Response to BC Solvency Funding Consultation

February 28 2019

The BC Ministry of Finance recently invited the public to comment on their consultation paper regarding the solvency funding framework of defined benefit (DB) pension plans. To read the original consultation paper, click here.

Our team at Westcoast Actuaries submitted a response to share our recommendations based on our expertise and experience working with our DB clients. We strongly support the BC government’s endeavour to review changes to BC’s Pension Benefits Standards Act (PBSA) that will better support long‐term sustainability of pension plans and the benefit security of plan members and other beneficiaries.

The two general approaches towards reform of the current solvency funding requirements outlined by the Ministry of Finance are:

A. Modifications to Current Solvency Funding Rules; and
B. Replace Solvency Funding Rules with Enhanced Going Concern Funding Rules.

We feel that both proposed approaches should be considered, as they each help address different risks based on the time horizon of a pension plan.

In particular, the current solvency funding rules should be modified to apply to pension plans with a short time horizon to help ensure benefit security. On the other hand, plans with a long time horizon should only be subject to going concern funding as the current rules deter employers from offering DB pension coverage and do not coincide with long term funding. We believe the enhancement of going concern funding rules in lieu of solvency funding for long term plans will increase benefit security while also promoting long-term sustainability. Introducing a funding buffer requirement such as a Provision for Adverse Deviations (PfAD) based on mortality and interest rate risks would help to reduce the risk of a plan being underfunded in the event of a wind-up.

In our view, employers are better able to manage pension risks than their employees, especially after retirement, and there exists a public need for DB pensions. We believe that reform of the framework under the PBSA will ultimately serve to make DB pension coverage more sustainable.

To read our full submission, click here.