On April 12, the federal government extended relief from solvency deficit-related ‘special payments’ for the Canada Post Corporation Pension Plan (CPCPP) until the end of 2024.
How Does This Work and What Does It Mean for Your Pension?
This doesn’t change your contributions to the Plan or the employer’s regular contributions, and it doesn’t change your benefits. It does take some pressure off the Plan’s funding requirements, related to its solvency balance (more on that below).
In 2014, the federal government granted the CPCPP relief from the requirement to make special payments based on its solvency balance. There have been a few subsequent extensions of this relief.
The Solvency Test
There are two common ways of evaluating whether a pension plan is in good shape to pay off its obligations (benefits payments to retirees).
One is the going-concern balance, which is much like the balance sheet for a business. It compares the Plan’s assets at the time of the test with its liabilities, resulting in either a surplus or a deficit.
The other, the solvency balance, basically imagines the case where the plan has to wind up, and therefore would have to be able to cover all of its future liabilities (mainly, future benefits to current members) with its existing assets. This also results in a surplus or deficit. If the result is a deficit, an employer is required to make quarterly “special payments,” in proportion to the deficit, to increase the plan’s assets.