With the introduction of Bill C-9 – this year’s budget bill – on March 29th, the federal government is beginning to move forward on a number of the pension reforms that it had announced last fall.

For instance, Bill C-9 contains the increase to the Income Tax Act pension surplus threshold from 10% to 25% of actuarial liabilities (as discussed in ourMarch 25, 2010 post). Bill C-9 also includes a number of significant amendments to the federal Pension Benefits Standards Act (the PBSA), although many of these will require amendments to the Pension Benefits Standards Regulations (PBSR) before they can be fully implemented.

The PBSA reforms contained in Bill C-9 include:


  • Subject to certain specified conditions, employers may use letters of credit in lieu of solvency payments. (Although not included in Bill C-9, it was previously announced that the maximum amount of any such solvency letters of credits would be capped at 15% of the plan’s assets – such limits will likely be introduced in future amendments to the PBSR, before this provision becomes effective.)
  • Unless permitted by the Superintendent, amendments which would reduce a plan solvency ratio below a prescribed level will be void. (According to the earlier announcement, this level will be 0.85, however, it is to be set by future amendments to the PBSR.)
  • The Superintendent will have the authority to require filing of actuarial valuations and financial statements at “any intervals” it so directs.
  • The Superintendent may appoint an actuary to prepare an actuarial report of a plan where it believes it to be in the “best interests” of plan members and former members to do so.

Plan Wind-Ups

  • Employers will be required to fully fund pension benefits on plan termination and any overpayments will revert to the employer (i.e., the overpayments will not be considered “surplus” and therefore will not be subject to the surplus withdrawal requirements).
  • Employer declared partial terminations will be eliminated (although the regulator will retain the discretion to order partial terminations).


  • Vesting of benefits will be immediate on commencement of plan participation, however, the two-year waiting period currently allowed before participation begins will be maintained.

Plans At Risk

  • Where an administrator is insolvent (or otherwise unable to act) the Superintendent may remove the administrator and appoint a replacement.
  • A framework will permit employers and members of plans to agree to a “workout scheme” (i.e., a short moratorium on deficit payments and changes to the pension arrangements) where the employer is unable to meet the statutory funding requirement.

Defined Contribution (DC) Plans

  • Members entitled to an immediate pension may elect to receive a “variable benefit” (similar to Life Income Funds) from a DC plan.

Some of these changes, such as the permitted use of letters of credit for solvency funding, will provide (welcome) funding relief to plan sponsors. Yet other changes (in particular the wide latitude given to the regulator to order new valuation reports) could result in significantly higher funding obligations for plan sponsors, and should be viewed with caution.

Plan sponsors and administrators should also keep in mind that a number of items that were previously announced by the federal government were not included in Bill C-9. Many of these outstanding items, e.g. implementing a new solvency funding standard, permitting plans to consolidate past deficiencies each year, and revamping the federal investment rules, appear to require separate amendments to the PBSR. Sponsors of DC plans should also look for further amendments to the PBSA clarifying their duties and responsibilities, as previously announced.

In any event, it does appear that the federal government is moving ahead with its promise to reform its pension legislation – the full impact of such reform will not be entirely clear, however, until it has been completed.