Issue 15 – May 2016

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 on the Pension Plans main page 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 November 2016.

 

Amendments to the Pension Benefits Standards Regulations, 1985 Effective July 1, 2016

A number of recent amendments to the Pension Benefits Standards Regulations, 1985 will come into force on July 1, 2016, including provisions regarding spousal consent to portability to certain registered retirement vehicles where a member is eligible for early retirement, investment rules, and disclosure requirements. Enhanced disclosure requirements include the following:

• Annual statements will now have to be provided to former members and their spouses or common-law partners.
• For defined benefit plans, annual member statements will now have to include more information on the solvency position of the plan and the amount of employer payments made to the plan for the year.
• For defined benefit and defined contribution plans where the administrator makes all investment decisions, annual member statements will now have to include a list of the pension funds' 10 largest asset holdings and the target asset allocation for the fund.
• For defined contribution plans which permit investment choices, specified information regarding investment options available will now have to be provided annually to those permitted to make those investment choices.
• Plan booklets and annual statements sent to members of negotiated contribution plans will now have to explain that contributions to these plans are limited and that this may lead to reductions in accrued benefits if the negotiated contributions are insufficient to meet the prescribed solvency standards.
• On plan termination, members, former members, and their spouses or common-law partners will now be entitled to receive a notice of the plan termination within 30 days of the plan termination date. Administrators will now have 120 days from the plan termination date to provide the detailed benefit statements to these recipients.

Annual statements due to be issued to members before July 1, 2016 are not required to reflect the new disclosure requirements.

For further details regarding amendments coming into force on July 1, 2016, please refer to the Key PBSA/PBSR Amendments and In Force Dates chart on the OSFI website. You may also wish to consult OSFI's Recorded Webinar – Key Amendments to the PBSR.

In order to comply with the new rules on July 1, 2016, plan administrators should ensure that pension administration staff are aware of these changes and that plan documents have been amended, as necessary.

 

Process for Filing Annual Returns in the Regulatory Reporting System

Plan administrators are reminded that all pension plan regulatory returns that are filed annually must be filed using the Regulatory Reporting System (RRS). Returns are not considered received at OSFI until the filing process is complete and they have been accepted in RRS. RRS will prevent a return from being submitted if there are errors that need to be corrected.

If an actuarial report and Actuarial Information Summary (and, if applicable, a Replicating Portfolio Information Summary) filed using RRS is also intended to support an application for the authorization of a transaction by the Superintendent (e.g. a plan termination or asset transfer), these documents must also be submitted directly to OSFI, either by email or in paper form, along with any required approval request form. This is to ensure that work can begin immediately on the approval request.

RRS users can find the following links on OSFI's website on the Pension Plans main page:

• RRS login: This link will direct you to the Bank of Canada Secure Site Login page.
• Annual Filing Process for Pension Plan Returns: This link will direct you to a table that summarizes the filing process for each required regulatory filing.
• Training and Support: This link will direct you to RRS training and support material including user guides, quick reference guides, videos, and other references that you may find helpful.

Secure Site Support Contact Secure Site Support at the Bank of Canada for registration for Secure Site and RRS Secure Site connectivity issues help with Secure Site log in (passwords expire every 90 days and may therefore need to be reset if a user has not recently logged in) Phone: 1-855-865-8636 and follow the instructions to reach Secure Site Support Email: secure-site-securise@bank-banque-canada.ca

RRS Support Contact RRS Support at the Bank of Canada for RRS user access RRS technical issues Phone: 1-855-865-8636 and follow the instructions to reach RRS Support. Email: rrs-support@bankofcanada.ca

Returns Admin Support Contact OSFI's Regulatory Data Management Team for issues related to pension plan regulatory returns. Phone: 1-613-991-0609 Email: ReturnsAdmin@osfi-bsif.gc.ca

 

Reporting Membership Numbers on the OSFI 49 Annual Information Return

It appears that some plan administrators may be reporting plan membership information incorrectly on the OSFI 49 Annual Information Return (AIR). In particular, "other beneficiaries" may be under-reported and the membership data may not accurately reflect whether plan members working in any given province are subject to federal or provincial pension legislation. This information is important to determine the correct annual assessment for pension plans and to help ensure that the correct pension legislation is applied to members' benefits and entitlements provided by the plan.

As described in the Guide to the OSFI 49 Annual Information Return, "members" and "other beneficiaries" are reported separately. For purposes of the OSFI 49 AIR, other beneficiaries include the following:

• retirees, including retirees for whom an annuity has been purchased by the plan
• survivors entitled to pension benefits under the plan, including survivors for whom an annuity has been purchased by the plan
• former members entitled to a deferred pension benefit under the plan (i.e. deferred vested members), including former members for whom an annuity has been purchased by the plan
• members or survivors who have elected portability under section 26 of the Pension Benefits Standards Act, 1985 (PBSA) but who still have a portion of their pension benefit credit (the transfer deficiency) remaining in the plan
• members or survivors who have elected portability under section 26 of the PBSA but whose pension benefit credit remains in the plan at year end

For purposes of the OSFI 49 AIR, a member of a pension plan is a person who has become a member of the plan and has neither ceased membership in the plan nor retired. The OSFI 49 AIR also asks administrators to report the number of members that are considered inactive. An inactive member of a pension plan is a member who is not accruing benefits and for whom no contributions are being made to the pension plan as at the plan year end. This could include the following:

• members who are temporarily laid-off
• members who are suspended
• members who are disabled or on leave of absence
• members whose accruals have ceased as a result of a benefit "freeze"
• members whose accruals have ceased as a result of a sale of business but whose membership has been deemed not to have ceased in accordance with section 30 of the PBSA

Inactive members do not include retirees and former members entitled to a deferred pension benefit under the plan.

The "grand total" of members and other beneficiaries reported on line 38 (page 20.2012) of a pension plan's OSFI 49 AIR is used to calculate the plan's annual pension assessment. For more information on the calculation of assessments please refer to the Pension Assessments (Fees) page of the OSFI website. Please note that the basic rate for the calculation of plan assessments that are due to be paid between April 1, 2016 and March 31, 2017 is $9.

In accordance with various federal-provincial agreements, OSFI supervises many multi-jurisdictional pension plans on behalf of provinces where the pension plan includes both members who are employed in "included employment" as described in the federal pension legislation and members whose employment is subject to provincial pension legislation. As described in the Guide to the OSFI 49 Annual Information Return, members are to be reported by province of employment and include both provincially and federally employed members. A pension plan's OSFI 49 AIR must also accurately indicate how many members working in any given province fall under federal pension legislation (i.e., work in included employment).

 

Statements to be Provided to Spouses and Common-Law Partners

The Pension Benefits Standards Act, 1985 (PBSA) requires that, in addition to being given to each member, or former member, or employee eligible to join the plan, certain statements and explanations must also be given to that person's spouse or common-law partner. Statements and explanations that must also be given to spouses and common-law partners include the following:

• the written explanation of the provisions of the plan and of any applicable amendments to the plan that are to be provided to plan members and to employees eligible to join the plan
• the annual statements
• the statements to be provided when a member ceases membership or retires
• the statements to be provided when a plan terminates

A requirement to provide annual statements to former members, as well as to each former member's spouse or common-law partner, comes into force as of July 1, 2016.

OSFI expects plan administrators to keep up-to-date records of the spouses or common-law partners of employees eligible to join the plan, members, and former members, including up-to-date contact information, so that the PBSA disclosure requirements described above may be met.

If both recipients live at the same address, a copy addressed to both may be sent to that address by mail or may be given to the employee or member at the place of employment.

Since April 1, 2015, the PBSA has allowed information, including required written statements and explanations, to be communicated by way of an electronic document, provided that certain requirements are met. Requirements include that the addressee must have consented to receipt of the information by way of an electronic document and have designated an information system (such as an email address or website) for receipt of the document.

It is important to be aware that a member (or former member, or employee eligible to join the plan) cannot consent to electronic communications on their spouse or common law partner's behalf. A spouse or common-law partner must themself consent to receive the information by electronic means and designate an information system.

For more information on electronic communications, including with respect to additional requirements not discussed above, please refer to section 31.1 of the PBSA and sections 25 to 25.3 of the Pension Benefits Standards Regulations, 1985. You may also wish to consult OSFI's Recorded Webinar – Key Amendments to the PBSR.

 

Life Income Fund Maximum Annual Payment Amount Table

In December 2015, OSFI posted the updated Life Income Fund (LIF) Maximum Annual Payment Amount Table. The table was updated to include the factors applicable in 2016 and to make reference to the maximum variable benefits paid from a defined contribution plan. The table indicates that the same maximum annual payment amount applies to income paid as a variable benefit from a defined contribution plan as to income paid from a LIF.

 

OSFI Pension Members' Guide

In January 2016, OSFI posted a revised version of its Pension Members' Guide. The Guide replaces the previous version issued in June 2009 and includes updates to reflect amendments to the Pension Benefits Standards Act, 1985 (PBSA) and the Pension Benefits Standards Regulations, 1985 made in 2010, 2011, and 2015. This Guide is published to help members and beneficiaries of federally regulated private pension plans understand the pension benefits provided by their plans and their rights under the PBSA. Plan administrators are encouraged to bring the Guide to the attention of plan members and beneficiaries, and may find the Guide to be a helpful resource, including for purposes of responding to member enquiries.

 

Instruction Guides for Filing and Reporting Requirements for Plan Terminations

In March 2016, OSFI posted the updated Instruction Guide for Filing and Reporting Requirements for Defined Benefit Pension Plan Terminations and the updated Instruction Guide for Filing and Reporting Requirements for Defined Contribution Pension Plan Terminations, as well as updated versions of the corresponding approval request forms. The Guides and forms have been revised to reflect current legislative and regulatory requirements, including amendments made in 2010, 2011, and 2015 to the Pension Benefits Standards Act, 1985 and the Pension Benefits Standards Regulations, 1985. Notable updates to the Guides include changes to reflect new rules with respect to disclosure on plan termination and new sections related to full funding of defined benefit pension plans on plan termination.

 

Estimated Solvency Ratio Results

OSFI regularly estimates solvency ratios for approximately 400 defined benefit pension plans that it supervises. The Estimated Solvency Ratios (ESRs) assist OSFI with the early identification of solvency issues that could affect the security of promised pension benefits.

The exercise uses the most recent actuarial, financial, and membership information filed with OSFI for each plan before the analysis date. Assets are projected based on either the actual rate of return provided on the Solvency Information Return or an assumed rate of return for the plan. Solvency liabilities are projected using relevant Canadian Institute of Actuaries' commuted value and annuity proxy rates. Expected contributions, benefit payments, and expenses are taken into account and an ESR, based on the estimated adjusted market value of the fund, is then calculated for each plan. While the ESR for any particular plan is only an estimate, it can help provide an early indication of a plan's financial condition and can be used to identify broader trends.

The weighted average ESR for all defined benefit pension plans was 0.95 as at December 31, 2015 which was a very small change from 0.94 at the end of 2014. The line graph below shows the current and previous ESRs dating back to December 2006.

The bar graph below illustrates the distribution of the ESR results as at December 31 for defined benefit pension plans since 2006. It shows the percentage of pension plans with ESRs below 0.80, between 0.80-0.90, between 0.90-1.00 and over 1.00 in each year. The most recent ESR exercise indicated that 79% of defined benefit plans were underfunded as at December 31, 2015. The same percentage of pension plans were underfunded as at December 31, 2014. There has been an increase in the number of plans that are more significantly underfunded (with ESRs below 0.80) from 14% at the end of 2014 to 19% at the end of 2015.

 

Common Concerns Raised in the Review of Actuarial Reports

Actuarial reports submitted to OSFI may be referred by the plan's relationship manager to the actuarial team in the Private Pension Plans Division for a detailed review. The following three issues are often identified in these reviews as concerns and we would like to remind plan actuaries of OSFI's expectations for actuarial reports related to these issues:

1. Going concern valuation – disclosure for mortality adjustments: It is OSFI's position that adjustments to the base mortality table published in the Canadian Institute of Actuaries (CIA) Final Report – Canadian Pensioners' Mortality (i.e., CPM2014, CPM2014Publ, or CPM2014Priv, with related projection scale), are generally not warranted, although they may be appropriate in certain cases. Because of the scope of the CIA mortality study, the resulting mortality tables provide an industry standard of expected mortality with respect to Canadian pension plans. As such, OSFI expects any adjustments to these tables to be justified in the actuarial report.

   If adjustments are made in accordance with the CIA mortality study (e.g., for pension size or industry), it is not necessary to quantify the financial impact of these in the actuarial report. OSFI would require quantification of the impact (sensitivity information) to be provided only where mortality adjustments are based on plan experience.

2. Solvency valuation – termination expenses: A list of expenses that we would normally expect to be included in the termination expenses is provided in the Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans. Among others, the provision for termination expenses should include expenses up to the plan's wind-up date. It is neither realistic nor acceptable to assume that the plan wind-up will coincide with the termination date.

   In determining the period of time elapsed between the termination and wind-up date, actuaries should consider the following factors:

   • Plans have up to 90 days after the termination date to file their termination report.
   • OSFI's review of the termination report and all relevant information may take several months (or potentially longer for complex cases).
   • The pension plan administrator may not apply the assets toward the provision of any benefits until the Superintendent gives approval of the termination report. After approval, this distribution of assets may take several months.

3. Solvency valuation – portability for members eligible for early retirement (i.e. those who are within 10 years of pensionable age): If the plan text provides for portability during this period, members would be offered the choice of a pension or portability of the commuted value. The actuary should then assume that at least 50% of those members will choose the option that creates the highest solvency liability.

   If the plan text does not provide for portability to members eligible for early retirement, normally no member would be assumed to take a commuted value.

   However, even if portability is not available from an ongoing plan to members eligible for early retirement, the plan administrator could still choose to offer this option to these members on plan termination. The assumption made by the actuary with respect to the form chosen by these members should be based on whether or not the plan administrator has indicated that they would grant this option on plan termination. This decision of the administrator should be disclosed in the actuarial report. In other words, the assumption to grant portability to members eligible for early retirement should be made by the plan administrator, not the actuary.

Based on the CIA Standards of Practice, OSFI expects plan actuaries to provide sufficient details in their actuarial report to enable another actuary to assess the reasonableness of the data, assumptions, and methods used.

 

Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans

In December 2015, OSFI posted the updated Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans. The Instruction Guide outlines OSFI's current filing and reporting requirements for actuarial reports for defined benefit pension plans. OSFI expects actuaries to follow the reporting requirements set out in the Instruction Guide and to prepare their actuarial reports in accordance with accepted actuarial practice.

The Instruction Guide updates the previous one published in March 2014 to reflect the following:

• further clarification of OSFI's position regarding alternative settlement methods
• additional disclosure requirements with respect to replicating portfolios, expenses, and provisions for adverse deviations
• additional references to legislation and professional guidance
• changes to accepted actuarial practice and other issues that have emerged since March 2014

Regularly filed actuarial reports are to be submitted through the Regulatory Reporting System.

 

Guidance Note on the Administration of Negotiated Contribution Plans

In March 2016, OSFI posted the new Guidance Note on the Administration of Negotiated Contribution Plans, which replaces OSFI's September 2008 Guidance Note on Disclosure of Ability to Reduce Benefits in NCDB Plans. The new Guidance Note sets out some of OSFI's expectations respecting managing the funding limitations of negotiated contribution plans. It also describes the enhanced disclosure that administrators of this type of plan must, effective July 1, 2016, provide to members and former members and their spouses or common-law partners.

 

Replicating Portfolio Information Summary and Accompanying Guide

The Replicating Portfolio Information Summary (RPIS) should be completed and submitted to OSFI with any actuarial report required to be filed that uses a replicating portfolio approach for valuing solvency liabilities. The Guide to Completing the Replicating Portfolio Information Summary was posted by OSFI in April 2016. The RPIS form and the Guide are available on the Defined Benefit Plans Annual Filing Requirements page on the OSFI website. The RPIS form that accompanies a regularly filed actuarial report must be submitted via document upload through the Regulatory Reporting System.

 

2016 Pension Industry Forum

On March 31, 2016, OSFI held a Pension Industry Forum in Toronto. The forum provided an opportunity for administrators of federally regulated private pension plans, their advisors, and related service providers to hear from OSFI staff about current issues. Topics covered included recent amendments to the Pension Benefits Standards Regulations, 1985 affecting investment rules and disclosure to members, recent updates to OSFI guidance, OSFI's study of defined contribution plans, OSFI's new approach to examinations, and the action plan resulting from OSFI's most recent survey of pension plan stakeholders.

OSFI would like to thank everyone who suggested topics prior to the Forum and who attended the event. Your input, engagement, and feedback are much appreciated.

 

Important Dates

Under the Pension Benefits Standards Act, 1985:

Action or Required Filing[1]	Deadline
All plans:
Annual Information Returns (OSFI 49)	6 months after plan year end
Certified Financial Statements (OSFI 60) and, if required, Auditor's Report	6 months after plan year end
Plan Assessments	6 months after plan year end
Annual Statements to members and spouses or common-law partners[2]	6 months after plan year end
DB plans only:
Actuarial Report and Actuarial Information Summary and, if required, Replicating Portfolio Information Summary	6 months after plan year end
Solvency Information Return (OSFI 575)	The later of 45 days after the plan year end or February 15

[1] Plan administrators are reminded that the required regulatory filings listed above must be filed using the Regulatory Reporting System (RRS). For more information on RRS, please visit the RRS page on OSFI's website.

[2] Effective July 1, 2016, Annual Statements must also be provided to former members and their spouses or common-law partners within 6 months after plan year end.

Under the Pooled Registered Pension Plans Act:

Action or Required Filing	Deadline
Pooled Registered Pension Plan Annual Information Return (includes financial statements)	3 months after the end of the plan year
Annual Statements to members and spouses or common-law partners	45 days after the end of the plan year