Solvency Funding Relief Regulations (SOR/2006-275)

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.

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.

Trust Agreement

• 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).

24 [Repealed, SOR/2015-60, s. 39]

Statement to Members

25 When the administrator provides the written statement under paragraph 28(1)(b) of the Act, the administrator shall also provide the following information:

• (a) the amount of the initial solvency deficiency;

• (b) the fact that the deficiency is to be funded in accordance with this Part by equal annual payments over a period not exceeding 10 years; and

• (c) the aggregate face amount of all of the letters of credit that are held by the holder in respect of the plan.

Reduction of the Face Amount of a Letter of Credit

• 26 (1) The face amount of a letter of credit may be reduced, effective the beginning of a plan year, by

  • (a) the amount by which the aggregate amount of payments that the employer has made to the pension fund in the previous plan year exceeds the total of the required special payments and the normal cost of the plan for that year as shown in an actuarial report; or

  • (b) the amount by which the aggregate face amount of all of the letters of credit that are held by the holder in respect of the plan exceeds the amount set out in paragraph 19(2)(a) or (b), as the case may be.

• (2) The face amount of the letter of credit shall not be reduced following a default.

New Solvency Deficiency

• 27 (1) Despite section 9 of the Pension Benefits Standards Regulations, 1985, a solvency deficiency that emerges after the day on which the initial solvency deficiency emerged shall be calculated as the amount by which the solvency liabilities exceed the sum of the following amounts:

  • (a) the adjusted solvency asset amount,

  • (b) the present value of special payments made under section 19 if at least one of those payments is due more than five years after the valuation date, and

  • (c) the present value of the going concern special payments that were used to fund the initial solvency deficiency that are due during the period beginning on the valuation date and ending on the 10th anniversary of the date of emergence of the initial solvency deficiency if at least one of those payments is due more than five years after the valuation date.

• (2) The interest rate used to determine the present value of the special payments referred to in subsection (1) is the same as the interest rate used to determine the solvency liabilities.

Failure to Pay Letter of Credit

28 On receipt of the notice from a holder that an issuer has not paid the face amount of a letter of credit after a demand for payment has been made, the employer shall remit to the pension fund no later than 30 days after the day on which the demand for payment was made, an amount equal to the face amount of that letter of credit.

Occurrence of Default

• 29 (1) If a default occurs, the amount by which the aggregate amount of special payments that would have been remitted to the pension fund in accordance with Part 1 from the day on which the initial solvency deficiency emerged, as adjusted to take into account the reductions in special payments resulting from the application of the Pension Benefits Standards Regulations, 1985, plus interest, exceeds the aggregate amount of special payments made to the pension fund in accordance with this Part, plus interest, shall immediately be remitted to the pension fund.

• (2) Except if a plan is fully terminated, the administrator shall have an actuarial report prepared — in which the present value of the special payments referred to in subsection 19(1) shall be zero — valuing the plan as at the last day of the plan year in which the default occurs.

• (3) Any remaining initial solvency deficiency disclosed by the actuarial report prepared in accordance with subsection (2) shall be calculated by including as an asset any amount remitted to the pension fund in accordance with subsection (1) and the remaining initial solvency deficiency shall be considered to have emerged as of the day on which the initial solvency deficiency emerged.

• (4) The remaining initial solvency deficiency calculated under subsection (3) shall be funded by special payments sufficient to liquidate that initial solvency deficiency by equal annual payments over a period not exceeding five years minus the number of years that the plan was funded in accordance with this Part.

Ceasing 10-year Funding

• 30 (1) A plan may cease to be funded in accordance with this Part, beginning on the first day of a plan year, if

  • (a) the administrator gives written notice to the Superintendent not later than six months after the beginning of that plan year;

  • (b) the amount by which the aggregate amount of special payments that would have been remitted to the pension fund in accordance with Part 1 from the day on which the initial solvency deficiency emerged, as adjusted to take into account the reductions in special payments resulting from the application of the Pension Benefits Standards Regulations, 1985, plus interest, exceeds the aggregate amount of special payments made to the pension fund in accordance with this Part, plus interest, shall be remitted to the pension fund at least 30 days before the plan’s year end; and

  • (c) an actuarial report is prepared in accordance with subsection 29(2) and any remaining initial solvency deficiency is calculated and funded in accordance with subsections 29(3) and (4) as if a default occurred, except that the actuarial report shall be prepared valuing the plan as of the first day of the plan year in which funding ceases.

• (2) Paragraphs (1)(b) and (c) do not apply if the face amount of the letters of credit obtained to fund the plan under this Part is included as a solvency asset as defined in subsection 2(1) of the Pension Benefit Standards Regulations, 1985.

Cease to Be in Force

31 These Regulations cease to be in force on February 1, 2019.

Coming into Force

32 These Regulations come into force on the day on which they are registered.