: Letters Of Credit For Employer Sponsors Of Public Sector Single Employer Pension Plans (SEPPS)

In May 2011, the government provided temporary solvency funding relief to public-sector SEPPs.  The relief is provided in two stages, with eligibility criteria attached to each stage. In exchange for the relief, plans commit to explore plan changes that would improve sustainability and affordability in the long term.
Since the introduction of the program, many of the plans that entered into the relief regime have made significant progress towards long-term sustainability.  However, continued low long-term interest rates and volatility in financial markets still present a significant risk for pension plans.

The government announced in its 2013 Budget that it “will consider regulatory amendments that provide additional relief of solvency funding obligations for public-sector SEPPs that have taken steps to put their plans on a sustainable track,..”. 

In accordance with the Budget announcement, the government is proposing the following measure:

Amend Regulation 909 (the regulation) under the PBA to extend the letter of credit (LOC) provisions to employer sponsors of SEPPs in the public sector that meet the following criteria:

  1. The employer must not be a Crown agency;
  2. The employer is funding to 100% on a solvency basis;
  3. As an independent entity, the employer must be able to obtain a LOC from any of the institutions listed in Schedule 4 of the regulation.  That is, the LOC must be issued based on the borrowing capacity of the employer, not the Province; and
  4. The employer/plan administrator must currently be in discussions, or plan to be in discussion, with stakeholders, including active and retired members, to either convert their SEPP to a jointly sponsored pension plan (JSPP) or join an existing JSPP.

Employer sponsors that are interested in using a letter of credit must submit an application to the Ministry of Finance.  The application must include a certification that the above criteria have been met and provide supporting documents as evidence.

Applications received by December 31, 2013 will be considered early in 2014.  The Ministry of Finance will consider whether the application satisfies the criteria.  If the employer sponsor is considered to have satisfied the criteria, the Ministry will make a recommendation to the government that a regulation be made to name that plan in the Regulation.

Applications made after December 31, 2013 will be accepted by the Ministry of Finance and considered on a quarterly basis.

The application should be sent to the Ministry of Finance at the following address:

Public Sector Letter of Credit Application
BPS Pensions Branch
Ministry of Finance
Frost Building South, 1st Floor
7 Queen’s Park Crescent

Toronto ON M7A 1Y7