Issue 11 – May 2014

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 under the Pensions Plans link 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 2014.

 

Registration required for the new Regulatory Reporting System

The new Regulatory Reporting System (RRS) that was put in place for OSFI to receive regulatory filings from federally regulated private pension plans, deposit-taking institutions and insurance companies is now available for pension plans to file selected returns. Please note that the deadline for filing returns that were due in April and May was extended to June 30, 2014 due to a delay in implementing this new system.  For more information on the transition to RRS for pension plan filings, and RRS in general, please visit the RRS page on OSFI’s website.

The Bank of Canada is hosting the system and, by now, all registered users should have received their RRS username and password. If you have not yet received this information, please contact one of your Local Registration Authorities.  Any plan administrators who have not completed the documents to register for RRS, please do so as soon as possible and return them to the Bank of Canada. Registration is an initial step that must occur before you are able to use RRS to file your returns with OSFI. To avoid delays in filing your returns, please register as soon as possible. If you have not received a Registration Package or if you have any questions about the registration process, please contact the Bank of Canada at rrs-support@bankofcanada.ca. For more information about RRS, please visit the RRS page on OSFI’s website.

 

Federal Government Consultation Paper on Target Benefit Plans

On April 24, 2014, the Government of Canada released a Consultation Paper titled Pension Innovation for Canadians: The Target Benefit Plan. The Consultation Paper presents proposals to incorporate provisions on Target Benefit Pension Plans into federal pension legislation. The Government of Canada is seeking written comments on the approach and elements of the proposed federal target benefit plan framework and an indication of the interest among employers and employees in target benefit plans before June 23, 2014. Please send your feedback to the Department of Finance at pensions@fin.gc.ca.

 

New OSFI Website

On November 25, 2013 OSFI launched its new website. The new look and functionality is consistent with the standards established for all Government of Canada websites. The website is more accessible to those with disabilities, and aims to provide information in a more user friendly manner.

All pension-related information can be found under the Private Pension Plans tab. The pensions portion of OSFI’s website has a main page as well as specific pages for pension administrators and pension plan members.

The information for pension administrators is organized by pension plan type. Each type of pension plan (i.e. defined benefit, defined contribution and pooled registered pension plan) has its own page. Under each page, the information is divided into various topics (e.g. annual filing requirements). By choosing a topic, you can find various links to relevant information including guidance, forms and any recent newsletter articles.

The information for pension members contains the Member’s Guide as well as a list of frequently asked questions. The frequently asked questions are also listed by topic. The Member’s Guide will be re-issued when the final round of regulation changes are made. The regulation changes are necessary to support the amendments to the Pension Benefits Standards Act, 1985 that came into force in 2010 and 2011.

In February 2014, OSFI invited its subscribers to participate in an online survey to collect feedback on the newly redesigned OSFI website. Over 600 subscribers participated in the survey. Overall reactions to the redesigned website were quite positive, including its usability and organization. The results of the survey will be posted to the OSFI website early this summer.

 

Policy Advisory on the definition of Mutual Fund and Pooled Fund

In May 2014, OSFI published a policy advisory on the definition of “mutual fund” and “pooled fund” in Schedule III of the Pension Benefits Standards Regulation, 1985 (PBSR) as those terms relate to a fund established as a limited partnership by a corporation.  The purpose of the policy advisory is to communicate OSFI’s interpretation of the requirements for when such a fund would meet the definition of a “mutual fund” or “pooled fund” under the PBSR.

 

2014 Pension Industry Webinars

This year, instead of holding its usual in-person annual Pension Industry Forum in Toronto, OSFI hosted a web conference or “webinar” that included topics on supervisory findings and expectations, actuarial concerns and expectations with respect to regulatory approvals. The webinar was held on April 16, 2014 in English and April 17, 2014 in French. Based on the number of webinar attendees, our aim of reaching a greater number of stakeholders across the country was achieved.

On March 18, 2014, the Canada Revenue Agency and OSFI presented a joint webinar on Pooled Registered Pension Plans, focusing on the licencing and registration requirements.

Thank you to all of those who attended the webinar(s). If you have any questions or if you would like to provide feedback on the webinar you attended or provide suggestions for future webinars, please contact us at information@osfi-bsif.gc.ca.

 

Estimated Solvency Ratio Results and Charts

OSFI 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 jeopardize the security of promised pension benefits.

OSFI tests solvency using the most recent actuarial, financial and membership information filed with OSFI for each plan before the analysis date. Assets are projected, based on either an 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 CIA commuted value and annuity proxy rates. Expected contributions, benefit payments and expenses are taken into account and an ESR, based on the assumed market value of the fund, is then calculated for each plan. The ESR for any particular plan is an estimate only. The actual solvency ratio of a plan can differ from the ESR for a number of reasons.

As communicated in InfoPensions 10, OSFI decided to forego the June 2013 ESR calculation because, given the prevailing financial conditions, we expected that the need for OSFI to intervene based on a June ESR would not be significant. As such, there is no comparison to the June 2013 ESR calculation in the graphs below.

The weighted average ESR was 0.98 at December 2013. This compares to 0.83 in December 2012. The line graph below shows the current and previous ESRs (except for June 2013) dating back to December 2004.

Estimated Solvency Ratio (ESR)

As shown in the bar graph below, OSFI estimates that approximately 61% of federally regulated defined benefit plans were underfunded on a solvency basis at December 2013, compared to an estimated 90% at December 2012. At December 2013, 7% of plans had an estimated solvency ratio of less than 0.80, compared to 61% at December 2012.

Estimated Solvency Ratio (ESR) % of Plans with ESR <1.00

 

Notice Requirement for Plan Terminations

The Private Pension Plans Division at OSFI has recently received applications for plan terminations without the required notice having been provided to OSFI. As communicated in InfoPensions 9, OSFI would like to remind plan administrators that if they are intending to terminate their pension plan, subsection 29(5) of the Pension Benefits Standards Act, 1985 requires the plan administrator or employer to provide the Superintendent with written notice of this decision at least 60 days and not more than 180 days before the date of termination. If this notice is not provided, OSFI may require the Plan to amend their termination date and re-file their termination report.

 

Correcting Administrative Errors

Occasionally, OSFI receives questions about administrative errors that have occurred in respect of the administration of a pension fund. We would like to remind plan administrators that our policy, as communicated in PBSA Update – Issue 27, has not changed. OSFI does not approve or provide advice on actions to correct an administrative error.

OSFI considers an administrative error to be an unintentional act or omission on the part of the administrator or their agent, such as, the transfer of funds into a wrong account or an incorrect amount entered on the remittance cheque. Special payments that were made according to the last filed actuarial report that are found to be higher than what would be required based on a subsequently filed actuarial report are not considered to have been made in error. We would also not consider contributions remitted in excess of minimum funding requirements resulting from adherence to administrative processes adopted by the administrator or their delegate(s) to be an administrative error.

OSFI expects plan administrators and custodians to have the proper governance structure in place to deal with administrative errors. OSFI does not play a role in correcting administrative errors or in authorizing the actions taken to correct them. OSFI does however, expect custodians or plan administrators to inform OSFI in writing of the actions taken to correct the error. This provides OSFI with a record of the error and the action(s) taken.

Please note that on plan termination, subsection 29(7) of the Pension Benefit Standards Act, 1985, requires that if a plan has been terminated then no part of the plan assets can revert to the employer without the consent of the Superintendent and provision has to be made to pay all benefits up to the date of termination. This means that if a plan administrator has become aware of an administrative error after the plan has already terminated, they would not be able to correct the administrative error without the consent of the Superintendent and all benefits have to be paid.

 

Late Contributions and Communications with Plan Custodians

As mentioned in the article titled “Reporting of Late Remittances” in InfoPensions 9, section 9.1 of the Pension Benefits Standards Act, 1985 (PBSA) states that plan administrators must inform their plan custodians in writing of all amounts to be remitted to the pension fund. Most plan administrators inform their custodian of these amounts by sending the custodian what is often referred to as a “contribution planner.” This document allows the custodian to compare the money that was remitted to the pension fund with the amounts that were expected.

OSFI would like to remind plan administrators that the requirement of section 9.1 of the PBSA applies to both defined contribution and defined benefit plans.

OSFI may contact a plan custodian when following up with a reported late-remittance issue and may also contact a custodian to confirm amounts remitted as part of OSFI’s normal plan monitoring. This might occur if OSFI has identified concerns with respect to the pension plan or if a plan had late remittance issues in the past.

 

Plan Amendments

Section 10.1 of the Pension Benefits Standards Act, 1985 (PBSA) requires that when an amendment is made to any plan document, the plan administrator must file a signed declaration that the plan as amended complies with the PBSA and Regulations. OSFI does not register or approve these amendments; however, we will contact the plan administrator if our review indicates a problem with the amendment.  

Section 10.1 of the PBSA also provides that an amendment that reduces pension benefits accrued before the date of the amendment is void or, in Quebec, null unless authorized by the Superintendent.  OSFI considers the date of the amendment to be a date not before the date the amendment is properly adopted by the plan administrator in accordance with the appropriate governance procedures for that plan such as a board resolution agreeing to the amendment.

Plan administrators are reminded that an amendment must be filed with the Superintendent within 60 days after it is made. This includes amendments that are made to the plan text and any document that creates or supports the plan or the pension fund.

 

OSFI Findings – Review of Actuarial Reports

Each year, the actuarial team in the Private Pension Plan Division (PPPD) of OSFI reviews certain actuarial reports that have been referred to them by the Relationship Managers in PPPD’s Supervision team. Some of OSFI’s findings in actuarial reports reviewed between October 1, 2012 to September 30, 2013 were similar to those of previous years, which were communicated in InfoPensions 9 and InfoPensions 7 and include the following:

Minimum Benefits

• Pre-retirement death benefits: The actuarial report either did not include, or was incorrect with respect to the minimum benefit requirements for pre-retirement death benefits under section 23 of the Pension Benefits Standards Act, 1985 (PBSA).
• Pensionable age:
  • For active members, the actuarial report incorrectly identified pensionable age (as defined in section 2 of the PBSA). As a result, the eligibility to and the amount of early retirement benefits within 10 years of pensionable age was not accurately determined.
  • For deferred vested members, the actuarial report used the incorrect pensionable age to value unreduced pension benefits (section 17 of the PBSA).

Going Concern - Administration and Investment Expenses

• The actuarial report either did not explicitly indicate a going concern expense assumption or the assumption was too low given the plan’s experience.

Solvency

• Minimum employer required contributions: The actuary did not calculate the required special payments correctly.
• Wind-up expenses: The actuarial report had wind-up expense assumptions that were inconsistent, incorrect or too low.
• Indexation of the Income Tax Act (ITA) maximum: The plan provides that the maximum benefit automatically reflects future changes in the maximum pension amount defined in the ITA and is determined at the member’s retirement date, but the actuarial report did not include an assumption to project the ITA maximum pension to retirement age.

Asset Mix

• The actuarial report did not include the pension plan’s actual or target asset mix.

If the actuarial team finds any issues with a plan’s actuarial report, they will follow-up with the plan’s actuary. Further guidance can be found in our Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans.

 

Important Dates

Under the Pension Benefits Standards Act, 1985:

Action or Required Filing*	Deadline
Actuarial Reports and Actuarial Information Summary (T1200)	6 months after plan year end
Annual Information Returns (OSFI-49)	6 months after plan year end
Certified Financial Statements (OSFI-60) and Auditor’s Report (if required)	6 months after plan year end
Solvency Information Return (OSFI-575)	The later of 45 days after the plan year end or February 15
Annual Member Statements	6 months after plan year end

* Plan administrators are reminded that they must be registered for the Regulatory Reporting System (RRS) in order to be able to file all required regulatory filings. For more information on RRS, please visit the RRS page on OSFI’s website.

Under the Pooled Registered Pension Plans Act:

Action or Required Information*	Deadline
Annual Member Statements	45 days after the end of the year
Annual Information Return	3 months after the end of the year
Financial Statements	3 months after the end of the year

* Please note that forms are not yet available for submitting the required information under the Pooled Registered Pension Plans Act. OSFI will communicate directly with any Pooled Registered Pension Plan regarding OSFI’s expectations for the required information.