InfoPensions - Issue 6 – November 2011
InfoPensions is the Office of the Superintendent of Financial Institutions’ (OSFI’s) 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 (PBSA), its regulations and directives and other OSFI guidance. Plan administrators should obtain appropriate legal and actuarial advice on how the legislation and guidelines affect their particular pension plan.
InfoPensions and PBSA Update (OSFI’s predecessor pension newsletter) are available on the Pensions Page of the OSFI website. To automatically receive new issues of this newsletter and other OSFI pension related documents by e-mail, subscribe through the Subscription Centre.
The next issue of InfoPensions will be posted in May 2012.
The Key PBSA/PBSR Amendments and In Force Dates table, last posted in InfoPensions - Issue 5, has been updated and can be found on the OSFI website. This table includes the current status of key changes to the PBSA and the Pension Benefits Standards Regulations, 1985 (PBSR). For details with respect to these changes please refer to the specific sections of the PBSA and PBSR.
The Parliamentary bills that amended the PBSA received Royal Assent; however, not all amendments are in force. Amendments not yet in force will come into force on a day or days to be fixed by order of the Governor in Council. PBSR amendments listed here came into force either on the date on which they were registered or on a date specified in the regulation. Further amendments to the PBSR are expected to follow, such as additional changes to the investment rules, disclosure to members and former members, variable payments from defined contribution plans, and agreement on multi-jurisdictional plans.
OSFI expects plan administrators to consider the impact of legislative amendments on the provisions of their plan documents. As some legislative changes still require regulations, OSFI will not expect formal amendments to plan documents until all PBSA and PBSR amendments have come into force. However, employers and administrators may amend their plan texts earlier or once coming into force dates are known. The PBSA applies to all federally registered pension plans and plan administrators must administer their plans in accordance with the PBSA and PBSR. Therefore, the provisions of the PBSA and PBSR that are in force will apply to the plan and must be administered by the plan administrator, regardless of what the plan text says.
Pooled Registered Pension Plans
On November 17, 2011, the Government of Canada tabled legislation in Parliament to implement the federal portion of the Pooled Registered Pension Plan (PRPP) framework. For more details please visit the Department of Finance website.
Amendments to section 23 of the Office of the Superintendent of Financial Institutions Act (OSFI Act) were included in Part 8 of Bill C-47 and will come into force on a date to be fixed by order of the Governor in Council. This section of the OSFI Act was amended to move the annual assessment of pension plans from the PBSA to the OSFI Act. Related draft regulations were published in the Canada Gazette Part I on October 1, 2011, with a 30-day public comment period. The proposed regulations support the move of the assessment authority from the PBSA to the OSFI Act, as well as make adjustments to the assessment formula with the objective of providing a better alignment between plans’ assessments and the cost incurred by OSFI in connection with administering the PBSA.
Some of the key adjustments to the assessment formula proposed in the draft regulations are as follows:
- All plan beneficiaries are included in the plan assessment base. The current formula captures only active members.
- There is a minimum plan assessment base of 50 plan beneficiaries. The current formula has a minimum plan fee base of 20 members.
As a result, OSFI expects the minimum annual assessment will increase from $440 in 2010-2011 to approximately $600, and the maximum annual assessment will increase from $220,000 to approximately $240,000.
The total value of assessments charged to federal pension plans will not increase as a result of the changes proposed in the draft regulations. Rather, these proposed changes would have the effect of adjusting the relative amounts that pension plans pay in order to better align those amounts with the effort undertaken by OSFI. As a result, some plans may experience an increase in their assessment while others may experience a decrease.
Plan assessments for plan year ends between October 1, 2011 and September 30, 2012
The proposed regulations set out the formula used to calculate plan assessments effective April 1, 2012. The current pension plan fee schedule posted on the OSFI website contains a fee rate for plan year ending between October 1, 2011 and September 30, 2012. It is expected, however, that a new fee rate will be prescribed under the proposed pension assessment regulations and will apply to plan year ends between October 1, 2011 and September 30, 2012. Once prescribed, this new fee rate would replace the current fee rate posted on the OSFI website. OSFI will continue to communicate further information on this matter. Questions and/or comments may be directed to email@example.com.
Pension Industry Forum
For the past two years, OSFI has held a Pension Industry Forum in Toronto. The Forums have focused on recent legislative changes and their impact on plan administration, as well as OSFI’s supervisory activities and expectations related to private pension plans. OSFI expects to host a third Pension Industry Forum in February 2012. OSFI invites external stakeholders to provide us with topics they would like to see discussed at the Forum. Suggested topics may be directed to firstname.lastname@example.org.
Preparation of Actuarial Reports—Designated Plans
A previous article in InfoPensions - Issue 3 provided a reminder of OSFI’s expectations with respect to the preparation of actuarial reports for pension plans that meet the definition of a designated plan under Regulation 8515 of the Income Tax Act (ITA).
OSFI continues to receive actuarial reports for designated plans that do not include the going concern and solvency valuations and related funding requirements under the PBSA. OSFI expects these valuations to be performed and any resulting special payments to be calculated and reported in the actuarial report, even if the reported payments are constrained by the ITA. In addition, OSFI expects going-concern and solvency special payments to be remitted to the pension fund to the extent permitted under the ITA.
For additional details of OSFI’s expectations in the preparation of actuarial reports for designated plans please see our Draft Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Plans.
Draft Instruction Guide - Preparation of Actuarial Reports
In May 2011, OSFI issued the Draft Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans and invited comments from external stakeholders. The final version of the Instruction Guide will be posted at a later date. Until such time, the Instruction Guide should be used while in draft form. The Instruction Guide outlines OSFI’s current filing and reporting requirements for actuarial reports for defined benefit pension plans. In addition to the Canadian Institute of Actuaries (CIA) Standards of Practice, OSFI expects actuaries to follow the requirements set out in the Instruction Guide.
In November 2011, The Canadian Association of Pension Supervisory Authorities (CAPSA) posted the following documents to its website.
- Guideline No. 6 on Pension Plan Prudent Investment Practices
- Self-Assessment Questionnaire on Prudent Investment Practices
- Guideline No. 7 on the Pension Plan Funding Policy
The prudent investment practices guideline and questionnaire are intended to provide guidance to plan administrators with respect to demonstrating prudence in the investment of pension plan assets. The funding policy is intended to assist plan administrators in the development and adoption of funding policies. These guidelines support the continuous improvement of industry practices and OSFI expects federally-regulated private pension plans to operate in accordance with these guidelines. Links to these CAPSA documents have been added to the OSFI website.
Retiree and Survivor Audits
OSFI has received questions from external stakeholders with respect to retiree and survivor audits, undertaken to ensure that pension benefits are not being paid after the death of a member or survivor. Performing these types of audits with the objective of updating plan records is a good governance practice. OSFI would like to remind plan administrators, however, that a pension benefit cannot cease to be paid without evidence that the retiree or survivor is deceased.
Estimated Solvency Ratio (ESR) Results and Chart
OSFI estimates solvency ratios for the approximately 400 defined benefit pension plans it regulates to assist with the early identification of solvency issues that could jeopardize the security of promised pension benefits. Please see InfoPensions - Issue 2 for details on how OSFI calculates ESRs and our intervention activities based on these solvency testing results.
The weighted average ESR was 0.90 at June 2011, compared to 0.93 at December 2010 and 0.87 at June 2010.
Weighted average ESRs
OSFI estimated that 81% of the approximately 400 defined benefit plans were underfunded on a solvency basis at June 2011, compared to an estimated 76% at December 2010. At June 2011, it is estimated that 25% of all federally regulated pension plans had a solvency ratio of less than 0.80, whereas at December 2010, the comparable proportion was 16%.
Policy Advisory - Benefits Subject to Consent
In August 2011, OSFI issued a policy advisory to provide further detail on OSFI’s expectations with respect to consent benefits. In the past OSFI has communicated its expectations with respect to consent benefits through a number of different means, including our Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans, our pension newsletter InfoPensions (previously named PBSA Update), as well as through our communication with individual pension plans. The policy advisory reiterates the messages OSFI has communicated in the past and specifically addresses OSFI’s expectations regarding an administrator's discretion to grant or deny these types of benefits.
Instruction Guide - Refund of Surplus
In September 2011, OSFI issued an updated Instruction Guide for Refund of Surplus that reflects changes to the federal pension legislation. This Instruction Guide came into effect when posted and replaces the previous Instruction Guide for Refund of Surplus issued in September 2001.
Stress Testing Guideline
In March 2011, OSFI posted its Draft Stress Testing Guideline for Pension Plans with Defined Benefit Provisions and invited comments from external stakeholders. Following OSFI’s review of the comments received, the final Stress Testing Guideline was posted in August 2011. The Guideline provides general information on stress testing and outlines OSFI’s expectations regarding the use of stress testing as a risk management tool. OSFI has communicated the importance of stress testing by pension plans on numerous occasions. This is the first time, however, that OSFI has issued a Guideline on stress testing addressed specifically to pension plans.
Private Pension Plans Division - Organizational Changes
There have been a number of staff changes in the Private Pension Plans Division (PPPD), including:
Director of Supervision
- Linda Maher, former Director of Supervision, retired at the end of June 2011. Linda led the pension supervision team since 2008.
- Tamara DeMos joined OSFI in June 2011 as the Director of Supervision in PPPD. Tamara previously worked at the Treasury Board Secretariat and with Mercer Human Resources Consulting, where she was a Principal and consulting actuary for pension plans.
Director of Actuarial and Approvals
- Jean-Claude Primeau, former Director of Actuarial, Policy and Approvals, left OSFI at the end of August 2011.
- Lisa Peterson is now the Director of Actuarial, Approvals and Reporting in PPPD. Lisa is a Fellow of the Canadian Institute of Actuaries and the Society of Actuaries and was previously a Manager in PPPD Supervision.