- Type of Publication: Newsletter
- Date: January 2009
- No: 30
The PBSA Update includes descriptions of how the Office of the Superintendent of Financial Institutions (OSFI) applies selected provisions of the Pension Benefits Standards Act, 1985 (PBSA), its regulations and directives and OSFI guidelines. Plan administrators should obtain appropriate legal and actuarial advice on how the legislation and guidelines affect their particular pension plan.
1. Funding Relief
The Department of Finance has asked OSFI to communicate the following information regarding the Government's solvency funding relief proposal included in the November 2008 Economic and Fiscal Statement.
The proposal will allow federally regulated private pension plans to extend their solvency funding payment schedule from 5 to 10 years in respect of solvency deficiencies reported at a plan year-end date from November 1, 2008 to October 31, 2009. Plan administrators pursuing this option would have to meet one of the following two conditions by the end of the first year of funding relief:
- both members and retirees have agreed to the extended schedule; or
- the difference between the 5 and 10 year payment schedule is secured by a letter of credit.
The first year's solvency deficiency payments would be based on the 10 year amortization period and would not require either of the above conditions to be met. However, if neither of these conditions has been met by the end of the first year of funding relief, the plan would be required to fund the remaining deficiency over the following 5 years.
The exact form of the conditions will be set out in regulation, and will be similar to those requirements set out in the 2006 Solvency Relief Regulations. The announced relief measures do not, however, provide the option of consolidating a plan's previously established solvency payment schedules into a new five year schedule, nor does it anticipate the solvency relief being extended to later plan years.
In the Statement, the Government also announced that it will shortly begin a consultation on private pension issues, with one of its objectives being to review the solvency funding rules, and having any changes in place for fall 2009. On January 9, 2009, the Minister of Finance released a discussion paper on improving the framework for federally regulated private pension plans.
2. Estimated Solvency Ratios (ESRs) Industry Summary Results
OSFI regulates approximately 1,400 private pension plans operating in Canada. Of these, about 400 are defined benefit pension plans. OSFI estimates solvency ratios for all federally registered defined benefit pension plans to assist with the early identification of solvency issues that could jeopardize the security of promised pension benefits. Please see Update 26 for an explanation of how OSFI calculates ESRs and how the results are used.
OSFI’s most recent estimate for the period ending June 30, 2008 indicated that 71% of the 400 federally registered defined benefit plans were under-funded, on a solvency basis, as at that date. This compares to 56% on December 31, 2007. The weighted average ESR for these pension plans was 0.98 as at June 30, 2008 (1.05 on December 31, 2007).
Over half of the 400 defined benefits plans regulated by OSFI are expected to file a valuation report for the December 2008 year-end. These reports will determine funding requirements for 2009. December 2008 valuations can be expected to trigger materially higher funding requirements in 2009, notwithstanding the recently announced solvency funding relief.
Average ESR Trend
3. Market Downturn - Defined Benefit Pension Plans
In PBSA Update 29 (June 2008), OSFI emphasized the importance of scenario testing and noted that ESR testing will continue as a part of OSFI's assessment of the effect of market conditions on pension plans. OSFI recently issued a memo for defined benefit plan administrators reminding them to consider the implications of the market downturn on their plans and re-iterating the importance of scenario testing.
4. Revised Final Standard of Practice for Pension Commuted Values
The Actuarial Standards Board of the Canadian Institute of Actuaries recently released the revised Final Standard of Practice for Pension Commuted Values (Section 3800). The revised standard becomes effective in April 2009 and allows for early implementation for solvency valuations, subject to regulator consent. OSFI has recently issued a memo to actuaries of federally regulated defined benefit pension plans setting out the circumstances under which OSFI will permit the use of the Revised Standards for solvency valuations prior to the April 2009 effective date.
5. Change to RRIF Minimum Withdrawal
The November 2008 economic statement announced a temporary reduction in the Registered Retirement Income Fund (RRIF) minimum withdrawals set forth in the Income Tax Act. It was also announced that those who had already withdrawn amounts in excess of the temporary minimum would be allowed to re-contribute to their RRIFs any amount that they had withdrawn above this minimum, as long as the re-contribution was made before March 1, 2009.
Federally Regulated Life Income Funds (LIFs) and Restricted Life Income Funds (RLIFs) are also subject to the same minimum withdrawals as RRIFs. This new initiative would therefore also give LIF and RLIF holders the option of re-contributing these withdrawn funds back into a RRIF. If such funds are re-contributed to the LIF or RLIF, OSFI considers that the funds should be treated in the same manner as the rest of the funds in the LIF or RLIF
6. New Unlocking Rules
OSFI has recently updated its Frequently Asked Questions (FAQs) on the unlocking of federally regulated Life Income Funds. All three forms related to the new regulations, as well as an instructional guide explaining how to complete Form 1 (Financial Hardship), are now available in both Word and PDF formats.
The updated FAQs and forms are available on the OSFI Web site.
7. Proposed Multi-jurisdictional Agreement
The Canadian Association of Pension Supervisory Authorities (CAPSA) has released a proposed Agreement Respecting Multi-Jurisdictional Pension Plans for review and comment by pension stakeholders and is available on the CAPSA Web site. The proposed agreement is not the official position of any provincial or federal government or agency.
The proposed agreement sets out a new framework for the administration and regulation of multi-jurisdictional pension plans which will apply the rules of the jurisdiction where the plan is registered for matters affecting the entire plan, and the rules of the jurisdiction in which plan members are employed for matters affecting their entitlements. The proposed agreement also addresses matters not contemplated in pension legislation, such as the allocation of assets among jurisdictions on plan termination or asset transfer.
CAPSA is interested in receiving the views of stakeholders prior to finalizing and submitting the agreement to governments for consideration. Written submissions have been requested by January 30, 2009.
8. OSFI Consultation about Approvals Process
In the winter and spring of 2008, OSFI conducted 2 waves of interviews with pension plan administrators. The purpose was to find out what plan administrators like, or don’t like, about our approvals process, and to collect suggestions for improvements.
We spoke to a total of 25 pension plan administrators – representing both Defined Benefit and Defined Contribution pension plans – for whom we had recently completed different types of approvals. The majority of administrators we contacted agreed to speak with us.
The main findings of the study were:
- OSFI’s instructions for filing an approval request are considered helpful.
- The approvals process is seen to be too slow.
- The approvals process, and the roles of OSFI’s Private Pension Plans Division (PPPD) staff, are not well understood.
- OSFI’s PPPD staff are viewed as knowledgeable and professional.
In response to your comments, OSFI has developed an action plan. One of the first steps is to provide pension plan administrators with more information on how we process your applications. Some of that information is provided in this edition of the PBSA Update.
OSFI is implementing a streamlined and automated pension plan approvals process, with dedicated resources and increased communications with plan administrators. More information about the new process will be published in the spring of 2009.
We would like to thank those of you who took the time to speak with us. Should you wish more information about the consultations, please contact Laura Buckland at (613) 990-9959 or email@example.com.
9. Approvals Function within the Private Pension Plans Division
Administrators of pension plans subject to the PBSA are required to seek approval from the Superintendent of Financial Institutions for certain types of transactions affecting their pension plans, including plan registration, asset transfers, full and partial plan terminations, refunds of surplus and reduction of benefits.
Private Pension Plans Division (PPPD)
The PPPD is comprised of two operational lines reporting to Judy Cameron, the Managing Director of the Division, as well as groups handling special projects and legislation and liaison.
Supervision (Linda Maher – Director)
Using a risk-based approach, Relationship Managers (RMs) in this section monitor the operations and financial situation of the approximately 1,400 private pension plans subject to the PBSA.
Actuarial, Policy and Approvals (Jean-Claude Primeau – Director)
This section provides actuarial advice to PPPD, establishes operational policy, and makes recommendations on transactions submitted for authorization under the PBSA.
Plan administrators’ main contact with OSFI remains the Relationship Manager (RM) in the PPPD. Plan administrators and consultants will also deal with Approvals officers regarding the authorization of transactions as well as with the Regulatory Information Division of OSFI regarding required annual filings such as the Annual Information Return (AIR) (OSFI 49) or Certified Financial Statements (OSFI 60).
Plan administrators are strongly encouraged to contact their RM early in the process of contemplating significant plan amendments or transactions requiring approval or authorization by OSFI.
When the plan’s RM receives correspondence from the pension plan, documentation requiring authorization is referred to the Approvals team.
Upon receipt, the Approvals team issues an acknowledgment to the plan administrator and consultant, giving the contact name in the Approvals team. The Approvals officer then reviews the package and communicates any deficiencies to the plan administrator or consultant who made the submission.
The most common cause of delays in the approvals process is incomplete application packages. In response, OSFI has developed instruction guides and standardized forms to assist plan administrators in preparing complete approval packages. These guides are available on the OSFI website: Instructions and Guidelines. The waiting time to obtain an approval can be substantially reduced when administrators follow the requirements of the guides, complete the forms and submit approvals packages within the prescribed timelines.
Timelines and Priorities
The time it takes to issue an approval decision can vary from a month to over a year, depending on the type of plan and approval, whether legal and actuarial issues need to be resolved, and how quickly the plan administrator/consultant is able to address deficiencies and enquiries.
A focused effort to reduce the backlog in requests for approval that had developed in recent years resulted in a 25% cut in the number of outstanding approval requests with a 50% reduction in cases more than two years old. OSFI published additional approval instruction guides, added resources and introduced more streamlined processes to improve timeliness while ensuring complex transactions are carefully considered.
In 2007-2008, OSFI received over 100 new requests for approval. Recent data shows that the number of approval requests has increased by 30% over the same period in 2007-2008. In response to the increased number of transactions and industry feedback, OSFI will continue to seek opportunities to streamline the pension approvals process and to improve approval turnaround times through the development of performance benchmarks.
10. Guidance Note - Negotiated Contribution Defined Benefit Pension Plans
In September 2008 OSFI issued a guidance note addressing OSFI’s expectations for the enhanced disclosure of information from the board of trustees of negotiated contribution defined benefit (NCDB) pension plans to plan members, former members and other beneficiaries. In addition, this guidance note emphasizes that it is good governance practice for NCDB plan boards of trustees to review their plan and trust terms in order to be aware of the obligations and options for balancing the NCDB plan’s funding and benefit aspects.
11. Instruction Guide for Defined Contribution Pension Plan Terminations
In August 2008, OSFI issued an instruction guide for filing and reporting requirements for defined contribution pension plan terminations. This instruction guide replaced the draft guide that was issued in March 2008. The instruction guide sets out OSFI’s expectations for filing and reporting requirements where a defined contribution pension plan has terminated, in whole or in part, under the PBSA. The guide does not apply to a termination report for a pension plan with a defined benefit component.
OSFI also issued a Standardized Termination Report that may be used for most defined contribution plan terminations.
12. Draft Instruction Guide for Actuarial Reports
In August 2008, OSFI issued a draft instruction guide for the preparation of actuarial reports for defined benefit pension plans to replace OSFI’s previous instructions to actuaries that were issued in June 2000. The draft guide sets out OSFI’s current filing and reporting requirements for actuarial reports filed pursuant to subsection 12(3) of the PBSA. The draft guide also consolidates policies published in PBSA Update since 2000 and addresses other topics that have emerged since the previous instructions were issued.
The draft guide does not address the reporting of information specific to plan terminations, conversions, asset transfers or amendments reducing benefits. Guidance detailing report content requirements for these events are available on the OSFI Web site.
Comments on the draft guide were requested by October 31st, 2008 and a finalized version should be issued early in 2009
13. Instruction Guide for Asset Transfers between DC Plans
In December 2008, OSFI issued an instruction guide for asset transfers between defined contribution (DC) pension plans. This instruction guide replaced the draft guide that was issued in August 2008. The guide informs the pension industry of the general principles as well as more detailed requirements that OSFI will generally expect to be satisfied before granting permission to the transferring plan administrator to transfer assets from one DC pension fund to another DC pension fund under the PBSA.
OSFI also issued a Standardized Asset Transfer Request Form for DC Plans that may be used for most asset transfers between DC plans.
14. AIS Required for Termination Reports and Revised Actuarial Reports
In some cases, filings of termination reports or revised actuarial reports for defined benefit plans have not been accompanied by an Actuarial Information Summary (AIS). OSFI’s electronic information and monitoring system relies on accurate data provided through the AIS form so any termination report or revised actuarial report for a defined benefit plan must be accompanied by an AIS.
15. Policy Advisory Project
OSFI has recently created a Pension Policy Advisories section of the OSFI Web site. The advisories section is organized by topic and currently contains recently issued significant policy decisions along with any instruction guides or guidance notes available. Policies documented in previous issues of this pension newsletter Update are currently being reviewed and updated where necessary and these will be added to the new area for easy reference over the next year. We will seek input from pension stakeholders on the revisions where appropriate.
16. Amendments to Supporting Plan Documents
OSFI has noticed that many pension plans do not file all amendments to the documents supporting the pension plan, e.g. trust agreements or custodial agreements. In some cases, it appears that current agreements have never been filed with OSFI. If current and complete versions of the supporting documents are unavailable, certain requested approvals for pension plan transactions will be delayed.
OSFI would like to remind plan administrators that subsection 10(1) of the PBSA requires plan administrators to file a copy of every document that creates or supports the plan or the pension fund and section 10.1 requires the administrator to file, within 60 days, any amendment to any of these documents.
17. Electronic Filing Update
In PBSA Update 28 (December 2007), we solicited feedback on the electronic filing of required regulatory information. In an effort to address some of the concerns that we heard, OSFI is moving ahead on the following changes:
- Effective immediately, pension plan administrators will no longer have to submit signed copies of the Annual Information Return (AIR) and Certified Financial Statements (CFS) when they file their regulatory returns. Instead, administrators will be expected to keep signed copies of these returns in their own records.
- A new Automated Data Transfer (ADT) option will be introduced in early 2009. This voluntary option will allow pension plans to submit their returns electronically over the Internet, instead of by diskette or CD through the mail. The ADT application is hosted by the Bank of Canada, who will ensure that regulatory filings submitted to them are passed on to OSFI. Detailed procedures on the required steps to follow will be forthcoming.
- Finally, in order to address the areas where OSFI observed the greatest number of errors, we are working with the vendors of the e-filing software to modify, where necessary, the data validation rules applied to the returns.
We appreciate the comments and feedback that we receive. In an effort to continuously improve the electronic filing process, we urge stakeholders to continue to provide OSFI with comments and suggestions. OSFI Contact Information
FAQs for electronic filing are available on the OSFI Web site.