Letter of Credit
20. (1) A letter of credit required by this Part shall be an irrevocable, unconditional standby letter of credit that
(a) is in accordance with the rules of International Standby Practices 1998 (publication No. 590 of the International Chamber of Commerce), as amended from time to time;
(b) is payable only in Canadian currency;
(c) is issued or confirmed by an issuer who is a member of the Canadian Payments Association that has been assigned an acceptable rating; and
(d) provides that
(i) the letter of credit is made out to the holder's benefit,
(ii) the issuer will pay the face amount of the letter of credit on demand from the holder without inquiring whether the holder has a right to make the demand,
(iii) the bankruptcy of the employer shall have no effect on the rights and obligations of the issuer and the holder set out in the letter of credit,
(iv) the letter of credit will expire on the day on which the plan's year ends,
(v) the letter of credit will automatically be renewed for the full face amount for further one-year periods on the expiry date referred to in subparagraph (iv) unless the issuer notifies the holder, in writing, of the non-renewal not less than 90 days before the expiry date, and
(vi) the letter of credit may not be amended during the term of the letter of credit and may not be assigned except to another holder.
(2) A letter of credit shall be obtained not later than the day on which the actuarial report is filed with or provided to the Superintendent for the first plan year of funding, and at least 30 days before the beginning of each subsequent plan year that is covered by it.
(3) The letter of credit shall immediately be provided to the holder.
- SOR/2011-85, s. 19.
21. If separate letters of credit have been obtained for each plan year, a letter of credit is not required to be automatically renewed after the fifth year following the plan year for which it was obtained.
22. If the face amount of letters of credit obtained or maintained in accordance with this Part for a plan year is less than the amount required by subsection 19(2) for that plan year, the employer shall make up the difference either by increasing the amount of letters of credit or by making additional payments to the pension fund no later than on the day on which the next payment is made to the pension fund in accordance with subsection 9(14) of the Pension Benefits Standards Regulations, 1985.
- SOR/2010-149, s. 13.
23. (1) The employer and, if the employer is not the administrator of the plan, the administrator shall enter into a trust agreement or shall amend any existing trust agreement it may have with the holder regarding the letters of credit referred to in this Part.
(2) The trust agreement shall provide that
(a) the holder shall hold the letters of credit in Canada in trust for the plan;
(b) the definition “default” in subsection 1(1) applies to the agreement;
(c) the employer shall immediately notify, in writing, the holder and the Superintendent and, if the employer is not the administrator of the plan, the administrator of a default;
(d) if not otherwise notified under paragraph (c), the administrator shall notify, in writing, the holder and the Superintendent of a default immediately after becoming aware of it;
(e) on receipt of the notice referred to in paragraph (c) or (d), the holder shall immediately make a demand for payment of the face amount of all of the letters of credit held in respect of the plan;
(f) on receipt of a written notice of default from any person other than the employer or the administrator, the holder shall
(i) immediately notify, in writing, the employer, the administrator and the Superintendent of the notice; and
(ii) make a demand for payment of the face amount of all of the letters of credit held in respect of the plan unless the administrator provides a written notice to the holder within 30 days after receipt of the notice that the default has not occurred;
(g) when a holder makes a demand for payment of a letter of credit held for the plan, it shall notify, in writing, the employer, the administrator and the Superintendent that it has made the demand;
(h) the holder shall immediately notify, in writing, the employer, the administrator and the Superintendent if the issuer does not pay the face amount of a letter of credit after a demand for payment has been made,
(i) the holder shall not make a demand for payment if a letter of credit expires without being renewed, or the face amount is being reduced, in accordance with this Part;
(j) the administrator shall notify the holder of any circumstance when a letter of credit may expire, or when the face amount of a letter of credit may be reduced, in accordance with this Part; and
(k) the administrator shall provide the holder with a copy of the statements referred to in paragraph 24(1)(e) and subsection 24(2) and with a copy of the written notice referred to in paragraph 30(a).
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