New Brunswick amends
Pension Benefits Act to provide more options for solvency funding

Amendments include new requirements for governance of pension plans

Special Notice – December 15, 2020

The government of New Brunswick has filed amendments to the General Regulation under the Pension Benefits Act (Regulation) to allow for more flexibility in funding solvency deficits in defined benefit (DB) pension plans. Details of the amendments and the implications for plan sponsors and administrators are summarized below.

Background

The Regulation is the culmination of consultations initiated by the New Brunswick Financial and Consumer Services Commission (Commission) this summer. The Commission proposed draft amendments asking for public review and requested feedback from interested stakeholders.

Key amendments

The amendments provide DB plan sponsors with greater flexibility in funding solvency deficits, including:

• Allowing plans to fund solvency deficits to a threshold of 85% of solvency liabilities rather than 100%;
• Introducing a new “going-concern plus” funding model, including a provision for adverse deviation (PfAD);
• Requiring plans to submit an additional actuarial valuation report within 12 months of filing an actuarial report indicating a solvency ratio of less than 85%;
• Changing the application of a going concern excess to reduce contributions if the reduction in contributions would not result in a solvency ratio or going concern ratio less than 105%; and
• Introducing new rules regarding the use of letters of credit.

The amendments also set out new requirements for the establishment and adoption of a governance policy for pension plans.

The new funding Regulation does not impact pension plans that have a previous exemption from funding solvency deficiencies, including municipalities, universities, and nursing homes. Additionally, the Regulation exempts individual pension plans from the application of the Pensions Benefits Act and the regulations.

The Regulations also make the minimum withdrawal rate from a life income fund the same as the corresponding minimum withdrawal rate in the Federal Income Tax Act to better align with recently introduced federal COVID-19 relief measures.

Impact:  The Regulation continues a trend in pension reform seen in other Canadian jurisdictions, including Nova Scotia, Ontario, Quebec and British Columbia.  It closely follows several of the key amendments in other provinces, with the methodology for calculating the PfAD mirroring that of Nova Scotia. The easing of restrictions on solvency funding will be welcome for DB plan sponsors dealing with issues related to the ongoing COVID-19 pandemic but will require plans to review assumptions with an actuary to ensure the funding changes can be properly implemented. Changes to the requirements related to plan governance will require a close look at current governance practices for all topics covered.