Government of Canada
Symbol of the Government of Canada

Federally Regulated
Private Pension Plans

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 a loss of benefits.

Approximately 6% of private pension plans in Canada are federally regulated (Statistics Canada data as at January 2013). As at March 31, 2015, 1,226 private pension plans were registered under the Pension Benefits Standards Act, 1985, covering over 1,076,000 active members and other beneficiaries in federally regulated areas of employment, such as banking, inter-provincial transportation and telecommunications. Between April 1, 2014 and March 31, 2015, federally regulated private pension plan assets increased by slightly more than 10%, to a value of approximately $189 billion (see figure 2).

Private Pension Environment

Following a year that brought a significant overall improvement in the health of federally regulated private pension plans, 2014 marked the return to a more challenging economic environment. Though equity markets for 2014 as a whole were generally strong, the overall solvency position of defined benefit pension plans deteriorated. This was due primarily to further declines in long-term interest rates which, after having risen somewhat in the latter part of 2013, resumed their decline to historic lows in 2014 and into 2015. However, the impact of this deterioration in solvency positions on required solvency funding payments is expected to be moderated for most federally regulated defined benefit pension plans, as federal solvency funding requirements are based on a pension plan’s average solvency position over the past three years. For federally regulated defined benefit pension plans as a whole, the three-year average solvency ratio for the period ending December 2014 is slightly higher than it was for the period ending December 2013.

The sustained low interest rate environment, ongoing market volatility and improvements in longevity are leading plan sponsors and administrators to consider new ways to manage pension funding risks. At the same time, new pension plan designs are being explored, as evidenced by the Government of Canada’s consultation paper issued in April 2014 on Target Benefit Plans, as well as similar legislation being adopted or proposed in other Canadian jurisdictions.

In 2014, OSFI registered the first federal Pooled Registered Pension Plans (PRPPs) for PRPP administrators who had received federal licenses in 2013-2014. The growth of this new type of plan will depend to a large degree on the implementation of provincial legislation that will support the operation of PRPPs across different Canadian jurisdictions. A number of provincial governments are expected to implement PRPP legislation in 2015-2016.

Figure 2
Federally Regulated Private Pension Plans by Type (last 4 years)1
  2012 2013 2014 2015 2
Total Plans 1,354 1,234 1,234 1,226
Defined Benefit 358 347 335 323
Combination 94 100 111 112
Defined Contribution 902 787 788 791
Total Active Membership 646,000 639,000 639,000 631,000
Defined Benefit 378,000 358,000 353,000 342,000
Combination 144,000 154,000 162,000 161,000
Defined Contribution 124,000 127,000 124,000 128,000
Total Other Beneficiaries 3 - 420,000 430,000 445,000
Defined Benefit - 265,000 268,000 272,000
Combination - 142,000 147,000 156,000
Defined Contribution - 13,000 15,000 17,000
Total Assets $142 billion $155 billion $171 billion $189 billion
Defined Benefit $102 billion $104 billion $112 billion $123 billion
Combination $35 billion $46 billion $54 billion $60 billion
Defined Contribution $5 billion $5 billion $5 billion $6 billion
1 As at March 31st
2 Does not include the five PRPPs registered in 2014
3 Data is available only as of 2013

As at March 31, 2015, there were 1,226 private pension plans registered under the Pension Benefits Standards Act, 1985, covering over 1,076,000 active members and other beneficiaries. (The drop from 1,354 plans in 2012 to 1,234 plans in 2013 was 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 2014-2015, OSFI encouraged plan administrators to consider reviewing their strategies to manage risks in their pension plans, particularly given the improved financial position at the end of 2013. OSFI also continued to emphasize the importance of stress testing to administrators of federally regulated private pension plans. In general, OSFI has observed that plan administrators and employers are paying closer attention to their pension plans’ underlying risks, and to how these risks can be managed.

In October 2014, OSFI posted updated versions of the Risk Assessment Framework for Federally Regulated Private Pension Plans and the accompanying Guidance Notes. These documents, which support OSFI’s supervisory methodology for pension plans, were developed as a resource tool to assist in making consistent risk assessments.

OSFI’s Risk Assessment System for Pensions (RASP) analyses information from pension plan filings and other sources and generates key risk indicators for each federally regulated private pension plan registered with OSFI, thereby enabling early identification of issues. In 2014-2015, OSFI finalized an in-depth review of the key risk indicators it built into RASP in 2012 and has since identified a number of changes that will be implemented during 2015-2016. OSFI also re-evaluated its process to support the assessments of a pension plan’s overall risk profile and will be implementing changes in 2015-2016.

During 2014-2015, OSFI reviewed its supervisory processes with respect to plans with defined contribution provisions and concluded that more comprehensive information is needed to identify any gaps. A detailed study is planned for 2015-2016.

Solvency Testing

OSFI estimates solvency ratios (ratio of assets over liabilities on a plan termination basis) on an annual basis for the 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, 2014, the estimated solvency ratio (ESR) for all plans was 0.94, down from 0.98 at year-end 2013 (see figure 3). ESRs calculated by OSFI at year-end 2014 showed that approximately 79% of all defined benefit pension plans supervised by OSFI were underfunded (up from 61% in 2013), meaning their estimated liabilities exceeded assets, on a plan termination basis.

Figure 3
Defined Benefit Plans’ Estimated Solvency Ratio (ESR) Distribution (past 9 years)

Figure 3: Defined Benefit Plans’ Estimated Solvency Ratio (ESR) Distribution (past 9 years)

[Text Version]

The ESR decreased from 0.98 to 0.94 since year-end 2013.

Examinations

As part of its risk-based supervisory approach, OSFI conducts examinations of selected federally regulated private pension plans. The examinations may be limited to a desk review of additional information that would not be part of the normal regulatory filings. Examinations may also be conducted on the plan administrator’s premises (on-site examinations) during which, in addition to the more thorough review of the plan administrator’s processes, OSFI interviews those involved in the administration of the pension plan. The objective of an examination is to gather additional information and better assess the plan’s quality of risk management. During 2014-2015, OSFI performed 11 examinations and findings continued to focus on governance, asset management and communication to members.

Watch List

Pension plans facing higher risk – due to their financial condition, plan management or other reasons – are placed on a watch list and actively monitored. The number of watch list plans at March 31, 2015 decreased to 60 from 92 at March 31, 2014. Of the 60 plans, 42 were defined benefit plans and 18 were defined contribution plans. During 2014-2015, 48 plans were removed from the watch list while 16 new plans were added.

Intervention

OSFI strives to protect members’ benefits through cooperation with plan administrators and employers before exercising its powers to enforce legislative requirements. In 2014-2015, OSFI interventions with respect to high-risk pension plans included issuing two directions of compliance requiring the employers to remit outstanding contributions.

Rules and Guidance

Pension Benefits Standards Regulations, 1985

Amendments to the Pension Benefits Standards Regulations, 1985 (the Regulations) were published by the federal government for comment in September 2014, and finalized in March 2015. A number of amendments, such as those requiring that additional information be provided to plan members in annual statements, will come into effect at a later date to allow plan administrators time to make the necessary changes. Through its website and regular InfoPensions newsletter, OSFI provided up-to-date guidance on the status of changes to federal pension legislation and will issue revised guidance in 2015-2016.

Pension Industry Outreach

In April 2014, OSFI hosted a web conference or “webinar” that included topics on supervisory findings and expectations, actuarial concerns, and expectations with respect to regulatory approvals. The webinar format enables OSFI to reach a greater number of stakeholders across the country in a manner that is cost effective both for OSFI and those attending.

In November 2014, OSFI conducted a survey of plan administrators and professional advisors of federally regulated private pension plans, through an independent research firm, to obtain their assessment of OSFI’s effectiveness as a supervisor and regulator of private pension plans. These consultations are a part of our ongoing commitment to be responsive to stakeholder input and to seek suggestions for improvement. All survey results are published on OSFI’s website.

Guidance

In keeping with the objectives of promoting prudent practices and a transparent regulatory framework, OSFI regularly provides guidance to plan administrators on legislative requirements and OSFI’s expectations.

Reflecting the growing interest in strategies to manage the risks facing defined benefit pension plans, OSFI issued a policy advisory titled Longevity Insurance and Longevity Swaps in June 2014, following consultation with pension stakeholders in 2013. The advisory provides guidance to administrators of federally regulated defined benefit pension plans who are considering this type of contract as a means of hedging longevity risk.

In 2014, OSFI issued revised instructions on how to complete Form 1 – Attestation Regarding Withdrawal Based on Financial Hardship for applicants who wish to unlock funds held in a federally regulated locked-in savings plan due to financial hardship. The instructions were revised in response to questions received on the previous version.

Photo: Stephen Reid, Senior Supervisor, Private Pension Plans Division, Regulation Sector; Adam Kearney, Actuarial Officer, Public Pensions, Office of the Chief Actuary
Staff image Stephen Reid
Senior Supervisor
Private Pension Plans Division
Regulation Sector
Staff image Adam Kearney
Actuarial Officer
Public Pensions
Office of the Chief Actuary

InfoPensions

OSFI published its bi-annual newsletter InfoPensions in May and November 2014. The newsletter includes announcements and reminders on issues relevant to administrators of federally regulated private pension plans, pension advisors, and other stakeholders. It also includes descriptions of how OSFI applies selected provisions of the pension legislation and OSFI guidance. OSFI regularly consults with its stakeholders to ensure that we are communicating effectively and continues to look for ways to ensure that InfoPensions is highly readable, accessible and relevant.

Approvals

Federally regulated private pension plans are required to seek approval from the Superintendent for several types of transactions, including plan registrations and terminations, asset transfers between registered defined benefit pension plans, refunds of surplus, and reductions of accrued benefits. During 2014-2015, the number of pension transactions submitted to the Superintendent for approval returned to historical norms, following a year when requests for approval were unusually high. OSFI processed 63 applications for approval and received 56 new requests in 2014-2015, compared to 104 processed applications and 89 new requests in 2013-2014. Thirty new plans were registered by OSFI in 2014-2015 (14 defined benefit plans and 16 defined contribution plans), while 18 plan termination reports were approved (7 defined benefit plans and 11 defined contribution plans).

In addition to the approvals noted above, OSFI is responsible for licensing administrators and registering plans under the Pooled Registered Pension Plans Act. In 2014-2015, OSFI registered five PRPPs, one for each federal PRPP administrator licensed by OSFI in 2013-2014. No new PRPP administrators were licensed by OSFI in 2014-2015.

Figure 4
Asset Breakdown* of Pension Plans Regulated by OSFI
($ millions) 2013 2014
Cash $1,266 0.7% $986 0.5%
Debt Securities        
Short Term Notes, Other Term Deposits 5,676 3.3% 4,619 2.4%
Government Bonds 36,681 21.4% 47,548 25.2%
Corporate Bonds 12,606 7.4% 13,714 7.3%
Mutual Funds - Bonds, Cash Equivalent & Mortgage 11,883 6.9% 15,046 7.9%
Mortgage Loans 780 0.5% 864 0.5%
General Fund of an Insurer 195 0.1% 194 0.1%
Total Debt Securities 67,821 39.6% 81,985 43.4%
Equity        
Shares in Investment, Real Estate or Resource Corporation 4,275 2.5% 4,163 2.2%
Common and Preferred Shares 52,710 30.8% 54,174 28.7%
Stock Mutual Funds 19,825 11.5% 20,469 10.8%
Real Estate Mutual Funds 1,504 0.9% 1,958 1.1%
Real Estate 2,922 1.7% 2,697 1.4%
Total Equity 81,236 47.4% 83,461 44.2%
Diversified and Other Investments        
Balanced Mutual Funds 5,938 3.5% 5,152 2.7%
Segregated Funds 2,825 1.7% 3,311 1.8%
Hedge Funds 4,879 2.9% 5,986 3.2%
Private Equity 1,272 0.7% 1,887 1.0%
Infrastructure 2,059 1.2% 2,552 1.3%
Miscellaneous Investments 6,528 3.8% 9,287 4.9%
Total Diversified and Other Investments 23,501 13.8% 28,175 14.9%
Other Accounts Receivables (net of liabilities) (2,575) -1.5% (5,682) -3.0%
TOTAL NET ASSETS 171,249 100.0% 188,925 100.0%

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


Approximately 44% of federally regulated private pension plan assets are invested in equities, 43% in debt instruments and 13% in other assets. Equities produced strong returns in 2014, compensating for the negative results on debt instruments. Investment returns for federally regulated private pension plans were 13% in 2014 compared to 12% in 2013.