BC proposes new funding framework for DB plans

By The IJ Staff | September 27 2019 12:05PM

Photo: Freepik

Morneau Shepell released its September 2019 monthly newsletter, News & Views, this week, wherein the company examines a recent report from the British Columbia Ministry of Finance that proposes changes to the minimum funding requirement for B.C.-registered defined benefit (DB) pension plans.

The Ministry’s report, released in August 2019, proposes to use a new funding framework that would require DB plans to be funded on both an ongoing-concern and solvency basis. The new solvency rules would require DB pension plans to be funded to a reduced level of 85 per cent of the solvency liability. Ongoing-concern funding rules include a provision for adverse deviations – an adjustment to the provision for adverse deviations would be made for plans that have an exposure of less than 30 per cent to assets classes other than traditional fixed income.

Morneau Shepell says the proposed formula was developed to mitigate contribution volatility. “We have concerns that the proposed formula will not accomplish this objective,” the newsletter says. “Plan-specific dynamic margins, which are lower when a plan is more poorly funded and higher when the plan is better funded, would be a more effective mechanism in pursuing contribution stability.”

“The proposed revisions to the funding framework for DB plans are generally welcome for BC pension plan sponsors,” Morneau Shepell adds. “Reducing required solvency funding to a threshold of 85 per cent represents an improved balanced between benefit security and plan affordability and is consistent with changes considered or implemented in other Canadian jurisdictions.”

The Morneau Shepell newsletter also provides an update on pharmaceutical benefits changes, newly proposed late filing penalties in Ontario, changes to FSRA’s pension services portal and the funded status of pension plans as of August 31. To learn more, click here.

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