Office of the Superintendent of Financial Institutions
OSFI's announcement on March 27, 2020 to address issues stemming from COVID-19, we have prepared a series of questions and answers regarding the measures taken to protect pension plan members, former members and other beneficiaries and to allow plan administrators to focus their efforts on addressing the many challenges posed by this crisis.
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When a member of a defined benefit pension plan ceases employment with the employer sponsoring the pension plan, they can choose to leave their entitlement in the pension plan and receive a monthly pension payment when they eventually retire, or they can, in some circumstances, exercise "portability". Exercising portability means transferring the value of the pension (also referred to as "commuted value") to a locked-in vehicle such as a life income fund or locked-in registered retirement savings plan, transferring to another pension plan or using the value of the pension to purchase an annuity.
Pension Benefits Standards Act, 1985 (PBSA) is the legislation that protects members of pension plans who work for federally regulated employers. These protections include limiting the circumstances under which money can leave a plan. The PBSA provides the authority to the Superintendent to prohibit portability transfers if he believes the transfer would impair the solvency of the pension fund. This is what is referred to as a "portability freeze".
The authority of the Superintendent to prohibit portability transfers does not extend to all forms of payments from the fund. Please refer to question 16 for examples of permitted payments of pension benefits from the fund.
The effect of the COVID-19 pandemic on the financial and economic environment has resulted in market volatility. This has made the impact on the solvency ratios of defined benefit pension plans difficult to gauge, and the Superintendent came to the view that transfers or annuity purchases from defined benefit pension plans could impair their solvency.
As a result, the Superintendent determined that it would be prudent, as a temporary measure, to prohibit the transfer of assets from defined benefit plans through portability transfers and buy-out annuity purchases. As such, since March 27, 2020, consent of the Superintendent has been required for any transfers or annuity purchases rather than them being granted the usual automatic consent if certain conditions are met.
The adjustments announced on May 7 (see questions 3 and 4) provide some easing of the portability freeze that has been in place since March 27, while maintaining prudent restrictions on portability transfers and annuity purchases from defined benefit pension plans.
The freeze was put in place as a temporary measure. While there still remains uncertainty about the ongoing impact of the COVID-19 pandemic on financial markets, OSFI now has a more informed understanding of the solvency position of pension plans through increased monitoring of the estimated solvency ratio of plans with defined benefit provisions. This, coupled with consultations with plan administrators, has helped us to better understand the impact COVID-19 is having on federally regulated pension plans. Additionally, OSFI recognizes the pressures the freeze has been putting on members that are relying on these funds for their retirement.
The portability freeze is still in effect for most transfers and we still expect it to be temporary. However, OSFI has revised the
Directives of the Superintendent on May 7, 2020, to provide the Superintendent's automatic consent for transfers for members eligible for early retirement under their pension plans, subject to specific transfer criteria. Please refer to question 4 for more details on the changes that were made.
On May 7, 2020, the
Directives of the Superintendent (the Directives) were revised to ease the restrictions on portability for members who are within 10 years of meeting their plan's requirements for an unreduced pension (i.e. "pensionable age"), and therefore eligible for early retirement. The changes do not affect members who have not yet reached that point.
Pension Benefits Standards Act, 1985 does not require it, some plans allow members who are within 10 years of pensionable age (i.e. eligible for early retirement) to transfer the value of their pension benefit out of the plan. Therefore, the portability freeze has resulted in individuals not having expected access to funds that they had planned on using for their retirement.
The Directives were recently revised to provide the Superintendent's automatic consent to portability transfers to locked-in vehicles for members who are within 10 years of pensionable age (i.e. for those eligible for early retirement) subject to three transfer criteria designed to ensure that the amount transferred out takes into account recent information about the pension plan's financial position.
Specifically, the amount of the initial transfer cannot exceed the "transfer value" (i.e. the commuted value of the pension benefit multiplied by the plan's "transfer ratio"). The transfer ratio is the lesser of:
the solvency ratio determined in the most recent actuarial report of the plan; and
this same solvency ratio projected to a date no earlier than March 31, 2020.
Where the plan's transfer ratio is less than one, the full commuted value can only be transferred if the plan administrator remits to the fund the amount by which the commuted value exceeds the transfer value. This amount is the "transfer deficiency".
Where the full amount of the commuted value is not transferred to an individual, the transfer deficiency shall be transferred on the earlier of:
five years from the date the commuted value of the pension benefit was calculated; and
the date on which the solvency ratio of the plan is determined to be one, based on an actuarial report with a valuation date no earlier than March 31, 2020.
In addition, the transfer deficiency shall include interest at the same rate used to determine the commuted value, calculated from the date the commuted value was calculated to the date of the transfer.
Please refer to questions 30 and 31, as well as the Directives, for more information on the projected solvency ratio. The Directives also provide additional details of defined terms and the transfer criteria.
Yes. The revised
Directives of the Superintendent only provide the Superintendent's automatic consent for transfers to prescribed retirement savings plans for members eligible for early retirement. Prescribed retirement savings plans are locked-in RRSPs, life income funds and restricted life income funds, as set out in the
Pension Benefits Standards Regulations, 1985. Portability transfers to other pension plans or used to purchase an annuity continue to require the Superintendent's consent.
While there is still uncertainty in the financial and economic environment, OSFI believes that easing portability in this targeted way, and subject to the announced restrictions on the amounts that can be transferred out, will help accommodate plan members who were counting on being able to access funds, while at the same time guarding against transfers out that would impair plan solvency. This partial easing is also intended to address liquidity concerns that have been expressed by many plan administrators. The portability freeze, even in its current form, is viewed by OSFI as a temporary measure. While it is in place, plan administrators may still request the Superintendent's consent for portability transfers on behalf of their members through the consent process outlined in questions 18 and 19.
No. The freeze does not apply to defined contribution plans, nor does it apply to the benefits payable from the defined contribution provisions of a plan with both defined benefit and defined contribution provisions (i.e. a combo plan).
No. The portability freeze does not affect the monthly pension payments that retirees or surviving spouses are currently receiving from a federally registered private pension plan. The freeze also does not affect the payment of monthly pensions from the plan for future retirees or surviving spouses.
The portability freeze came into effect on March 27, 2020. Any amounts still in the pension fund on that date are subject to the portability freeze. We expect plan administrators to make best efforts to keep the money in the fund and cancel payment authorizations. However, we understand that in some cases, administrative processes may be difficult to reverse, and recognize that some payments may have been processed in the days following the freeze.
As a result of the recent changes to the
Directives of the Superintendent, any transfers to locked-in vehicles that were in process on March 27, 2020, for members who were within 10 years of pensionable age at the time of cessation of membership may now be processed by the plan administrator, subject to the transfer criteria described in question 4.
No. A buy-in annuity is not considered an immediate or deferred life annuity under section 26.1 of the
Pension Benefits Standards Act, 1985. As indicated in OSFI guidance on
Buy-in Annuity Products, they are considered an investment of the plan and are subject to the same rules that apply to any investment made by the plan administrator.
The freeze applies to all transfers and annuity purchases, including those involving the wind-up of a plan after the approval of the termination report.
Consent will be required for any buy-out annuity purchases on or after March 27, 2020. For any buy-out annuity purchases in progress, OSFI should be contacted as soon as possible.
Yes. Former spouses and common-law partners who are entitled to a portion of the pension as a result of a split under provincial property law are treated as former members of the plan and transfers are subject to the same transfer restrictions.
Yes. A transfer deficiency payment is the amount by which the commuted value of a pension benefit exceeds the amount already transferred. It is the amount still owed to the former member due to limitations on portability related to the solvency position of the plan. The transfer deficiency is part of a member's total commuted value, and is transferred out of the plan pursuant to section 26 of the
Pension Benefits Standards Act, 1985. Transfer deficiency payments are, therefore, subject to the portability freeze.
Yes. If for any reason a plan administrator is required to make an adjustment to a transfer that was made under section 26 of the
Pension Benefits Standards Act, 1985, the adjustment is also transferred pursuant to section 26, and therefore subject to the portability freeze. As a result of the recent changes to the
Directives of the Superintendent, if the adjustment relates to a transfer to a locked-in vehicle for a member who was within 10 years of pensionable age at the time of cessation of membership, the transfer may be processed, subject to the transfer criteria described in question 4.
The freeze does
not affect payments from the fund that are not portability transfers under section 26 of the
Pension Benefits Standards Act, 1985 (PBSA). This includes:
The federal government is not a party to the multilateral agreement respecting multi-jurisdictional pension plans between many provinces that came into effect on July 1, 2016. This agreement includes a provision applying the portability restriction rules of the jurisdiction under which the plan is registered to portability transfers. Given the agreement does not apply:
Treatment of members in a federally registered multi-jurisdictional plan
Provincial members are not subject to the portability freeze imposed by OSFI in a federally registered multi-jurisdictional plan. Therefore, any portability restrictions that apply under the pension legislation of the applicable province will apply to the benefits eligible for transfer of those provincial members, former members or surviving spouses. However, to ensure fair treatment of federal and provincial members in federally registered multi-jurisdictional plans, administrators are encouraged to contact their OSFI Relationship Manager to determine what portability restrictions would be appropriate to apply to federal members.
Administrators of multi-jurisdictional plans that are registered with OSFI and Quebec or OSFI and Newfoundland and Labrador should also contact their OSFI Relationship Manager to determine what portability restrictions would be appropriate to apply to federal members.
Treatment of federal members in a provincially registered multi-jurisdictional plan
The interests of federal members in provincially registered multi-jurisdictional plans are not best served by imposing a portability freeze when other members are permitted to exercise portability in accordance with the provincial portability restrictions. Therefore, to treat those federal members fairly, OSFI has adjusted the portability freeze in the
Directives of the Superintendent to allow portability in accordance with the provincial portability restrictions for federal members in provincially registered multi-jurisdictional plans.
For transfers for which the Superintendent's automatic consent applies, please refer to question 4.
The Superintendent will consider consent for other transfers or an annuity purchase depending on the circumstances of the pension plan. Requests must clearly demonstrate that the proposed transfer(s) or buy-out annuity purchase(s) do not unduly impact the security of the benefits of the remaining members and other beneficiaries of the plan. Additionally, the plan administrator should provide details of the proposed transaction(s), a recent estimated solvency position of the plan, and the rationale for the proposed transaction(s), including any special circumstances that require consideration by the Superintendent. As described under question 17, the Superintendent will also consider the portability restrictions of pension plan members of other jurisdictions in the same pension plan.
Should the Superintendent consent to the request, the consent will likely include a condition. That is, the transfer or the buy-out annuity purchase can only occur at a recent estimated solvency level of the plan, unless the solvency ratio of the plan is restored to its level prior to the transfer or annuity purchase (i.e. the employer makes a payment to the plan representing the excess of the full amount over the amount at the recent estimated solvency level of the plan).
A plan administrator who is satisfied that the transfer would not materially impair the solvency of the pension fund, may request consent on behalf of a single member or a group of members. For instance, a plan administrator may request consent for all commuted value transfers to be paid out in the next month(s), or it may request consent on behalf of members who are experiencing financial hardship.
Plan administrators should contact their OSFI Relationship Manager or send an email to
Yes. If the Superintendent has previously granted consent for one or more transfers or annuity purchases, the consent and any applicable conditions will continue to apply.
Yes. The plan administrator may still submit requests for consent for members not eligible to retire and for buy-out annuity purchases.
No. Withdrawals for financial hardship cannot be made directly from a pension fund. They are only available from the locked-in vehicles to which a member's benefit may be transferred. If a member has ceased membership in the plan and would qualify for financial hardship unlocking from one of these vehicles, a plan administrator could seek consent from the Superintendent to transfer funds to that vehicle. More information on whether the member would qualify to withdraw funds under the financial hardship unlocking provisions is available on
OSFI's website. Please refer to questions 18 and 19 for details on how to seek the consent of the Superintendent.
Initially, the freeze applied to all portability transfers. Although the
Pension Benefits Standards Act, 1985 does not require it, some plans allow members who are within 10 years of pensionable age (i.e. eligible for early retirement) to transfer the value of their pension benefit out of the plan. As a result of the recent changes to the
Directives of the Superintendent, if the transfer is permitted by the terms of the plan and the member elects a transfer to a locked-in vehicle, the transfer must be processed by the plan administrator, subject to the transfer criteria described in question 4.
No. If a plan allows members who are within 10 years of pensionable age (i.e. eligible for early retirement) to transfer the value of their pension benefit out of the plan, then the transfer must be processed in accordance with the
Directives of the Superintendent (the Directives). If a plan administrator has concerns about complying with the Directives, they should contact their OSFI Relationship Manager.
Plan administrators are ultimately responsible for the risk management of their pension plans. A plan administrator may determine that, given the freeze is expected to be temporary, it is not in the best interest of the plan and its members to seek consent to transfer on behalf of one or more members. In situations of financial hardship, we would expect that a plan administrator would make such a request if they are satisfied that these transfers would not materially impair the solvency of the pension fund.
Yes. Members should still be given their option forms. Under the portability freeze, the member's entitlement to a pension benefit calculated as of their termination date is unaffected; however, most transfer options are temporarily on hold. The member whose benefits are still subject to the freeze can select a commuted value option but the administrator cannot make the transfer at this time without prior consent of the Superintendent.
Once the freeze is lifted, the administrator can transfer the member's entitlement out of a plan and interest would have to be added on the commuted value to take into account the delayed transfer. More details on delayed payments are available in
this article in InfoPensions 7.
The commuted value should be calculated as at the member's termination date. A re-calculation is only permitted if the re-calculated amount is greater than the commuted value calculated at the termination date, plus interest. More information on recalculations is available in
this article in InfoPensions 12.
Administrators must clearly communicate the period during which members can elect a transfer. OSFI encourages plan administrators to consider extending transfer election deadlines beyond the legislated minimum of 60 days after receiving the termination statement to allow members to reassess their options at the time the freeze is lifted and they are permitted to transfer. Please note that once a pension benefit commences to be paid from the plan, the recipient cannot later elect a commuted value transfer.
A member's entitlement to elect a commuted value transfer at termination is based on the member's entitlement at the time of cessation of membership, not at the time the freeze is lifted. That is, the member will continue to be eligible to elect this option when the freeze is lifted, even though they may have reached a threshold age (such as eligibility for early retirement).
Yes. The administrator should inform affected members of the portability freeze and the impact it could have on their ability to elect a transfer of their commuted value. Please refer to question 26 for more details.
The effect of the COVID-19 pandemic on the financial and economic environment may raise questions about the solvency of private pension plans. The market volatility affects the value of plan assets while at the same time lower interest rates increase pension plan liabilities (by increasing the estimated cost of paying future pension benefits). As a result, the solvency position of most defined benefit plans has deteriorated since the end of 2019. Though most pension plans under OSFI's supervision were in a relatively strong financial position heading into 2020, the impact of the COVID-19 pandemic on financial markets and pension plans has prompted OSFI to put in place special temporary measures to protect the rights and interests of plan members and beneficiaries.
OSFI is closely monitoring financial market conditions and their impact on federally registered private pension plans and communicates frequently with plan administrators. It is important to remember that pension plans' investment outlook is long-term and they must meet and maintain standards that support their long-term viability. As such, pension plans should be administered in a way that is designed to weather market volatility.
No. The freeze only applies to pension benefits that are subject to the
Pension Benefits Standards Act, 1985.
A projected solvency ratio, as set out in section 1 of the
Directives of the Superintendent, is the solvency ratio of the plan projected to a calculation date no earlier than March 31, 2020, as determined by an actuary.
This projected solvency ratio must take into account
between the valuation date of the most recent actuarial report of the plan and the calculation date of the projected solvency ratio. Other items may be taken into account as determined by the actuary.
It is not necessary to provide the estimate unless OSFI requests it.
At this time, OSFI is not considering extending the deadline for the production of individual statements. If a plan administrator is facing challenges complying with the prescribed timelines, they should contact their OSFI Relationship Manager. Requests will be considered on a case-by-case basis.
Yes. The deadline extension applies to filings that are shared with the Canada Revenue Agency (i.e. the OSFI 49A Schedule A – Canada Revenue Agency Information Requirements).
It is too early to confirm whether the Actuarial Guide will come into effect late summer/early fall as initially planned. Once the suspension of consultations is lifted, OSFI will accept further submissions. Until such time, actuarial reports should be prepared using the
October 2017 version of the Actuarial Guide.
There is no prohibition under the
Pension Benefits Standards Act, 1985 or its regulations from reducing the level of employer or employee contributions to a defined contribution plan on a go forward basis because of a pension plan amendment. The plan text cannot be amended retroactively. Employers should consider restrictions under collective agreements and labour and employment law before proceeding with a reduction. If an employer is in a situation where any contributions at all to a defined contribution plan during this crisis are problematic, they should contact their OSFI Relationship Manager.
Some forms prescribed under the
Pension Benefits Standards Regulations, 1985 (PBSR) must be sworn before a notary public, commissioner, or other person authorized to take affidavits. There is nothing in the
Pension Benefits Standards Act, 1985 or PBSR on notarization or commissioning. As a result, OSFI expects that the standard procedures for such processes may be applied.
OSFI would not object to forms being sworn through virtual means, provided those means have been approved by the appropriate provincial or public regulatory bodies responsible for establishing standards for notary publics, commissioners or other persons authorized to take affidavits. If a financial institution has any reason to believe that the procedures required by such bodies were not complied with, then it should not accept the form for processing.
OSFI encourages electronic submissions, which should be sent to the following email address:
Subsection 31.1(1) of the
Pension Benefits Standards Act, 1985 permits 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 receive information via an electronic document and have designated an information system such as an email address or website for receipt of the document. In addition, the information must be accessible to the addressee and be capable of being retained by the addressee, so as to be usable for future reference.
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 behalf of their spouse or common law partner. A spouse or common-law partner must provide consent to receive the information electronically and designate an information system.
Yes. Section 31.2 of the
Pension Benefits Standards Act, 1985 provides that electronic signatures are permitted if
The recent revisions to the
Directives of the Superintendent included several housekeeping changes to sections 2 and 4 to reflect previous announcements and delete outdated transitory provisions.
Pension Benefits Standards Regulations, 1985, solvency special payments must be made at least monthly and are due 30 days after the period in respect of which the payment is being made. For example, a solvency special payment for March 2020 is due by April 30, 2020.
As announced by the Department of Finance, the
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) establish a moratorium that effectively applies to solvency special payments that become due during the period beginning on April 1, 2020 and ending on December 30, 2020.
Current service contributions and going concern special payments must continue to be made.
Other than for a
negotiated contribution plan, employers continue to be required to fully fund any solvency deficit in the event of a plan termination.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations), the amounts of any solvency special payments made after March 31, 2020, until the coming-into-force date (May 27, 2020), can be deducted from the plan's required current service (or normal cost) contributions and/or going concern special payments in the period beginning on May 27, 2020 and ending on December 30, 2020.
The Relief Regulations also provide that interest is not payable on any unpaid solvency special payment instalments that became due between March 31, 2020 and May 27, 2020.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) apply to all defined benefit plans registered or filed for registration under the
Pension Benefits Standards Act, 1985 that have a solvency deficiency to be funded during the period from April 1, 2020 to December 30, 2020.
The Relief Regulations do not apply to defined contribution plans.
If an employer has already obtained letters of credit to cover solvency special payments for all of 2020, the
Solvency Special Payments Relief Regulations, 2020 allow the employer to reduce the face value of the letters of credit, provided that, after the reduction, the letters of credit are sufficient to cover the 2020 solvency special payments not subject to the moratorium.
Yes. Employers may continue to make solvency special payments during the moratorium.
As solvency special payment requirements are determined on an average solvency ratio basis, plans with a solvency ratio of 1.0 or greater should contact the Canada Revenue Agency before making solvency special payments during the moratorium, as there may be tax implications.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) provide a moratorium on the amounts of any solvency special payments due from April to December 2020. The Relief Regulations specify that solvency special payments made during the moratorium are not considered to be an 'additional payment' under subsection 9(6) of the
Pension Benefits Standards Regulations, 1985 unless the payments are in excess of the solvency special payments that would have been required, but for the Relief Regulations.
Solvency Special Payments Relief Regulations, 2020 do not set out a separate amortization schedule for the solvency special payments that were foregone during the moratorium. At the end of the moratorium, if there are no further changes to the
Pension Benefits Standards Regulations, 1985, plans will be subject to the normal funding rules, which provide that any solvency deficiency is to be amortized at least through monthly instalments over a five year period.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) place restrictions on certain types of plan amendments in order to ensure that the amendment does not negatively impact a plan's solvency position and/or improve benefits while reduced funding requirements are in place, unless the plan is well funded on a solvency basis after the plan amendment.
The Relief Regulations provide that, unless authorized by OSFI, any plan amendment would be void, or in Quebec, null if the amendment would reduce the solvency ratio of the pension plan and the solvency ratio would be below 1.05 once the amendment is made; or if the solvency ratio of the pension plan is below 1.05 and the amendment would increase pension benefits or pension benefit credits.
No. In accordance with section 8 of the
Directives of the Superintendent, employers must still remit a "top-up" payment to the fund (i.e. the amount of the transfer deficiency) if the plan transfers a member's full commuted value.
When a new actuarial report is filed with OSFI and the solvency deficiency to be amortized has increased relative to the previous report, a "catch-up" payment (i.e. amount equal to the difference between the new and the previous solvency special payments, plus interest) is normally made in respect of months that have elapsed in the plan year prior to filing the report.
Solvency Special Payments Relief Regulations, 2020, a catch-up payment that would normally be made between the coming-into-force date (May 27, 2020) and December 30, 2020 is considered part of a solvency special payment instalment and therefore is not required to be paid.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) set out that, for plan years in which the moratorium applies, plan administrators must provide information on the amounts of solvency special payments that were made during the plan year, and the amounts of solvency special payments that would have been required, but for the Relief Regulations.