New funding requirements for private pension plans to take effect April 1, 2011

In October 2009, the federal government announced that changes would be made with respect to the funding of federally regulated pension plans, with the goal of providing additional protection to plan members and retirees.

Some of the proposed changes will come into effect as of April 1, 2011. Those changes are as follows:

  • plan sponsors will be permitted to secure properly structured letters of credit in lieu of making solvency payments to the pension fund, up to a limit of 15% of plan assets;
  • plan sponsors will be required to fully fund pension benefits on plan termination;
  • any amendments to a pension plan that would reduce the solvency ratio of the pension plan below a set ratio will be voided; and
  • sponsors, plan members, and retirees of a distressed pension plan will be permitted to negotiate their own funding arrangements to facilitate a plan restructuring.

The press release announcing implementation of the changes, which includes links to backgrounder documents providing more details, can be found on the Department of Finance Web site at http://www.fin.gc.ca/n11/11-032-eng.asp.

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