Government of Canada
Symbol of the Government of Canada

Federally Regulated
Private Pension Plans

Photo: Tamara DeMos, Managing Director, Private Pension Plans Division, Regulation Sector; Philippe Morisset, Manager, Supervision, Private Pension Plans Division, Regulation Sector
Staff image Tamara DeMos
Managing Director, Private Pension Plans Division, Regulation Sector

Philippe Morisset
Manager, Supervision, Private Pension Plans Division, Regulation Sector

OSFI supervises federally regulated private pension plans and intervenes in a timely manner to protect members and beneficiaries of such pension plans from loss, while recognizing that plan administrators are ultimately responsible and that funding difficulties can result in loss of benefits.

Approximately 7% of private pension plans in Canada are federally regulated (Statistics Canada data as at January 2011). As at March 31, 2013, 1,234 private pension plans were registered under the Pension Benefits Standards Act, 1985 (PBSA), covering over 639,000 employees in federally regulated areas of employment, such as banking, inter-provincial transportation and telecommunications. Between April 1, 2012 and March 31, 2013, federally regulated private pension plan assets increased by 9%, to a value of approximately $155 billion (see figure 4).

Private Pension Environment

During 2012, federally regulated private pension plans operated in an environment of continued economic uncertainty. Though equity markets remained volatile over the period, pension plans’ investment returns for the year as a whole were generally strong. The solvency position of defined benefit plans is estimated to have improved slightly in 2012, primarily due to investment returns and employer contributions. In spite of improved financial positions, it is expected that funding requirements will continue to increase over the next couple of years, since they are based on solvency ratios averaged over the past three years.

Figure 4
Federally Regulated Private Pension Plans by Type
(last 4 years)*
  2009-2010 2010-2011 2011-2012 2012-2013
Total Plans 1,398 1,396 1,354 1,234
Defined Benefit 359 360 358 347
Combination 100 95 94 100
Defined Contribution 939 941 902 787
Total Membership 637,000 647,000 646,000 639,000
Defined Benefit 379,000 376,000 378,000 358,000
Combination 137,000 146,000 144,000 154,000
Defined Contribution 121,000 125,000 124,000 127,000
Total Assets $123 billion $132 billion $142 billion $155 billion
Defined Benefit $89 billion $93 billion $102 billion $104 billion
Combination $30 billion $34 billion $35 billion $46 billion
Defined Contribution $4 billion $5 billion $5 billion $5 billion
*As at March 31st

As at March 31, 2013, there were 1,234 private pension plans registered under the Pension Benefits Standards Act, 1985, covering over 639,000 employees. The drop (from 1,354 plans to 1,234) is largely due to a Supreme Court of Canada decision that affected the jurisdiction of 110 First Nations pension plans.


Risk Assessment, Supervision and Intervention

In 2012-2013, OSFI continued to focus on prudent and effective risk management by pension plan administrators. OSFI encouraged plan administrators to implement risk management tools such as stress testing and funding policies in order to emphasize the importance of risk mitigation.

Approximately 45% of federally regulated private pension plan assets are invested in equity, 44% in debt instruments and 11% in diversified and other assets. Equities produced strong returns for these plans last year, while debt returns were more modest. Investment returns for these plans recorded a 9% return in 2012 compared to 4% in 2011.

Risk Assessment

As part of an ongoing emphasis on the effectiveness and efficiency of its operations, OSFI implemented an important upgrade to the system supporting its risk assessment framework for pension plans in May 2012. This system facilitates the early identification of issues and integrates OSFI’s supervisory tools. Using the new system, OSFI conducted in-depth reviews on approximately 28% of its plans.

Solvency Testing

OSFI runs a test on a semi-annual basis to estimate solvency ratios (ratio of assets over liabilities on plan termination basis) for all defined benefit pension plans it regulates. This test provides OSFI with important information that enables earlier intervention in higher-risk pension plans. At December 31, 2012, the average estimated solvency ratio (ESR) for all plans was 0.83, up from 0.81 at year-end 2011 (see figure 5). ESRs calculated by OSFI at year-end 2012 showed that approximately 90% of all defined benefit plans supervised by OSFI were underfunded (unchanged from 2011), meaning their estimated liabilities exceeded assets, on a plan termination basis.

As the December 2011 ESR results showed a general deterioration in the solvency position over the preceding year, in May of 2012, OSFI asked that certain plan administrators provide plan members with enhanced and timely disclosure of the solvency position of their pension plan.

Figure 5
Defined Benefit Plans’ Estimated Solvency Ratio (ESR) Distribution (past 8 years)

Figure 5: Defined Benefit Plans’ Estimated Solvency Ratio (ESR) Distribution (past 8 years)

[Text Version]

The average ESR increased slightly (from 0.81 to 0.83) since year-end 2011.

On-Site Examinations

As part of OSFI’s risk-based supervisory approach, on-site examinations of selected pension plans are conducted. This allows OSFI to better assess the quality of risk management as well as the financial situation of the plan. During 2012-2013, OSFI performed 14 examinations with a continued focus on governance, risk management and disclosure to members. OSFI set a target of less than 27 working days after an examination wrap-up meeting to issue its findings, which it met or exceeded 93% of the time in 2012-2013.

Watch List

Pension plans facing higher risk due to their financial condition, plan management or for other reasons are placed on a watch list and actively monitored. The number of watch list plans at March 31, 2013 grew to 128 from 115 at March 31, 2012. Of the 128 plans, 114 were defined benefit plans and 14 were defined contribution plans. During the course of 2012-2013, 33 new plans were added to the watch list and 20 were removed.

Intervention

OSFI aims to find reasonable and beneficial solutions to issues that OSFI believes may jeopardize members’ benefits. In 2012-2013, OSFI intervened with respect to high-risk pension plans, including to restrict portability of benefits in order to stop the impairment of the pension fund, and to terminate three plans. These actions were taken to ensure equitable treatment of all members.

Rules and Guidance

Pooled Registered Pension Plans (PRPPs)

The federal Pooled Registered Pension Plan Act and its associated regulations came into force on December 14, 2012. OSFI’s responsibilities with respect to this new type of pension plan include licensing PRPP administrators, registering PRPPs and providing ongoing supervision.

Industry Forum

OSFI held its annual pension industry forum in Toronto in February 2013 for administrators of plans it supervises. The forum communicates recent legislative and regulatory developments, discusses OSFI’s supervision of pension plans, and addresses guidance issued during the year.

Guidance

In keeping with the objectives of promoting prudent practices and a transparent regulatory framework, OSFI regularly provides guidance to plan administrators on the legislative requirements and OSFI’s expectations. In July 2012, OSFI issued the finalized Instruction Guide for Authorization of Amendments Reducing Benefits in Defined Benefit Pension Plans. Additionally, OSFI released a revised Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans in January 2013.

OSFI is a member of the Canadian Association of Pension Supervisory Authorities (CAPSA) — a forum for discussing common issues faced by federal and provincial pension plan supervisory authorities — and an active contributor to many of its initiatives. In 2012-2013, CAPSA published the draft Defined Contribution Pension Plans Guideline.

InfoPensions

OSFI published its bi-annual newsletter InfoPensions, which includes announcements, policy interpretations and reminders on issues relevant to federally regulated private pension plans and their stakeholders. In 2012, OSFI conducted a survey of InfoPensions readers to gauge their satisfaction with it and to seek their suggestions for how to improve, and increase stakeholders’ awareness of, the newsletter.

Approvals

Federally regulated private pension plans are required to seek approval from OSFI for different types of transactions affecting pension plans, including plan registrations and terminations, asset transfers between registered defined benefit (DB) pension plans, refunds of surplus, or reduction of benefits. During 2012-2013, the number of transactions requiring approval increased significantly. OSFI processed 55 applications for approval and received 77 new requests, compared to 60 processed applications and 54 new requests in 2011-2012. Eighteen new plans were registered with OSFI in 2012-2013 (4 defined benefit plans and 14 defined contribution plans), while 21 plans applied for plan termination (12 defined benefit plans and 9 defined contribution plans).

Figure 6
Asset Breakdown* of Pension Plans Regulated by OSFI
($ millions) 2011 2012
Cash $570 0.4% $1,159 0.8%
Debt Securities        
Short Term Notes, Other Term Deposits 4,535 3.2% 4,812 3.1%
Government Bonds 36,852 25.8% 39,617 25.5%
Corporate Bonds 11,320 8.0% 12,010 7.8%
Mutual Funds - Bonds, Cash Equivalent & Mortgage 9,752 6.9% 10,530 6.8%
Mortgage Loans 709 0.5% 627 0.4%
General Fund of an Insurer 162 0.1% 172 0.1%
Total Debt Securities 63,330 44.5% 67,768 43.7%
Equity        
Shares in Investment, Real Estate or Resource Corporation 4,083 2.9% 4,422 2.9%
Common and Preferred Shares 42,704 30.0% 45,825 29.5%
Stock Mutual Funds 14,424 10.1% 16,496 10.6%
Real Estate Mutual Funds 996 0.7% 1,103 0.7%
Real Estate 2,256 1.6% 2,647 1.7%
Total Equity 64,463 45.3% 70,493 45.4%
Diversified and Other Investments        
Balanced Mutual Funds 5,748 4.0% 6,220 4.0%
Segregated Funds 2,548 1.8% 2,702 1.7%
Hedge Funds 1,602 1.1% 2,301 1.5%
Private Equity 722 0.5% 776 0.5%
Infrastructure 1,443 1.0% 1,855 1.2%
Miscellaneous Investments 4,122 2.9% 5,243 3.4%
Total Diversified and Other Investments 16,185 11.4% 19,097 12.3%
Other Accounts Receivables (net of liabilities) (2,374) -1.7% (3,372) -2.2%
TOTAL NET ASSETS 142,174 100.0% 155,145 100.0%

* Represents asset distribution as reported in the financial statements of pension plans during respective years.