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ontario regulation 364/12

made under the

pension benefits act

Made: November 14, 2012
Filed: November 15, 2012
Published on e-Laws: November 16, 2012
Printed in The Ontario Gazette: December 1, 2012


Amending Reg. 909 of R.R.O. 1990

(general)

1. (1) Clause (a) of the definition of “going concern assets” in subsection 1 (2) of Regulation 909 of the Revised Regulations of Ontario, 1990 is revoked and the following substituted:

(a) the value of the assets of the pension plan determined on the basis of a going concern valuation, including accrued and receivable income but excluding the amount of any letter of credit held in trust for the pension plan, and

(2) The definition of “solvency assets” in subsection 1 (2) of the Regulation is revoked and the following substituted:

“solvency assets” means the market value of investments held by a pension plan plus any cash balances of the plan and accrued or receivable income items of the plan but excluding the value of any qualifying annuity contract of the plan and the amount of any letter of credit held in trust for the plan; (“actif de solvabilité”)

2. (1) Subsection 1.2 (1) of the Regulation is amended by striking out “and” at the end of clause (c), by adding “and” at the end of clause (d) and by adding the following clause:

(e) the amount that is the lesser of,

(i) the total amount of all letters of credit held in trust for the pension fund as of the valuation date of the report, and

(ii) 15 per cent of the amount of the solvency liabilities, determined excluding the liabilities described in clauses (a) to (h) of the definition of “solvency liabilities” in subsection 1 (2).

(2) Subsection 1.2 (2) of the Regulation is amended by striking out the portion before the definition of “A” and substituting the following:

(2) Despite subsection (1), the solvency asset adjustment in relation to a report in respect of a pension plan that provides defined benefits and for which a benefit allocation method is not used to set contribution rates is the amount calculated using the formula,

A + B + F

in which,

. . . . .

(3) Subsection 1.2 (2) of the Regulation is amended by striking out “and” at the end of the definition of “A”, by adding “and” at the end of the definition of “E” and by adding the following definition:

“F” is the amount of clause (1) (e).

3. Section 5 of the Regulation is amended by adding the following subsection:

(3) If an employer provides a letter of credit under section 55.2 of the Act instead of making payments into the pension fund with respect to a solvency deficiency, the employer is required to make interest payments with respect to the solvency deficiency, calculated at the rate of interest described in subsection (2), unless the interest payments are included in the amount of the letter of credit.

4. The Regulation is amended by adding the following sections:

Letters of Credit re Solvency Deficiencies

5.2 A letter of credit that satisfies the requirements set out in Schedule 4 complies with subsection 55.2 (3) of the Act.

5.2.1 (1) Section 55.2 of the Act applies with respect to all employers who are required to make payments into a pension plan that provides defined benefits, except as otherwise specified by subsections 55.2 (11) and (12) of the Act and by subsection (2).

(2) Section 55.2 of the Act does not apply with respect to any of the following pension plans:

1. A participating Ontario pension plan within the meaning of Ontario Regulation 196/11 (AbiBow Canada Inc. Pension Plans) made under the Act.

2. A new pension plan within the meaning of Ontario Regulation 202/02 (Algoma Steel Inc. Pension Plans) made under the Act.

3. The Hourly Plan and the Salaried Plan within the meaning of Ontario Regulation 321/09 (General Motors Pension Plans) made under the Act.

4. A participating pension plan within the meaning of Ontario Regulation 99/06 (Stelco Inc. Pension Plans) made under the Act.

5.3 A letter of credit may be provided under subsection 55.2 (2) of the Act to the trustee of a pension fund that is administered under a trust described in clause 54 (c) of this Regulation.

5.3.1 The following rules apply with respect to the determination of the amount of the solvency liabilities of a pension plan for the purposes of subsection 55.2 (4) of the Act:

1. The amount of the solvency liabilities must be determined as of the valuation date of the report filed most recently under section 3, 4, 13 or 14.

2. The amount of the solvency liabilities must exclude the liabilities described in clauses (a) to (h) of the definition of “solvency liabilities” in subsection 1 (2).

5.4 (1) If a letter of credit relates to special payments described in clause 5 (1) (e), the letter of credit must be provided under subsection 55.2 (6) of the Act to the trustee at least 15 days before the first instalment of the special payments to which the letter of credit relates is due.

(2) If a letter of credit relates to a payment required by subsection 12 (2), the letter of credit must be provided under subsection 55.2 (6) of the Act to the trustee at least 15 days before the payment is due.

(3) If a letter of credit is being amended, the amended letter of credit must be provided under subsection 55.2 (6) of the Act to the trustee at least 15 days before any amendment takes effect.

(4) If a letter of credit is being renewed, notice of the renewal must be provided under subsection 55.2 (6) of the Act to the trustee at least 15 days before the date on which the letter of credit would have expired.

(5) If a letter of credit is being replaced by another letter of credit, the replacement letter of credit must be provided under subsection 55.2 (6) of the Act to the trustee at least 15 days before the original letter of credit expires.

(6) Within five days after receiving a copy of the letter of credit, the amended letter of credit, the replacement letter of credit or the notice of the renewal of the letter of credit, the administrator shall give the Superintendent the notice required by subsection 55.2 (7) of the Act by filing the following documents:

1. A certified copy of the letter of credit, the amended letter of credit, the replacement letter of credit or the notice of the renewal.

2. A certificate indicating whether the letter of credit satisfies the requirements of the Act and regulations and the requirements of the Income Tax Act (Canada).

5.5 (1) The trustee who holds a letter of credit in trust for a pension plan is required by subsection 55.2 (9) of the Act to demand payment of the amount of the letter of credit into the pension fund by the issuer if any of the following circumstances exist:

1. If the letter of credit does not satisfy the requirements of the Act and regulations or the requirements of the Income Tax Act (Canada).

2. If the administrator of the pension plan gives written notice to the trustee that the employer intends to wind up the pension plan under subsection 68 (1) of the Act.

3. If the Superintendent issues an order under subsection 69 (1) of the Act requiring the wind up of the pension plan.

4. If the employer is subject to bankruptcy proceedings under the Bankruptcy and Insolvency Act (Canada).

5. If an application or petition has been filed under the Winding-up and Restructuring Act (Canada) by the employer or against the employer.

6. If, under the terms of an agreement under section 100 of the Act between the Crown and a designated jurisdiction whose pension benefits legislation applies to the pension plan, the trustee is otherwise required to demand payment of the amount of the letter of credit.

7. If, under the terms of the trust agreement related to the letter of credit, the trustee is otherwise required to demand payment of the amount of the letter credit.

(2) If the issuer does not pay the amount of the letter of credit upon receiving the trustee’s demand,

(a) the employer must immediately pay that amount into the pension fund; and

(b) the employer must give written notice to the Superintendent that the issuer has not paid the amount of the letter of credit.

5. Subsection 45 (1) of the Regulation is amended by adding the following paragraph:

8.1 Copies of any letter of credit held in trust for the pension fund, any related trust agreement and any certificate filed by the administrator under subsection 55.2 (7) of the Act.

6. The Regulation is amended by adding the following Schedule:

schedule 4
letters of credit

Letter of credit

1. (1) A letter of credit provided under section 55.2 of the Act must be an irrevocable and unconditional standby letter of credit made in accordance with the rules set out in International Standby Practices ISP98, International Chamber of Commerce Publication No. 590.

(2) It must be made payable to the trustee of the pension fund, in trust for the pension fund.

(3) It must be payable in Canadian currency.

(4) It must make the issuer contractually liable to pay out money under its terms if payment is demanded under it by the trustee of the pension fund.

(5) It must be subject to a trust agreement described in section 4 of this Schedule between the issuer and the administrator of the pension plan.

Issuer

2. (1) The issuer of a letter of credit must be a member of the Canadian Payments Association and must be a bank as defined in section 2 of the Bank Act (Canada), a credit union as defined in section 1 of the Credit Unions and Caisses Populaires Act, 1994, a credit union or caisse populaire incorporated under the laws of any other province of Canada or a cooperative credit society to which the Cooperative Credit Associations Act (Canada) applies.

(2) The issuer of a letter of credit to be held in trust for a pension fund cannot be the employer or an affiliate of the employer within the meaning of the Business Corporations Act.

(3) When the letter of credit is issued or renewed, the issuer must have a credit rating, given by a credit rating agency, that is at least equal to one of the following ratings:

1. A, from Dominion Bond Rating Service Limited.

2. A, from Fitch Ratings.

3. A2, from Moody’s Investors Service.

4. A, from Standard & Poor’s Ratings Services.

Terms

3. The letter of credit must provide for the following matters:

1. Effective date:  The date on which the letter of credit becomes effective must be specified.  That date must not be later than,

i. the date on which the first instalment of the special payments to which the letter of credit relates is due, if the letter of credit relates to special payments described in clause 5 (1) (e) of the Regulation, or

ii. the date a payment required by subsection 12 (2) of the Regulation is due, if the letter of credit relates to such a payment.

2. Expiry date:  The date on which the letter of credit expires must be specified, and it cannot be later than the first anniversary of the date on which the letter of credit takes effect.

3. Demand for payment:  When the trustee for the pension fund demands payment under the letter of credit, the issuer is required to promptly pay the face amount of the letter of credit without further inquiry.

4. Assignment:  The letter of credit cannot be assigned except by the issuer to another issuer.

5. Effect of assignment:  If the issuer assigns the letter of credit without the consent of the employer, the issuer who assigned it remains obligated to pay, on demand, an amount demanded under the letter of credit by the trustee of the pension fund.

6. Amendment:  The letter of credit cannot be amended except as follows:

i. To reflect a change in the name of the pension plan, the name of the employer or the name of the administrator.

ii. To reflect a change in the trustee of the pension fund.

iii. To reflect the assignment of the letter of credit to another issuer.

iv. To decrease the amount of the letter of credit in the circumstances permitted under this Regulation.

v. To increase the amount of the letter of credit when it is renewed.

7. Notice of amendment:  The issuer is required to give written notice of any amendment to the employer within five days after the amendment is made.

8. Effect of change in issuer’s status:  If the issuer of the letter of credit ceases to satisfy any of the requirements set out in section 2 of this Schedule while the letter of credit is in effect, the issuer remains obligated to pay, on demand, an amount demanded under the letter of credit by the trustee of the pension fund.

9. Effect of employer’s insolvency, etc.:  It must provide that the insolvency, liquidation or bankruptcy of the employer has no effect on the rights or obligations of the issuer or the rights or obligations of the trustee of the pension fund.

10. Notice of non-renewal:  It must provide that, if the issuer does not intend to renew the letter of credit, the issuer is required to notify the trustee and the employer at least 60 days before the letter of credit expires.

Trust agreement

4. (1) The trust agreement to which a letter of credit is subject must provide for the following matters:

1. The trustee of the pension fund holds the letter of credit in trust for the pension fund.

2. The trustee is required to demand payment of the amount of the letter of credit if the administrator notifies the trustee that the letter of credit does not satisfy the requirements of the Act and regulations or the requirements of the Income Tax Act (Canada).

3. The trustee is required to demand payment of the amount of the letter of credit if the administrator or the employer notifies the trustee that the employer intends to wind up the pension plan under subsection 68 (1) of the Act or that the Superintendent has issued an order under subsection 69 (1) of the Act requiring the wind up of the pension plan.

4. The trustee is required to demand payment of the amount of the letter of credit if the administrator or the employer notifies the trustee that the employer is subject to bankruptcy proceedings under the Bankruptcy and Insolvency Act (Canada) or if an application or petition has been filed under the Winding-up and Restructuring Act (Canada) by or against the employer.

5. If the trustee receives notice from a person or entity other than the administrator or the employer that a circumstance described in paragraph 3 or 4 exists, the trustee is required to notify the administrator, the employer and the Superintendent.  Thirty-one days after giving this notice, the trustee is required to demand payment of the amount of the letter of credit unless the administrator has notified the trustee that the circumstance does not exist.

6. Fourteen days before the letter of credit expires, the trustee is required to demand payment of the amount of the letter of credit unless one or more of the following events has occurred:

i. The employer has paid into the pension fund an amount equal to the amount of the letter of credit.

ii. The letter of credit has been renewed, in an amount at least equal to the original letter of credit, and the trustee has received notice of the renewal.

iii. The letter of credit is being replaced, in an amount at least equal to the original letter of credit, and the trustee has received the replacement letter of credit.

iv. The administrator has notified the trustee that the amount of the letter of credit is reduced and the trustee has received the following documents:

A. Either a replacement letter of credit in the reduced amount or notice of the renewal of the current letter of credit in the reduced amount.

B. Either notice that the employer has paid into the pension fund the amount by which the letter of credit is reduced or notice that no such payment is required because the requirement described in subsection (2) is satisfied.

7. If the trustee demands payment of the amount of the letter of credit, the trustee is required to promptly notify the administrator, the employer and the Superintendent.

8. If the issuer does not pay the amount of the letter of credit after the trustee demands payment, the trustee is required to promptly notify the administrator, the employer and the Superintendent.

9. The administrator is required to give a copy of the trust agreement to the employer and the Superintendent within 10 days after it is entered into or is amended, as the case may be.

(2) If the amount of the letter of credit is reduced, the employer is not required make the payment referred to in sub-subparagraph 6 iv B of subsection (1) into the pension fund if, as of the date of the most recent report filed under section 3, 4, 13 or 14 of the Regulation, “A” minus “B” is less than or equal to “C” where,

  “A” is the sum of the solvency liabilities and the solvency liability adjustment,

  “B” is the sum of the solvency assets and the amount, which may be positive or negative, by which the value of the solvency assets are adjusted as a result of applying an averaging method that stabilizes short-term fluctuations in the market value of the plan assets, calculated over a period of not more than five years, and

  “C” is the present value of the total amount of all letters of credit held in trust for the pension fund, after the reduction in the amount of the letter of credit.

(3) The present value of the total amount of all letters of credit held in trust for the pension fund must be determined, for the purposes of the definition of “C” in subsection (2), using the same interest rates as those used to determine the amount of the solvency deficiency set out in the report referred to in that subsection.

Commencement

7. This Regulation comes into force on the later of the following days:

1. The day it is filed.

2. The day section 18 of the Securing Pension Benefits Now and for the Future Act, 2010

comes into force.

 

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