Transfer Deficiency Holdbacks
What is a transfer deficiency holdback?
At least every three years SHEPP is legislatively required to measure the financial health of the Plan through a process called an actuarial valuation.
If on the date of measurement the Plan’s assets are less than the Plan’s liabilities on a solvency basis, SHEPP is required to hold back a percentage of certain member termination payments based on the solvency ratio of the Plan’s assets over its liabilities.
The percentage that is held back is referred to as the transfer deficiency holdback (“holdback”).
Holdbacks not required as SHEPP remains above 100% solvent
SHEPP has remained above 100% solvent since the December 31, 2023 actuarial valuation. As a result, SHEPP does not require holdbacks on termination benefits. The following table shows the holdbacks applied as a result of the past five actuarial valuations as at December 31.
| Valuation Year | 2021 | 2022 | 2023 | 2024 | 2025 |
| Holdback Applied | 14% | 2% | none | none | none |
Effective September 24, 2024, lump sum termination benefits are not subject to a transfer deficiency holdback. Members who terminate employment and commute their vested entitlement before retirement eligibility will receive the full value without funding
shortfall holdbacks.
Who is affected by transfer deficiency holdbacks?
SHEPP vested Plan members who terminated employment and active Plan membership prior to September 24, 2024, with a termination benefit greater than a certain amount were subject to a holdback.
Active Plan members and retirees are not affected by transfer deficiency holdbacks.
Are death benefits subject to holdbacks?
No. An amendment to the Pension Benefit Regulations, 1993 which came into effect June 26, 2013, eliminated the transfer deficiency holdback which previously applied to certain pre-retirement death benefits.
Pre-retirement death benefits payable to a member’s spouse were never subject to the holdback.
What happens to the funds that are held back?
The holdback amount is carried forward until the Plan is fully funded or the five year period has transpired, whichever comes first. During this time, interest is calculated annually from the date of initial payment to the first of the month in which the holdback payment is made.
Therefore, members who have a holdback applied to their termination benefit will receive two payments from
SHEPP, one when their initial election is made and one up to five years later.
What interest rate is applied to the holdback payment?
The interest rate that is applied to the holdback is prescribed by the Pension Benefit Regulations, 1993 and varies from month to month. Current interest rates range from 2 to 6%.
SHEPP will contact members approximately three months prior to issuing the holdback payment to confirm payment information.
How is the holdback payment issued?
The holdback payment will be issued in the same way as the initial transfer unless SHEPP is notified otherwise by the individual entitled to the payment. Therefore, if the initial transfer was sent to a Locked-in Retirement Account (LIRA) with a financial institution, the second
payment will be issued to the same LIRA with the same financial institution.
What happens if the individual dies before the holdback payment is issued?
Should a member die before the final holdback payment is issued, the payment with applicable interest will be issued to the member’s spouse. If the member is not survived by a spouse, then the payment plus applicable interest will be issued to the designated beneficiary or estate.
What happens if SHEPP’s funded ratio changes?
Under most circumstances, if a member makes a benefit election within the first 120 days following their termination, the holdback in effect on the date of their termination will apply regardless of any change in the funded ratio of the Plan. If a benefit election is made after the 120 day period, the termination benefit is subject to whatever holdback is in effect at the time SHEPP receives the member’s benefit election.
There are special circumstances under which SHEPP may be required to implement a new holdback percentage immediately, at the direction of the provincial regulator, Financial Consumer Affairs Authority (FCAA) without providing the 120 day grace period.
Should the Plan’s solvency ratio improve to 100% within five years of the initial benefit payment, the holdback, with interest, will be issued to Plan members prior to the end of the five-year holdback period.