Issue 12 – November 2014

InfoPensions is the Office of the Superintendent of Financial Institutions’ (OSFI) electronic newsletter on pension issues. InfoPensions includes announcements and reminders on issues relevant to federally regulated private pension plans as well as descriptions of how OSFI applies selected provisions of the Pension Benefits Standards Act, 1985, Pooled Registered Pension Plans Act, their regulations, directives and OSFI guidance. Plan administrators should obtain appropriate legal and actuarial advice on how the legislation and guidelines affect their particular pension plan.

InfoPensions is available under the Pensions Plans link of OSFI’s website.  Plan administrators can also find information on various topics on OSFI’s website under Defined Benefit Plans, Defined Contribution Plans and Pooled Registered Pension Plans. To automatically receive new issues of this newsletter and other OSFI pension-related documents by email, please subscribe under the Email Notifications link of OSFI’s website. 

If you have any questions about the articles you read in InfoPensions or if you have suggestions for future articles, please contact OSFI at information@osfi-bsif.gc.ca. The next issue of InfoPensions will be posted in May 2015.

 

Pension Industry Survey will be conducted this month

As part of our ongoing commitment to be responsive to stakeholder input and to continuously improve performance, OSFI periodically conducts a pension industry survey. The last survey was conducted in 2011 and its results can be found on OSFI’s website. The next survey is scheduled to take place this month. OSFI will be consulting with plan administrators and professional advisors of federally regulated private pension plans to understand their perceptions of OSFI’s performance and to examine topics specific to the pension plan sector. 

The confidential survey will be primarily conducted through an online questionnaire and will be administered by a third party. We anticipate that the survey will take approximately 15 minutes to complete. 

We expect to be able to provide the results from the survey in the next issue of InfoPensions.

 

Update on the Regulatory Reporting System (RRS)

The RRS was recently put in place for OSFI to receive regulatory filings from federally regulated private pension plans, deposit-taking institutions and insurance companies.

We very much appreciate the efforts of plan administrators and other pension professionals to register with RRS and to file returns using this new system. If your pension plan is not registered to file using RRS we encourage you to do so.

With the introduction of RRS, plan administrators must now file the plan’s financial and pension plan contact information separately. We have noticed that a number of pension plans that have filed the plan’s financial information have not yet filed their pension plan contact information. To file this information, plan administrators must

1. review and update their plan’s profile (in RRS this is referred to as a plan’s “Organization Profile”). The contact name, address, phone number and email for the various roles associated with the pension plan (e.g. plan actuary, custodian) must be entered in the appropriate sections of the plan’s profile. (In RRS you will have to create a corporate return for each role to add or update information.) 
2. certify that the plan administrator’s pension plan contact information is complete and up-to-date by submitting the Pension Plan Annual Corporate Certification. 

If you have not yet filed your Pension Plan Annual Corporate Certification, it will be in the Draft Returns section of RRS.

For instructions on how to update a plan’s profile (by creating a corporate return), please refer to OSFI’s guide titled Quick Reference Guide – Manage Corporate Returns for Deposit Taking Institutions, Insurance Companies and Private Pension Plans. For assistance with RRS and regulatory filings more generally, please contact our Regulatory Data Management Team by phone at 613-991-0609, or by email at ReturnsAdmin@osfi-bsif.gc.ca.

 

Actuarial Reports and the Actuarial Information Summary (AIS)

Currently, actuarial reports and AISs are filed with OSFI by email or mail.  Plan administrators will soon be able to file these returns using the Regulatory Reporting System (RRS) by uploading actuarial reports into RRS and directly entering the AIS information into a web-based form that will be available in RRS.    

In addition, OSFI will be revising some of the required data in the current AIS form to collect information on the assumptions made in actuarial reports as a result of recent guidance issued by the Canadian Institute of Actuaries.

We will update the filing instructions on our website when the exact dates of the new filing method for actuarial reports and the AIS as well as the changes to the AIS have been confirmed.

For information on RRS generally, please refer to the RRS page of OSFI’s website.

 

Proposed amendments to the Pension Benefits Standards Regulations, 1985 (PBSR) pre-published for public comment

Proposed amendments to the PBSR were pre-published for public comment in the Canada Gazette, Part I on September 27, 2014. The proposed changes to the PBSR are necessary to support the amendments to the Pension Benefits Standards Act, 1985 (PBSA) that came into force in 2010 and 2011. The 30 day comment period that followed the pre-publication of the PBSR amendments expired on October 27, 2014.

Until approved by the Governor in Council, the proposed amendments set out in the pre-publication may change. Once approved, the PBSR amendments will come into force upon registration and final publication in the Canada Gazette.   

Based on the pre-published version of the proposed amendments, the following are some of the key changes that will be made to the PBSR:

Required Disclosure to members and former members of all plans

• Information required in the personalized annual statement for members and their spouses or common-law partners will be expanded to include information on
  • the valuation date of the most recent actuarial report along with the date of the next required actuarial report;
  • the value of solvency assets and solvency liabilities of the plan on the valuation date;
  • the employer payments made to the plan for the plan year;
  • a list of the pension fund’s 10 largest asset holdings based on market value; and
  • the pension fund’s asset allocation expressed as a percentage of total assets.
• A former member (i.e. a retiree or a deferred vested member that has not exercised portability rights) and their spouse or common-law partner will be entitled to receive a personalized annual statement within six months after the end of the plan’s fiscal year. The PBSR will prescribe the information that must be included. Depending on the type of plan, this could include information on: plan assets, the solvency ratio of the plan, variable benefits and the right to access certain documents.

• Negotiated contribution plans will be subject to enhanced disclosure requirements.  Various documents provided to plan members such as the plan booklet and annual member statements will have to explain that contributions to such plans are limited and this may lead to reductions in benefits if the negotiated contributions are insufficient to meet the prescribed solvency standards.

• Section 31.1 of the PBSA permitting a plan to provide information to a member and his or her spouse or common-law partner electronically will be brought into force when the amendments to the PBSR are adopted. Plan administrators will be able to provide required information electronically if the addressees give their consent. Addressees will be able to consent in writing or orally and will be able to revoke their consent at any time. The amendments to the PBSR will set out the details of how to obtain consent, the notice required when providing an electronic document on a website and when an electronic document will be considered to be provided.

• On plan termination, instead of providing one written statement within 30 days after plan termination, the plan administrator will now have to provide two written statements to members, former members and their spouses or common-law partners within the specified timeframes.  The first will be a notice of the plan termination, which will have to be provided within 30 days after the plan’s termination. The second statement, which will have to be provided within 120 days after plan termination, will outline the pension benefits and other benefits that are payable to the member. These written statements will have prescribed forms set out in the PBSR.

Member Choice Accounts

Subsections 8(4.2), (4.3) and (4.4) of the PBSA will be brought into force when the amendments to the PBSR are adopted. These provisions will

• explicitly recognize that a pension plan may permit members, former members, survivors or former spouses or former common-law partners to make investment choices with respect to defined contribution provisions (subsection 8(4.2));
• set out the administrator’s duty to offer investment options of varying degrees of risk and expected return that would allow a reasonable and prudent person to create a portfolio of investments that is well adapted to their retirement needs (subsection 8(4.3)); and
• deem the administrator to be in compliance with the prudent person rules for member choice accounts, if they meet the requirements of subsection 8(4.3) of the PBSA mentioned above and the requirements of subsection 7.3(1) of the PBSR (subsection 8(4.4)).

Subsection 7.3(1) of the PBSR will require the plan administrator to provide a written statement with the following information to any person who is permitted by a plan to make investment choices:

• A description of each available investment option including, but not limited to, its investment objective and performance history, target asset allocation and the fees, levies and other charges associated with it (expressed as a percentage or a fixed amount)
• A description of how the person’s funds are currently invested
• Any timing requirements that will apply in making the investment choice

In addition, subsection 7.1(1) of the PBSR will specify that a statement of investment policies and procedures (SIP&P) does not need to be established for the plan’s portfolio of investments and loans that relate to any member choice account.

Variable benefits from defined contribution plans

Sections 16.2 to 16.4 of the PBSA permitting a pension plan with defined contribution provisions to offer a variable benefit pension paid directly from the pension plan will be brought into force when the amendments to the PBSR are adopted. If offered, members or former members will be able to elect to receive a variable benefit and can determine how much income they withdraw annually subject to certain minimum and maximum amounts. To be eligible to receive a variable benefit, a member or former member will have to be entitled or eligible to receive an immediate pension benefit under the PBSA and their spouse or common-law partner will have to consent to it by completing the prescribed form. The amendments to the PBSR will set out the details concerning the minimum and maximum amounts that may be paid, as well as the disclosure requirements applicable to plans that offer variable benefits.

Spousal consent when exercising portability

In accordance with subsection 26(2) of the PBSA, if a member ceases membership after becoming eligible for early retirement but before commencement of a pension, the plan may permit the member to

1. transfer their pension benefit credit to another pension plan willing to accept the funds;
2. transfer their pension benefit credit to a locked-in registered retirement savings plan, a life income fund or a restricted life income fund; or
3. use their pension benefit credit to purchase an immediate or a deferred life annuity.

Subsection 26(2.1) of the PBSA will be brought into force when the amendments to the PBSR are adopted. This provision will require the consent of the member’s spouse or common-law partner before a member will be able to exercise one of the portability transfers mentioned in b) above. By signing the consent form, the spouse or common-law partner of a member eligible to retire will acknowledge that the funds are being transferred from a pension plan to a fund where the member will be allowed to manage their own pension fund and have flexibility in determining the amount withdrawn each year. The PBSR will prescribe the consent form that will be required.   

Investment Rules: Schedule III of the PBSR

10% rule: Currently, section 9 of Schedule III of the PBSR (the 10% quantitative limit) provides that no more than 10% of the total book value of a plan’s assets may be lent to or invested, directly or indirectly, in any one person, two or more associated persons, or two or more affiliated corporations.  Several amendments to this section will be made, including using the market value (rather than the book value) of a plan’s assets for this rule. The 10% rule is a purchase test that has to be met at the time of the investment as opposed to applying on a continuous basis.  OSFI’s position is that the rule was always a purchase test and this amendment will merely clarify the Schedule. A purchase test means that a plan administrator is not required to divest any holdings that exceed the 10% limit, based on market value, but cannot purchase any more of that investment.

Prohibition against investing in debt or equity of the employer: The plan administrator will no longer be able to invest any amount of its pension fund in the equity of a related party subject to certain exemptions. The current exemption related to nominal or immaterial transactions will be repealed. Pension funds that are currently holding securities of the employer or of a related party of the employer will have 5 years to divest of these investments.

“Investment fund”: The terms “mutual fund and pooled fund” will be replaced with the term “investment fund”. An investment fund will be able to be established by a corporation, limited partnership or trust.

“Marketplace”: will replace the term “public exchange” and will include a definition that replaces the specifically named exchanges listed under the term “public exchange”.

 

Update on the Federal Government’s Consultation Paper on Target Benefit Plans (TBPs)

As previously communicated in InfoPensions 11, on April 24, 2014, the Government of Canada released a Consultation Paper titled Pension Innovation for Canadians: The Target Benefit Plan. The Consultation Paper presented proposals to incorporate provisions on TBPs into federal pension legislation and sought views on the approach and elements of its TBPs’ framework. The consultation period ended on June 23, 2014. 

The Government received extensive feedback over the course of consultations and has announced that they will now use this input to draft a legislative framework.

 

Risk Assessment Framework for Federally Regulated Private Pension Plans and Guidance Notes (the Framework)

On October 17, 2014, OSFI posted an updated version of the Framework. Key updates reflect amendments to the Pension Benefits Standards Act, 1985 and the Pension Benefits Standards Regulations, 1985 and specify that the Framework and Guidance Notes also apply to Pooled Registered Pension Plans.

 

Pooled Registered Pension Plans (PRPPs)

A PRPP is a type of retirement savings plan that is similar to a defined contribution plan.  PRPPs aim to keep costs low by pooling together participating members’ funds.  

The Pooled Registered Pension Plan Act (PRPP Act) applies to PRPPs that are linked to employment that falls under federal jurisdiction. Areas of employment that fall under federal jurisdiction include work in connection with navigation and shipping, banking, inter-provincial transportation and communications, and any work of a local or private nature in the Yukon, Northwest Territories or Nunavut.

The PRPP Act also applies to PRPPs provided to employees and self-employed persons in the Yukon, Northwest Territories or Nunavut.

Currently, there are five PRPPs registered with OSFI. The names of all PRPPs registered with OSFI can be found on the PRPP page on our website.

As previously communicated in InfoPensions 11, a joint webinar titled Registering and Administering a Pooled Registered Pension Plan, was presented by the Canada Revenue Agency and OSFI on March 18, 2014.  The webinar video and questions and answers are available on Canada Revenue Agency’s website. 

 

Proposed Annual Assessments and Prescribed Charges for Pooled Registered Pension Plans (PRPPs)

When the Pooled Registered Pension Plans Act (PRPPA) came into force, the assessment provisions of the Office of the Superintendent of Financial Institutions Act (OSFI Act) were amended to provide OSFI with authority to collect annual assessments from PRPP administrators, subject to the necessary regulations being made. The OSFI Act also allows OSFI to assess a prescribed charge for any service provided by or on behalf of the Superintendent.

In accordance with the current Assessment of Pension Plans Regulations pursuant to the OSFI Act, the “basic rate” ($10 in 2014-2015) used for plan assessments is established based on OSFI’s estimated  expenses to supervise pension plans and the anticipated “assessment base” from which expenses are recovered. A plan’s assessment base is a function of the number of beneficiaries in the plan which includes active, retired and deferred vested members and those receiving a survivor’s pension. Each pension plan’s annual assessment is determined by multiplying the plan’s assessment base by the basic rate in effect for the year. There is a minimum assessment base of 50 and a maximum of 20,000.

The Assessment of Pension Plans Regulations do not yet include provisions for recovering expenses from PRPPs. As we expect that PRPP supervision by OSFI will be similar to the supervision of defined contribution plans we are considering recommending they be treated the same in terms of annual assessments. This would mean that the expenses incurred by OSFI for or in connection with the administration of both the Pension Benefits Standards Act,1985 (PBSA) and the PRPPA would be combined and recovered through annual assessments against both types of pension plans (i.e. plans registered under the PBSA and plans registered under the PRPPA), using the same per-beneficiary assessment method currently used for all pension plans registered under the PBSA. For PRPPs, the equivalent assessment base would be a function of the number of PRPP members rather than beneficiaries.  Revisions to the Assessment of Pension Plan Regulations would be required to provide the method to recover expenses incurred by OSFI in respect of PRPPs through annual assessments against PRPP administrators. 

The licensing requirement for PRPP administrators set out in the Pooled Registered Pension Plan Regulations involves a determination  by OSFI of the applicant’s capacity to act as a PRPP plan administrator. The Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations 2002 do not currently include prescribed charges for any services provided under the PBSA or the PRPPA. We are considering recommending that these Regulations be amended to add a prescribed charge for the review of an application by a corporation seeking a licence authorizing the corporation to be an administrator under section 11 of the PRPPA. Based on our experience in reviewing licence applications to date, a charge of approximately $20,000 per applicant is being considered. 

Comments concerning the contemplated assessments and charges should be communicated to Sylvia Bartlett by December 5, 2014 at sylvia.bartlett@osfi-bsif.gc.ca.

 

Recalculation of a Member’s Pension Benefit Credit - Correction

OSFI’s policy that a pension benefit credit could be recalculated in cases where a pay-out was delayed and the terms of the plan required that the calculated amount be valid for only a certain amount of time, has changed.

In accordance with subsection 26(1) of the Pension Benefits Standards Act, 1985 (PBSA), if a member, before becoming eligible for early retirement, ceases to be a member of a pension plan or dies, the member or the survivor is entitled to transfer the pension benefit credit in accordance with the portability options set out in that subsection.  Subsection 18(4) of the Pension Benefits Standards Regulations, 1985 (PBSR) provides that a pension benefit credit shall be determined as of the date that the plan member ceases to be a plan member or, in the case of a survivor benefit, as of the date of death. OSFI expects that interest will be paid on the pension benefit credit from that date until at least the beginning of the month in which the pension benefit credit is transferred, at the rate of interest used in the determination of the pension benefit credit.

In a previous newsletter article, OSFI had indicated that in cases of delayed pay-out, if the terms of the plan required a limited period during which the calculated pension benefit credit remains valid, the pension benefit credit could be recalculated if transferred after that period ended.  We have recently reviewed this policy and determined that if the member or survivor notified the plan administrator of their request to transfer by completing the prescribed form within the period allowed, a re-calculation will only be permitted if the re-calculated amount is greater than the pension benefit credit calculated at the termination date (or date of death) plus interest as described above.  The plan terms cannot override the member’s or survivor’s entitlement under subsection 26(1) of the PBSA and subsection 18(4) of the PBSR.

If the issuance of a termination statement is delayed, and the member or survivor notifies the plan administrator of their request to transfer their pension benefit credit within the period allowed they would be entitled to interest as described above. Subsection 26(1) requires a notice period of 60 days after the administrator has given the termination statement.  

If a plan administrator receives notification within the notice period allowed but is restricted by OSFI from paying-out benefits from the plan at that time, interest, as described above, would be paid on the pension benefit credit when the restriction is lifted.

In circumstances where the administrator offers portability beyond what is required under subsection 26(1) of the PBSA, the plan administrator may either re-calculate or apply interest to the member’s or survivor’s pension benefit credit. This could occur when

• notification is received from the member or survivor after the notice period allowed has already expired and the administrator still chooses to offer portability; or
• portability is offered a second time to a deferred vested member.

If re-calculation is a possibility the transfer option statement should note this.

 

Disbursing assets on plan termination

From time to time, OSFI receives plan termination reports after the plan has already been wound-up, i.e. the assets have been distributed.  It is important to remember that, on plan termination, the Superintendent must approve a plan’s termination report before the plan assets can be distributed.  Once a plan administrator receives notice of the Superintendent’s approval, they may distribute the assets in accordance with the termination report and should do so without undue delay. The plan administrator must then notify OSFI in writing once all plan assets are distributed and must submit a year-to-date financial statement from the custodian.

Plan administrators are required to continue to file an Annual Information Return (OSFI-49) and Certified Financial Statements (OSFI-60) and to pay assessments until OSFI receives written notice that all pension assets have been distributed.

 

Prescribed Forms

The Pension Benefits Standards Act, 1985 requires that certain written statements, agreements and notices be in the prescribed form, as set out in the schedules of the Pension Benefits Standards Regulations, 1985 (PBSR).  OSFI does not provide these forms; plan administrators are expected to ensure that the forms that they provide are as prescribed in the PBSR.

Information that clearly does not apply in a particular case may be removed from the prescribed forms as long as the removal of the information does not affect substance or was not removed to deliberately mislead. For example, if the pension plan is a defined contribution plan and does not provide any defined benefit provisions, references to requirements related to defined benefit provisions need not be included in the statement provided to members on cessation of membership (Form 2 of Schedule IV of the PBSR). If, however, that defined contribution plan also has defined benefit provisions, the statement should contain all of the required information prescribed in the PBSR.  If a specific provision does not apply to a particular member, the plan administrator could include “zero” or “not applicable” beside that piece of information. 

In the same manner, additional information may be included on the statement.

 

Estimated Solvency Ratio (ESR)

As was the case in 2013, OSFI decided to forego the June 2014 ESR calculation for federally regulated defined benefit pension plans. The principal reason for this decision is OSFI’s expectation that the more frequent filing of actuarial reports, along with improved financial conditions for most plans, has reduced the need for OSFI interventions based on a June 2014 ESR.  Accordingly, the aggregated results usually presented in chart form in InfoPensions are unavailable at this time. Aggregated ESR results up to December 2013 can be found in InfoPensions 11. We intend to calculate the ESR at December 2014 and present the results in the May 2015 issue of InfoPensions.

 

Important Dates

Under the Pension Benefits Standards Act, 1985:

Action or Required Filing*	Deadline
Actuarial Reports and Actuarial Information Summary	6 months after plan year end
Annual Information Returns (OSFI-49)	6 months after plan year end
Certified Financial Statements (OSFI-60) and Auditor’s Report (if required)	6 months after plan year end
Solvency Information Return (OSFI-575)	The later of 45 days after the plan year end or February 15
Annual Member Statements	6 months after plan year end

* Plan administrators are reminded that they must be registered for the Regulatory Reporting System (RRS) in order to be able to file all required regulatory filings. For more information on RRS, please visit the RRS page on OSFI’s website.

Under the Pooled Registered Pension Plans Act:

Action or Required Information*	Deadline
Annual Member Statements	45 days after the end of the plan year
Annual Information Return	3 months after the end of the plan year
Financial Statements	3 months after the end of the plan year

* Please note that forms are not yet available for submitting the required information under the Pooled Registered Pension Plans Act. OSFI will communicate directly with any Pooled Registered Pension Plan regarding OSFI’s expectations for the required information.