Office of the Superintendent of Financial Institutions
This Instruction Guide is intended for plan administratorsFootnote 1 of defined benefit pension plans registered under the Pension Benefits Standards Act, 1985 (PBSA). This Instruction Guide sets out the factors along with the specific requirements that the Office of the Superintendent of Financial Institutions (OSFI) generally considers with respect to an application seeking the Superintendent’s authorization under paragraph 10.1(2)(a), Text for screen readers: 10.1(2)(a) = 10.1(2)(1), of the PBSA. This paragraph applies to an amendment that has the effect of reducing pension benefits or pension benefit credits accrued before the date of the amendment or an immediate or deferred pension benefit to which a member or former member was entitled before the date of the amendmentFootnote 2. In this Instruction Guide, such an amendment is referred to as a “Reducing Amendment”. An amendment that reduces future service accruals does not require the authorization of the Superintendent.
The factors and requirements set out in this Instruction Guide are intended to protect the rights and interests of members, former members and other beneficiaries under the PBSA, and to ensure the minimum funding requirements for the ongoing pension plan will be met.
Plan administrators are expected to determine whether or not an amendment requires authorization under paragraph 10.1(2)(a), Text for screen readers: 10.1(2)(a) = 10.1(2)(1), of the PBSA and are encouraged to contact OSFI to discuss any proposed amendments.
In addition, if a Reducing Amendment is part of a workout agreement negotiated with members under the Distressed Pension Plan Workout SchemeFootnote 3, the plan administrator may wish to contact OSFI to discuss the implications of the timing of the application for the Superintendent’s authorization under paragraph 10.1(2)(a), Text for screen readers: 10.1(2)(a) = 10.1(2)(1), of the PBSA.
In accordance with subsection 10.1(1) of the PBSA, plan administrators must file with OSFI amendments to any pension plan document within 60 days after an amendment is made. Paragraph 10.1(2)(a), Text for screen readers: 10.1(2)(a) = 10.1(2)(1), provides that certain amendments are void unless authorized by the Superintendent. This paragraph applies to all pension plans subject to the PBSA including negotiated contribution plans.
Unless the Superintendent authorizes the amendment, an amendment is void or, in Quebec, null if
it would have the effect of reducing
pension benefits accrued before the date of the amendment or pension benefit credits relating to pension benefits accrued before the date of the amendment, or
an immediate or deferred pension benefit to which a member, former member or any other person was entitled before the date of the amendment;
The following questions may help the plan administrator determine whether an amendment requires authorization under paragraph 10.1(2)(a), Text for screen readers: 10.1(2)(a) = 10.1(2)(1), of the PBSA:
If the answer is yes to any of the above, it is likely that the amendment is a Reducing Amendment.
An accrued pension benefit includes:
For more information on pension benefits payable at pensionable age, see the policy advisory on Vested Benefits Payable to Terminating Employees.
When reviewing requests from pension plan administrators for authorization of a Reducing Amendment, OSFI will consider the particular circumstances of each case. OSFI’s review is guided by the following general principles:
OSFI also considers a number of factors relevant to the specific request, including:
For all pension plans other than negotiated contribution plans, the amendment power in the plan text and any supporting documents, including historical plan documents, must allow for a Reducing Amendment and the amendment must be instituted in accordance with those documentsFootnote 4. This can be determined in different ways, including a review of the wording of the plan documents or agreement to the Reducing Amendment by all affected groups. Where the plan’s amendment power does not permit a unilateral amendment, OSFI expects unanimous agreement to the Reducing Amendment by all affected groups.
A negotiated contribution plan is defined in section 2 of the PBSA. The key attributes of such a plan are:
In accordance with section 10.11 of the PBSAFootnote5, an administrator of a negotiated contribution plan may make a Reducing Amendment, despite the terms of the plan and subject to the Superintendent’s authorization.
Regardless of whether there is a bargaining agent, a plan administrator must individually inform affected members and their spouses or common-law partners, former members, retirees or other beneficiaries of the impact of a Reducing Amendment and of their right to make representations to the Superintendent regarding the Reducing Amendment.
The notice to members and beneficiaries must include:
Plan administrators are encouraged to submit a draft notice to OSFI for review, to ensure that it meets OSFI’s requirements, before it is provided to those affected by the Reducing Amendment. The final version of the notice, along with written confirmation that it has been sent to affected groups, must be submitted to OSFI before the Reducing Amendment will be considered for authorization. In addition, any objections received by the plan administrator, employer or any employee or retiree representatives, along with any response, must be forwarded to OSFI for its consideration.
It is recommended that the plan administrator hold an information session in conjunction with the notice. A summary of the results of the session (including attendance) should be sent to OSFI along with a copy of any presentation material.
OSFI requires the following information be prepared and filed when a request for authorization of a Reducing Amendment is made under paragraph 10.1(2)(a), Text for screen readers: 10.1(2)(a) = 10.1(2)(1), of the PBSA.
The Superintendent’s authorization is a discretionary decision and, pursuant to subsection 5(3) of the PBSA, may be subject to terms and conditions. After reviewing all relevant information, OSFI will notify the plan administrator whether authorization is given for the Reducing Amendment under paragraph 10.1(2)(a), Text for screen readers: 10.1(2)(a) = 10.1(2)(1), of the PBSA. The plan administrator should forthwith notify affected members and beneficiaries of the decision.
Until such time as the Superintendent authorizes a Reducing Amendment, the plan administrator must administer the plan and remit contributions based on the plan provisions in effect before the Reducing Amendment was made. Any portability transfers from the fund must be in accordance with Section 8 of the Directives of the Superintendent Pursuant to the Pension Benefits Standards Act, 1985 and based on the solvency ratio of the plan prior to the Reducing Amendment. The Superintendent may require that the portability provisions of section 26 of the PBSA be suspended for the pension plan while the Reducing Amendment is being reviewed by OSFI, or may impose other transfer conditions if the solvency ratio of the plan is below one.
Negotiated contribution plans should anticipate funding requirements for the duration of their agreement and recognize that a Reducing Amendment cannot be implemented without the Superintendent’s authorization. All plan administrators are responsible for closely monitoring the plan’s solvency to anticipate and prepare for future adverse experience.
For purposes of this Instruction Guide, plan administrator includes any party purporting to have the authority to make an amendment to the pension plan.
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This Instruction Guide does not apply to other required authorizations under paragraphs 10.1(2)(b) to (d), Text for screen readers: 10.1(2)(a) to(d) = 10.1(2)(1) to 10.1(2)(4), of the PBSA.
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Sections 29.01 to 29.3 of the PBSA outline the provisions with respect to the Distressed Pension Plan Workout Scheme.
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Supporting documents may include documents or agreements outside the terms of the plan, such as collective bargaining agreements.
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Section 10.11 of the PBSA came into force on December 15, 2010.
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This information should continue to be provided in every actuarial report filed until OSFI has notified the plan administrator whether the Superintendent’s authorization is given for the Reducing Amendment.
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