains 65 years of age;
    • Guarantee period benefits to one or more beneficiaries (i.e., guaranteed for a certain period of time);
    • Joint and survivor benefits (i.e., payable for the lifetimes of both the plan member and their spouse or common-law partner); and
    • Death benefits (i.e., lump sum amount payable after death of the member).

Minimum number of members

  • In order to operate, the plan must reasonably expect the VPLA fund to maintain a minimum of 10 members on an ongoing basis.

Proposed Elements of a Variable Payment Life Annuity Framework

Adjusting benefits

Unlike DB plans where the plan sponsor must make special payments to address a funding shortfall, there could be no direct employee and employer contributions to a VPLA fund. Instead, VPLA benefit levels adjust according to changes to the fund’s actuarial assumptions and investment and mortality experience. In the absence of additional employee or employer contributions, this regular adjustment of benefits aims to ensure that VPLA funds remain sustainable over the long term.

DB plans are required to prepare and file with the Superintendent of Financial Institutions regular actuarial valuation reports in order to determine whether there are sufficient assets in the plan to pay for benefits. As VPLAs adjust benefit levels to reflect actual investment returns and mortality experience, regular actuarial valuations would be similarly necessary.

Under the proposed federal VPLA framework, PRPPs and DC plans with VPLA funds would be required to file an actuarial valuation report once every three years in order to ensure that OSFI is provided with appropriate information on the VPLA’s funded status. A three year timeframe for actuarial valuation reports could provide regular valuations of benefits to reduce benefit volatility, while limiting plan administrative burden.

Subject to any additional limits or requirements under the ITA, the proposed VPLA framework would provide plan parties with the flexibility to establish a VPLA funding approach based on their desired outcomes. An overly prescriptive approach to regulating benefit adjustments may limit the viability of certain benefit arrangements that could be preferred by members in retirement. Some VPLAs may want to reduce benefit volatility through a funding buffer, or provision for adverse deviation (PfAD), while others may prefer to forego a PfAD in order to offer a higher initial benefit or target greater investment gains. Plans would be required to document their chosen funding approach in the PRPP or DC plan text.

To ensure that adjustments to VPLA payments support the fund’s ability to provide a lifetime retirement income, VPLAs would be required to regularly adjust benefits. Requiring that benefits adjust annually, however, could limit plan flexibility and increase costs associated with conducting actuarial valuations and communicating changes with retirees. Similarly, long gaps between benefit adjustments could result in more significant surpluses or deficits accumulating, and subsequently larger required changes to benefits in order to rebalance the fund.

Under the proposed VPLA framework, PRPPs and DC plans with VPLAs would be required to implement any required benefit changes at least once every three years based on an actuarial valuation of the fund’s sustainability. Plans would, however, be permitted to adjust benefits more frequently if they choose. Changes would include improvements and reductions based on the experience of the plan relative to actuarial assumptions, and those associated with any significant changes to these assumptions moving forward. The actuarial valuation reports produced to support benefit changes would need to be filed with the Superintendent of Financial Institutions, prior to the benefits being adjusted.  

Implementing this proposed federal VPLA funding and benefit adjustment framework would require amendments to the draft legislative proposals which accommodate VPLAs in the ITA and ITR. The draft legislative proposals permitting VPLAs require that VPLA benefits be adjusted at least annually to the extent that the return earned by the VPLA fund or the mortality rate of the members (and beneficiaries who are entitled to receive the VPLA benefits) differ materially from the actuarial assumptions used to determine the VPLA benefits.


1) Are there other timing requirements that could be considered for VPLA actuarial valuation reports? For example, should the frequency of required actuarial valuation reports be linked to a VPLA’s chosen funding approach (i.e., PfAD)?

Partial Annuitization and Withdrawals

At retirement, PRPP and DC plan members may transfer their pension benefit credit to a locked-in retirement income vehicle, receive variable benefits (if offered by the plan), or purchase an immediate or deferred annuity from an insurance company. These portability options offer varying degrees of flexibility in retirement. Annuities offered by insurance companies usually restrict withdrawals to ensure that the pooled funds provide a secure lifetime income for policyholders, while locked-in retirement income vehicles are subject to annual withdrawal limits set by the PBSA and PBSR.

Similar to annuities offered by insurance companies and DB plans, VPLAs pool longevity and mortality risks to provide members with a lifetime retirement income. As permitting withdrawals from VPLA funds could negatively impact the longevity and investment pooling features of the VPLA and be detrimental to the fund’s ability to provide benefits, VPLA members would not be permitted to withdraw funds (other than benefits) from the VPLA fund once they have elected to participate.

In order to support retirees who would prefer a balance between receiving a lifetime retirement income that is professionally managed and retaining financial flexibility, PRPP and DC plan members electing to enter into a VPLA at retirement would be permitted to do so with a portion of their PRPP or DC account balance. The remaining funds in the PRPP or DC plan could then be transferred to a locked-in retirement income vehicle or left in the plan and withdrawn as variable benefits if that option is available. Retirees could also design their own risk approach by balancing lifetime retirement income received through a variable annuity and a more secure fixed life annuity from a regulated insurance provider.

The PBSR and Pooled Registered Pension Plan Regulations (PRPP Regulations) allow members to ‘unlock’ up to 50 per cent of their locked-in pension funds on a one-time basis in order to provide the flexibility to meet early retirement needs or have funds available for unplanned expenses. To maintain this flexibility, the proposed VPLA framework would include unlocking rules to ensure that individuals who elect to participate in a VPLA are given an opportunity to unlock up to 50 per cent of their accumulated pension funds, similar to individuals who elect to transfer their pension funds to a locked-in retirement income vehicle. Individuals would be able to unlock up to 50 per cent of their accumulated pension funds in their PRPP or DC account prior to entering into a VPLA.


2) Does the proposed approach for partial annuitization, unlocking, and withdrawal from a VPLA strike an appropriate balance between providing flexibility to members while preserving the risk pooling nature of the VPLA?

3) To allow for earlier VPLA purchases, should members of a PRPP or DC pension plan also be able to enter a VPLA offered by the plan at any time, rather than limiting the option to enter a VPLA to only when members are at retirement?


Existing disclosure rules under the PBSA and PBSR, and PRPP Act and PRPP Regulations require that plan administrators provide relevant information to plan members and/or retirees upon enrolment, annually, on plan termination, termination of employment, death and retirement. The proposed VPLA framework would require additional disclosure requirements to reflect the specific nature of VPLAs, including that VPLA benefits may vary from year to year and individuals may not withdraw from a VPLA once they decide to participate. 

In order to help PRPP and DC plan members make an informed decision before entering the VPLA, plan administrators offering a VPLA would be required to provide information on the VPLA option to PRPP and DC plan members at retirement. The required information notice would disclose details on how a VPLA is designed, the key risks and how these risks may affect benefit levels, that benefits could be increased or reduced based on investment and mortality experience, and how monthly payments would be initially determined and periodically adjusted. VPLA members would be entitled to receive annual statements disclosing that the administrator may increase or reduce benefit payment levels based on investment and mortality experience, and the current monthly benefits payable to VPLA members. Lastly, PRPP and DC plan administrators operating a VPLA option would be required to inform VPLA members in advance of changes to benefits. 


4) Are there any other circumstances where new disclosures could be needed for VPLAs, in addition to what is being proposed?

Spousal Consent

The portability provisions in the PBSA and PRPP Act set out that retirees must obtain the consent of their spouse or common-law partner before transferring their funds to a locked-in retirement income vehicle. The PBSA also requires spousal or common-law partner consent where a retiree elects to receive variable payments from the plan. The requirements to obtain spousal or common-law partner consent are in place to ensure that they are aware of the features of individual retirement income vehicles, namely that the recipient continues to bear the investment risk of the funds.

To ensure that the spouses or common-law partners of PRPP and DC plan members contemplating a VPLA understand that funds cannot be withdrawn from a VPLA and VPLA benefit levels may decrease, the proposed federal VPLA framework would require retirees who have a spouse or common-law partner to obtain spousal or common-law partner consent through submission of a form that outlines the nature of the VPLA and risks involved with the vehicle. The manner in which to obtain this consent would be prescribed in regulations.


5) What are your views on the proposed requirement for PRPP and DC plan retirees to obtain spousal consent before entering a VPLA?  

Plan Termination

In certain cases, a PRPP or DC plan administrator may elect to terminate the VPLA retirement option. This could occur in instances where the PRPP or DC plan is itself terminating or due to other circumstances, such as the VPLA membership falling below the minimum threshold to maintain fund sustainability. In these cases, the proposed VPLA framework would require PRPP or DC plan administrators to submit a termination report to the Superintendent of Financial Institutions approval in order to ensure the protection of retirees’ benefit security in accordance with the PBSA or PRPP Act.

On plan termination, PRPPs and DC plans generally provide members and deferred members with the option to transfer their pension benefits to a locked-in retirement income vehicle, another pension plan, or to purchase an immediate or deferred life annuity. In contrast, DB plans generally offer to purchase deferred annuities or offer portability for active plan members, while retirees are generally offered guaranteed annuities.

While VPLAs provide a lifetime pension benefit similar to DB plans, the variable nature of the benefits and the fact that no additional funds may go into the VPLA at termination would make it difficult for plan sponsors to purchase an annuity from an insurance company that would replicate the level of pension benefits being provided to each retiree at the time of plan termination. As such, the proposed VPLA framework would provide VPLA members with the commuted value of their VPLA benefits on termination of the VPLA arrangement. This would give retirees and beneficiaries the flexibility to transfer their funds to other retirement income vehicles that provide a lifetime stream of income, such as a LIF, or purchase an annuity offered by a life insurance company. VPLA retirees and beneficiaries would be provided the same portability options currently available to PRPP and DC plan members.  


6) Are there any other portability options that could be considered for VPLA retirees and beneficiaries on plan termination?

7) What would be an appropriate approach to the calculation of commuted values for VPLAs? For example, should plans be free to choose between different methodologies prescribed in regulation or follow a methodology proposed by the Canadian Institute of Actuaries (CIA) for target benefit arrangements?

Fiduciary Duty

The administrator of a pension plan has a fiduciary responsibility under the PBSA and PRPP Act to act in the best interest of all plan beneficiaries, as well as a duty to administer the pension plan in accordance with the plan text and other plan documents. The fiduciary duty is also reflected in the standard of care provisions of the PBSA and PRPP Act which set out that plan administrators shall:

It has been suggested that while fiduciary duty and standard of care are clear in the accumulation stage, there is less clarity regarding the risks and liabilities that could arise in the decumulation stage. For example, in cases of providing investment advice and/or disclosure. As such, stakeholders have suggested that legislative amendments which provide a “safe harbour” for plan sponsors with regard to their role in the decumulation stage may provide greater certainty for plan sponsors offering variable benefits or VPLAs.

However, the standard of care provisions set out a principles-based approach for administrators in order to ensure that plan members, retirees, and other beneficiaries are afforded protections throughout their relationship with the pension plan (i.e., in the accumulation and decumulation phases). As the VPLA would be provided as part of the PRPP or DC plan, the standard of care provisions would apply to the VPLA in the same way that they apply to the accumulation phase of the fund. In light of this, the Government would not propose amendments related to the application of standard of care provisions specific to VPLAs.

Further, in addition to the standard of care provisions in the PBSA and PRPP Act, the PBSR and PRPP Regulations set out investment rules, such as quantitative limits on certain investments, in order to protect plan members’ retirement funds. As VPLA funds would be invested by the plan administrator, the protections provided by the PBSR and PRPP Regulations investment rules should continue to apply, and no changes would be required to incorporate VPLAs into the existing rules.   


8) What are your views on the PBSA’s principles-based approach to administrator’s fiduciary duty? Are additional clarifications necessary to ensure that the fiduciary duty principles apply to both the accumulation and decumulation periods?

Ministerial Guidelines for Defined Benefit Pension Plan Sponsors

The Government’s 2018 consultation paper on measures to enhance Canadians’ retirement security included a proposal to establish criteria for employers seeking funding relief under the PBSA. Stakeholder submissions supported the proposal as a way to provide a more transparent, predictable and accessible path to funding relief, and encourage more disciplined corporate behaviour while DB plans are underfunded.

The Department of Finance is seeking stakeholder views on the following draft Ministerial guidelines on the process to seek and obtain special funding relief from solvency funding requirements under the PBSA. These guidelines would apply to federally regulated private pension plans under the PBSA.

As set out below, the guidelines would include information on the process to seek special funding relief under the PBSA, information to be included in relief applications, factors that the Department of Finance would consider when advising the Minister on whether to recommend special funding regulations, and additional actions that may be undertaken alongside special funding relief to improve pension plan sustainability. Once finalized, the following guidelines will be posted on the Department of Finance’s website.

Proposed Ministerial Guidelines on Special Pension Funding Relief

The Minister of Finance is responsible for the Pension Benefits Standards Act, 1985 (PBSA), which governs private pension plans linked to federally regulated areas of employment, such as banking, telecommunications, inter-provincial transportation, and navigation and shipping, as well as private sector employment in Yukon, the Northwest Territories and Nunavut, and employment in certain federal Crown corporations.

Defined benefit pension plans play an important role in Canada’s retirement income system by providing plan members and retirees with a lifetime stream of income, and protecting plan members and retirees from investment risk and longevity risk. Under the PBSA, employers sponsoring defined benefit pension plans are subject to solvency and going concern funding rules, and must fund any solvency and going concern deficits arising in the plan. Going-concern funding requirements assume the plan is ongoing indefinitely, whereas solvency funding assumes that the plan is terminated and all promised benefits must be immediately paid. Under solvency funding requirements, the employer must pay any funding deficit within five years in order to help ensure that plans have sufficient assets to provide for all promised benefits, both while the plan is ongoing and in the event of plan termination.

Criteria for Seeking Funding Relief

In certain cases, employers may be unable to meet the PBSA’s pension funding obligations due to financial challenges that could threaten the sponsoring employer’s corporate sustainability, and consequently negatively impact pension benefit security. The PBSA provides several alternative options for defined benefit pension plan sponsors to seek short-term funding relief in order to lessen immediate funding pressures and provide plans with greater flexibility to negotiate long-term changes with plan parties to improve plan sustainability, such as:

Plan sponsors may also seek to relieve funding pressures by engaging with pension plan parties to undertake plan design changes. These changes would generally be negotiated by plan parties to relieve short-term financial constraints and improve the pension plan’s long-term sustainability. They could include changes to contributions, changes to future pension benefits, or changes to plan governance. Changes to plan design that reduce past benefits would be subject to approval by the Office of the Superintendent of Financial Institutions (OSFI).

Where all the above relief options have been considered and are deemed unfeasible, an employer may engage with the Department of Finance Canada to seek temporary funding relief. Under the PBSA, the Minister of Finance may recommend to the Governor in Council that special funding regulations be made to provide temporary pension funding relief to the employer in order to relieve employer’s short-term financial constraints and improve the plan’s long-term sustainability. The funding relief can serve to lessen near-term funding pressures that may threaten the sponsoring employer’s viability and help reduce the risk of pension benefit reductions to plan members and retirees. Funding relief is typically only granted in extraordinary situations where normal funding obligations are contributing to corporate financial challenges and, hence, negatively impacting pension benefit security, and where other available funding relief options such as the Distressed Pension Plan Workout Scheme and Letters of Credit are not appropriate.  

Submissions to the Department of Finance

Plan sponsors are expected to first assess whether the pension plan meets the above criteria for seeking special funding relief (i.e., that the PBSA funding obligations could place undue financial burden on corporate sustainability and other funding relief options are deemed unfeasible). Once a plan sponsor has ascertained that all other options have been explored and seeking special funding relief is the only available option, it is requested that the sponsor provide a written submission to the Minister of Finance. The submission should include the following:

Considerations when assessing requests for special funding relief

Department of Finance officials assess requests for funding relief in order to determine whether solvency funding relief would promote long-term benefit security and be in the best interests of plan members and retirees. Factors that would be considered, include:

When considering changes to the pension plan, plan parties should consult OSFI guidance to ensure that they are complying with the PBSA, and seek the Superintendent of Financial Institution’s approval where necessary.

Measures undertaken alongside special funding relief

The Minister of Finance may enter into a corresponding agreement with companies that receive special funding relief in order to articulate separate covenants and undertakings that fall outside the PBSA. These agreements may set out commitments by sponsoring employers to exercise corporate fiscal discipline and pursue pension plan reforms to improve sustainability while the funding pension relief is in place. Agreements may include:


1) What are your views on the proposed Ministerial guidelines? Are there any additional components or considerations that should be included in the draft Ministerial guidelines?

1 The Income Tax Act (ITA) permits payments of surplus to an employer, plan members and retirees, which are included in income for tax purposes. To reasonably control tax deferral costs associated with funds in excess of those required to fully fund pension benefits, the ITA prohibits employer pension contributions once the surplus of a DB plan reaches 25 per cent of liabilities on a going concern basis, although any required solvency deficit payments and employee contributions may continue to be made.

2 The SRA would be part of the pension fund and as such would have to be considered in the assets of the plan for determining the maximum going concern surplus for a DB plan under the ITA. 

3 Employers would not be permitted to make contributions to the pension fund including the SRA in excess of the contributions currently permitted for a DB plan under the ITA.

Page details

Date modified: