The Canadian authorities have issued new online guidance for users of letters of credit (L/Cs) within the country's federal defined benefit pension plans.

The guidance deals specifically with amendments that last year allowed plan sponsors to use L/Cs in lieu of making solvency payments to a pension fund for up to 15% of a plan's assets.

Online response

In response to queries about the L/C amendments, Canada's Office of the Superintendent of Financial Institutions (OSFI) has now updated on its web site its frequently asked questions (FAQs) on the use of L/Cs in pension plans.

The FAQs on the OSFI web site deal with the use of L/Cs under the Solvency Funding Relief Regulations and how they should be treated if they are counted as an asset in calculating a plan's average solvency ratio.

More guidance

The FAQs also discuss matters arising when an L/C is used in lieu of solvency special payments.

This guidance is intended especially for sponsors of federal pension plans contemplating the use of L/Cs in such plans.

Amendment history

The L/C amendments were proposed in late 2010 (DC World News, 17 December 2010) and implemented the following year.

The new FAQs on OSFI's web site can be found here: http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=3802

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