Amendments - benefit conversions

Conversion rules

A conversion occurs when accruals cease under a defined benefit plan and commence under a defined contribution plan. The conversion of a defined benefit plan to a defined contribution plan is a plan amendment. According to section 19(3) of The Pension Benefits Act, 1992, a plan amendment may not reduce the benefits a member has accrued prior to the effective date of the change. The conversion process must ensure that the value of a member’s or former member’s benefit is preserved.

Generally, there are two approaches to converting a defined benefit plan to a defined contribution plan:

1. To make the pension plan defined contribution for future service only, and to maintain accrued defined benefit entitlements, up to the date of amendment, as a liability under the plan. The plan would then have both a defined benefit and a defined contribution component.
2. To calculate the commuted value of each individual's accrued benefits and then to transfer that commuted value to the member's account under the defined contribution plan. After the commuted value transfer occurs, the pension plan would become purely a defined contribution plan. The full commuted value of the defined benefit entitlements must be transferred, even if the plan’s liabilities exceed the plan’s assets.

When a new plan is registered, and it includes an identifiable group of members from another plan, that other plan is not to be terminated unless the Superintendent of Pensions determines that it should be terminated.

When contemplating any plan conversion, it is important to contact the FCAA Pensions Division.

For more information on the conversion of a defined benefit plan to a defined contribution plan, read the Conversion bulletin.