On October 19, 2016, Bill C-27 was introduced in the House of Commons. The big news from the introduction was that Bill C-27, if passed, would amend the federal Pension Benefits Standards Act, 1985 (PBSA) to permit federally-regulated employers (banks, railways, etc.) to establish target benefit plans. For information on that proposed change, see our earlier blog post.
Also included in Bill C-27 was another change sure to be welcomed by administrators of defined benefit plans under federal jurisdiction. As DB administrators look for ways to reduce various risks associated with their pension plans (interest rate risk, longevity risk, investment risk, etc.), one option is to purchase an annuity from an insurance company for all pensions in pay, such that the insurance company assumes responsibility for paying the pensions to the affected members – this is a so-called “buy-out annuity”. By doing so, the plan administrator transfers all risk to the insurer.
Currently, however, there is no provision in the PBSA that expressly grants a discharge to the plan administrator when an annuity is purchased. The federal pension regulator, OSFI, therefore takes the position that even where a buy-out annuity is purchased, ultimate responsibility to pay the pensions remains with the sponsor.
Bill C-27 would add a provision to the PBSA addressing the purchase of buy-out annuities, stating that such a purchase would satisfy the obligation under the pension plan to provide the pension benefit, provided that certain requirements (to be prescribed in the regulations) are met. The annuity would have to provide a pension in the same form and amount as the pension it replaces, and certain notice requirements would have to be met. Provided that the prescribed requirements are met, however, the new provision would effectively grant a discharge to the plan administrator when a buy-out annuity is purchased.