Solvency deficiency (pension)

A solvency deficiency is a shortfall between a defined benefit pension plan’s assets and its liabilities, measured as if the plan were wound up. A buyer acquiring a business with such a plan meets it in the actuarial reports, where it can be a payment obligation.

How Ontario defines it

Ontario’s Pension Benefits Act says a solvency deficiency is determined in accordance with the prescribed requirements. Regulation 909 defines “solvency liabilities” as the liabilities determined as if the plan had been wound up on the valuation date, with listed inclusions and exclusions, and “solvency assets” as the market value of investments plus cash balances and accrued or receivable income, with listed exclusions; the deficiency itself is the amount determined under its section 1.3.1. Section 55.2 of the Act lets a prescribed employer provide a letter of credit instead of payments for a reduced solvency deficiency, if its requirements are met, subject to the limit in s. 55.2(4) and the plan exclusions in s. 55.2(11) and (12).

What to ask

• The latest filed valuation report and any deficiency it discloses.
• The special payment schedule the plan requires.
• Whether a letter of credit is in place.

See what happens to the pension or benefits plan on a sale and the defined benefit pension plan entry.