Government of Canada
Symbol of the Government of Canada

Federally Regulated
Private Pension Plans

OSFI supervises federally regulated private pension plans and protects pension plan members and other beneficiaries by developing guidance on risk management and mitigation, assessing whether private pension plans are meeting their funding requirements and managing risks effectively, and intervening promptly when corrective actions need to be taken. OSFI holds pension plan administrators ultimately responsible for sound and prudent management of their plans.

Approximately 6% of private pension plans in Canada are federally regulated (Statistics Canada data as at January 2015). As at March 31, 2016, 1,233 private pension plans were registered under the Pension Benefits Standards Act, 1985, covering over 1,110,000 active members and other beneficiaries in federally regulated areas of employment, such as banking, inter-provincial transportation and telecommunications. Between April 1, 2015, and March 31, 2016, federally regulated private pension plan assets increased by 5%, to a value of approximately $198 billion (see figure 2).

Private Pension Environment

Pension plans continued to face challenging economic conditions in 2015, characterized by renewed market volatility and low long-term interest rates. Though markets generally performed well in early 2015, Canadian equity markets in particular fell sharply after the first quarter due in part to lower oil and commodity prices. For 2015 as a whole, federal defined benefit pension plans, on average, reported modestly positive investment returns, helped by a weaker Canadian dollar that enhanced the performance of their foreign investments. Long-term interest rates, already at historically low levels, declined further over the course of 2015. While this contributed positively to pension funds’ investment performance by increasing the market value of long-term bonds, it also increased the value of defined benefit pension plans’ liabilities.

The overall solvency position of federally registered plans improved slightly from 2014, reflecting the positive effects of investment returns and contributions offset somewhat by the impact of lower interest rates on plan liabilities. Also, since federal solvency funding requirements are based on a plan’s three-year average solvency position, and since the results from December 2015 will replace the generally weaker results from December 2012 in calculating that average, required solvency funding payments for most plans are expected to decline in 2016.

The ongoing challenges of volatile markets, generally lower expected investment returns and long-term interest rates, and longevity improvements are seen by some observers to represent the “new normal” pension environment. As noted in previous years, plan sponsors and administrators continue to explore ways to manage pension risks. These include changes in investment strategies, the closing of existing defined benefit plans to new members and the purchase of annuities. A more recent development is the use of products or contracts designed specifically to protect pension plans from the risk of unexpected increases in the longevity of pension plan members. Interest in these and other means of managing and reducing pension risks is expected to continue. 

In 2014, OSFI registered the first federal Pooled Registered Pension Plans (PRPPs) for PRPP administrators who had received federal licenses in 2013-2014. At the end of 2015, there were four federally registered PRPPs, with one reporting that it had entered into contracts with five employers and had enrolled 49 members. So far, only Quebec has legislation in force for similar plans2; however, other provincial jurisdictions are expected to bring PRPP legislation into force in 2016. A draft federal-provincial PRPP agreement aimed at simplifying the regulation and supervision of PRPPs that operate in multiple jurisdictions was released for public comment by the Department of Finance in July 2015. Under the draft PRPP agreement, OSFI will be the primary supervisory authority for PRPPs operating outside of Quebec. The agreement, along with the coming into force of PRPP legislation in more jurisdictions, is expected to encourage more rapid growth of this new type of plan. 

2 Quebec’s Voluntary Registered Savings Plans

Figure 2
Federally Regulated Private Pension Plans by Type as at March 31st (last 4 years)1
  2013 2014 2015 2 2016 2
Total Plans 1,234 1,234 1,226 1,233
Defined Benefit 343 329 317 306
Combination 104 117 118 124
Defined Contribution 787 788 791 803
Total Active Membership 639,000 639,000 631,000 631,000
Defined Benefit 298,000 293,000 283,000 251,000
Combination 214,000 222,000 220,000 249,000
Defined Contribution 127,000 124,000 128,000 131,000
Total Other Beneficiaries 420,000 430,000 445,000 479,000
Defined Benefit 235,000 232,000 233,000 238,000
Combination 172,000 183,000 195,000 224,000
Defined Contribution 13,000 15,000 17,000 17,000
Total Assets $155 billion $171 billion $189 billion $198 billion
Defined Benefit $87 billion $90 billion $99 billion $99 billion
Combination $63 billion $76 billion $84 billion $92 billion
Defined Contribution $5 billion $5 billion $6 billion $7 billion
1 Some defined benefit and combination plans have been reclassified in 2016. Figures for prior years are  restated for comparison purposes.
2 Does not include Pooled Registered Pension Plans (5 in 2015 and 4 in 2016).

As at March 31, 2016, there were 1,233 private pension plans registered under the Pension Benefits Standards Act, 1985, covering over 1,110,000 active members and other beneficiaries.



Risk Assessment, Supervision and Intervention

In 2015-2016, OSFI continued to focus on prudent and effective risk management given the ongoing challenging economic environment.

OSFI’s Risk Assessment System for Pensions (RASP) analyses information from pension plan filings and other sources. Key risk indicators are generated for each federally regulated private pension plan registered with OSFI, thereby enabling early identification of issues. In order to better identify risks, OSFI implemented a number of changes to several key risk indicators. OSFI also implemented many changes to its internal processes to support the prompt identification of a change in a pension plan’s overall risk profile.

During 2015-2016, OSFI conducted a study, with respect to plans with defined contribution provisions, that has provided valuable information. In light of the findings, further work will be conducted in 2016-2017 to examine how the supervision of these plans may be improved.

Solvency Testing

OSFI estimates solvency ratios (the ratio of assets over liabilities on a plan termination basis) for the defined benefit pension plans it regulates. At December 31, 2015, the estimated solvency ratio (ESR) for all plans was 0.95, up from 0.94 at year-end 2014 (see figure 3). ESRs calculated by OSFI at year-end 2015 showed that approximately 79% of all defined benefit pension plans supervised by OSFI were underfunded (unchanged from 2014), meaning that 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)

The ESR increased from 0.94 to 0.95 since year-end 2014.

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 or could be conducted on the plan administrator’s premises (on-site examinations). During on-site examinations, OSFI reviews more thoroughly the plan administrator’s processes by interviewing those involved in the administration of the pension plan. The objective of an examination is to gather additional information and to better assess the plan’s quality of risk management. During 2015-2016, OSFI performed nine examinations. As in past years, 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, 2016, decreased to 30 from 60 at March 31, 2015. Of the 30 plans, 24 were defined benefit plans and 6 were defined contribution plans. During 2015-2016, 48 plans were removed from the watch list while 18 new plans were added.

Rules and Guidance

Pension Benefits Standards Regulations, 1985

Amendments to the Pension Benefits Standards Regulations, 1985, adopted in March 2015, concluded the federal pension reforms announced by the government in October 2009, which involved changes to both the Pension Benefits Standards Act, 1985 and the Regulations. This most recent round of amendments to the Regulations included a number of changes with a delayed coming-into-force date of July 1, 2016 to allow plan administrators time to make the necessary adjustments to their systems and processes. The changes with a delayed in-force date include expanded requirements on plan administrators to provide information to members and former members as well as changes to the investment rules for pension funds. Through its website and regular InfoPensions newsletter, OSFI has provided up-to-date information on the status of changes to the federal pension legislation and its regulations.

Pension Industry Outreach

OSFI hosted two web conferences or “webinars”. The first, in June 2015, explained and clarified the process for submitting annual pension returns using the Regulatory Reporting System. The second was a pre-recorded session which provided details of the most recent changes to the Pension Benefits Standards Regulations, 1985. It was sent to industry stakeholders in October 2015 and was then posted to the OSFI website.

In March 2016, OSFI held a pension industry forum in Toronto for administrators, advisors and other stakeholders of the pension plans it supervises. The forum provided OSFI’s perspective on the pension industry environment, outlined recent legislative and regulatory developments affecting pension plans, and communicated OSFI’s expectations of plan administrators. In addition, OSFI presented the estimated solvency ratio results shown above and discussed current actuarial and approvals related topics.

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.

In July 2015, OSFI issued a guide to assist administrators of pension plans in completing certain requirements under its new electronic Regulatory Returns System.

In December 2015, OSFI issued a revised Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans,which sets out the requirements for actuarial reports filed with OSFI for pension plans with defined benefit provisions. The revised instruction guide provides further clarification of OSFI's position on actuarial issues, such as alternative settlement methods. It also reflects changes to accepted actuarial practices as well as other issues that have emerged since the guide was last updated in March 2014.

In January 2016, OSFI issued a revised Pension Members’ Guide to explain, in general terms, some of the minimum standards that apply to pension plans registered under the Pension Benefits Standards Act, 1985 (PBSA). The guide replaced the previous version, issued in    June 2009, and reflects amendments made to the PBSA and its regulations since that time. In   March 2016, OSFI issued two revised instruction guides: Filing and Reporting Requirements for Defined Benefit Pension Plan Terminations and Filing and Reporting Requirements for Defined Contribution Plan Terminations. The revised instruction guides replaced the previous versions issued in 2009 and 2008 respectively. It reflects amendments made to the PBSA and its regulations since the issuance of the previous guides. In March 2016, OSFI also issued a Guidance Note on the Administration of Negotiated Contribution Pension Plans1. The guidance note sets out some of OSFI’s expectations with respect to managing the funding limitations of these plans. It also describes the additional information that administrators must provide to members and former members of this type of plan.

1 Multi-employer, defined benefit pension plans with funding contributions that are limited in accordance with an agreement, statute or regulation

Staff image James Rogers
Supervisor,
Private Pension Plans Division,
Regulation Sector

InfoPensions

OSFI published its bi-annual newsletter InfoPensions in May and November 2015. 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 it is 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. These include plan registrations and terminations, asset transfers between registered defined benefit pension plans, refunds of surplus, and reductions of accrued benefits. The number of pension transactions submitted to the Superintendent for approval increased to 73 in 2015-2016 from 56 in 2014-2015. OSFI processed 60 applications for approval in 2015-2016, compared to 63 applications in 2014-2015. 26 new plans were registered by OSFI in 2015-2016 (4 defined benefit plans and 22 defined contribution plans), while 15 plan termination reports were approved (12 defined benefit plans and 3 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. No new PRPP administrators were licensed or PRPPs registered by OSFI in 2015-2016.

Figure 4
Asset Breakdown* of Pension Plans Regulated by OSFI
($ millions) 2014 2015
Cash $986 0.5% $1,231 0.6%
Debt Securities        
Short Term Notes, Other Term Deposits 4,619 2.4% 3,690 1.9%
Government Bonds 47,548 25.2% 45,653 23.0%
Corporate Bonds 13,714 7.3% 18,259 9.2%
Mutual Funds - Bonds, Cash Equivalent & Mortgage 15,046 7.9% 16,059 8.1%
Mortgage Loans 864 0.5% 867 0.5%
General Fund of an Insurer 194 0.1% 279 0.1%
Total Debt Securities 81,985 43.4% 84,807 42.8%
Equity        
Shares in Investment, Real Estate or Resource Corporation 4,163 2.2% 3,733 1.9%
Common and Preferred Shares 54,174 28.7% 52,814 26.6%
Stock Mutual Funds 20,469 10.8% 22,040 11.1%
Real Estate Mutual Funds 1,958 1.1% 2,584 1.3%
Real Estate 2,697 1.4% 2,822 1.4%
Total Equity 83,461 44.2% 83,993 42.3%
Diversified and Other Investments        
Balanced Mutual Funds 5,152 2.7% 5,811 2.9%
Segregated Funds 3,311 1.8% 3,883 2.0%
Hedge Funds 5,986 3.2% 6,851 3.5%
Private Equity 1,887 1.0% 2,408 1.2%
Infrastructure 2,552 1.3% 3,589 1.8%
Miscellaneous Investments 9,287 4.9% 12,739 6.4%
Total Diversified and Other Investments 28,175 14.9% 35,281 17.8%
Other Accounts Receivables (net of liabilities) (5,682) -3.0% (7,013) -3.5%
TOTAL NET ASSETS 188,925 100.0% 198,299 100.0%

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

Approximately 42% of federally regulated private pension plan assets are invested in equities, 43% in debt instruments and 15% in other assets. Investment returns for federally regulated private pension plans were 7% in 2015 compared to 13% in 2014.