Alberta Solvency Relief Legislation

1. Alberta Solvency Relief Legislation Mark Prefontaine – Acting Deputy Superintendent of Pensions

2. 2008 Market Declines • In October 2008, the Superintendent’s office began to estimate the solvency funded status of all ~190 defined benefit pension plans (excluding designated plans). • Based on that preliminary review, it was clear that funding relief might be necessary.

3. Consultation with Industry • Meetings with the Superintendent’s advisory committees • December 2008 discussion paper

4. Existing Alternatives or More? • The Employment Pension Plans Act already contained alternatives for single employer plan sponsors seeking relief: • Extended review period (can extend to 3 ¾ years) • Use of a letter of credit (single employer plans only). • Letter of credit availability questionable • In light of this, and based on the responses to the discussion paper, amendments to the EPPA were drafted to assist plan sponsors.

5. Goals of Funding Relief • Temporary • Targeted • Meaningful • No undue risk

6. New Alternatives • Early adoption of the new CV Basis • Extended solvency amortization period • Solvency moratoriums for: • non-collectively bargained plans • collectively bargained plans

7. Extended Solvency Payment • A plan sponsor may apply to amortize any new solvency deficiency created through an actuarial valuation performed between September 1, 2008 and December 31, 2009 over 10 years rather than the normal 5 years (Note: This is not a consolidation of existing solvency deficiencies).

8. Extended Solvency Payment • Application for this option must be made before January 1, 2010 and must include: • An actuarial valuation showing the amount of the new solvency deficiency and the related payments (all other deficiencies previous and subsequent must be funded over 5 years), and • An agreement to “top-up” benefits to fully funded when funds are being transferred out of the plan as benefit payments.

9. Solvency Moratorium – Non-collectively Bargained • A plan sponsor may apply for an exemption for making solvency deficiency payments for the subsequent three year period following the stated date in the application. • At the end of the three year period one solvency deficiency is created (if any exists at the time) and it is amortized over 5 years.

10. Solvency Moratorium – Non-collectively Bargained • Application must be made before January 1, 2010 and must include: • Actuarial valuation report/cost certificate as at a date between Sept. 2008 and Dec. 31, 2009 that includes an up-to-date solvency deficiency and amortizes any unfunded liabilities over the lesser of 10 years and the remaining amortization period for the unfunded liability.

11. Solvency Moratorium – Non-collectively Bargained Solvency Moratorium – non-collectively bargained plans (cont.) • Confirmation that no amendments that would increase costs will be made while the plan is under the moratorium, • Agreement that all benefit payments will be “topped-up” to fully funded if funds are transferred out of the plan.

12. Solvency Moratorium – Collectively Bargained • A solvency moratorium was put in place for SMEPPs in August 2006. The purpose of the moratorium was to ease some of the funding issues facing this type of plan while alternative funding arrangements were considered. • The last date for application under this moratorium was December 31, 2008.

13. Solvency Moratorium – Collectively Bargained • This moratorium has been extended to the end of 2011 for plans already under the previous moratorium. • This moratorium has been extended to include all collectively bargained plans. Plans that had not previously applied for the moratorium may apply at any time between January 1, 2009 and December 31, 2011.

14. Solvency Moratorium – Collectively Bargained • The conditions for the moratorium are similar to those for non-collectively bargained plans. • A valuation must be filed that: • shows that the negotiated contribution rate is sufficient to cover normal cost and to amortize and unfunded liabilities over the lesser of 10 years and the remaining amortization period for the unfunded liability, and • shows the plan’s solvency status.

15. Solvency Moratorium – Collectively Bargained • The plan administrator must agree that there will be no plan amendments that would increase costs while the plan is under the moratorium.

16. Additional Requirements • Any additional information the Superintendent deems necessary to assess whether or not the application should be accepted. • Because this affects benefit security, members must be advised that the plan sponsor has sought and obtained consent to use the relief measures.

17. Conclusion • The solvency relief measures are meant to assist those plan sponsors who truly need relief in coping with the pension cost increases resulting from the market downturn of 2008. • Ultimately the decision to approve the application, or not, is the Superintendent’s