Issue 16 – November 2016

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 on the Pension Plans main page of OSFI's website. Plan administrators can also find information on various topics on OSFI's website under Defined Benefit Plan, Defined Contribution Plan and Pooled Registered Pension Plan. 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 May 2017.

 

PRPPs Added to the Assessment of Pension Plans Regulations

The existing Assessment of Pension Plans Regulations, made pursuant to the Office of the Superintendent of Financial Institutions Act, were amended effective October 21, 2016 to provide for the recovery of expenses from pooled registered pension plans (PRPPs) by way of annual assessments of PRPPs. These amendments were published in Part II of the Canada Gazette on November 2, 2016.

For purposes of calculating annual assessments, PRPPs are subject to the same assessment formula and basic rate as pension plans subject to the Pension Benefits Standards Act, 1985.

 

Basic Rate for Assessment of Pension Plans

The Assessment of Pension Plans Regulations require the Superintendent of Financial Institutions to publish annually in the Canada Gazette, Part I, a notice setting out the basic rate that will be applied to the assessment of pension plans in the upcoming fiscal year.

A notice was published in Part I of the Canada Gazette on October 1, 2016 setting out that the basic rate in effect for assessments that are due to be paid from April 1, 2017 to March 31, 2018 is $8. The most recent prior basic rate, in effect for assessments that are due to be paid in the current fiscal year (from April 1, 2016 to March 31, 2017) is $9.

 

Assessment of Pension Plans – PBSA Plans

Annual assessments for pension plans that are registered, or that have been filed for registration, under the Pension Benefits Standards Act, 1985 (PBSA) are due no later than six months after the end of each plan year. Most required regulatory filings for these plans are due on this same date. As different plans may have different plan year-ends, the day the assessment is due may vary between plans. The basic rate that applies to a plan is the rate in effect on the day the assessment is due to be paid for the plan. The basic rate of $8 in effect from April 1, 2017 to March 31, 2018 therefore applies to assessments due six months after plan years that end between October 1, 2016 and September 30, 2017. The basic rate of $9 in effect from April 1, 2016 to March 31, 2017 applies to assessments due six months after plan years ending between October 1, 2015 and September 30, 2016.

Where a new plan subject to the PBSA is established, the first assessment is due on the day that the plan is filed for registration with OSFI. The basic rate in effect on that date applies to this assessment for the initial plan year. Subsequent assessments for a plan that has been filed for registration are due no later than six months after the end of each plan year.

Information on how to use the basic rate to calculate assessments for pension plans registered or filed for registration under the PBSA is available on the Pension Plan Assessments - PBSA Plans page of the OSFI website.

 

Assessment of Pension Plans – PRPPs

Annual assessments for pension plans registered under the Pooled Registered Pension Plans Act are due no later than three months after the end of each calendar year (i.e., no later than March 31st). The basic rate that applies is the rate in effect when the assessment is due. The basic rate of $9 in effect from April 1, 2016 to March 31, 2017 therefore applies to assessments due on March 31, 2017 (the first ever assessments due for pooled registered pension plans), and the basic rate of $8 in effect from April 1, 2017 to March 31, 2018 applies to assessments due on March 31, 2018.

The PRPP Assessment Remittance Form will be available on OSFI's website shortly.

 

Adding, Editing, or Removing an RRS Portal User or Local Registration Authority

The Regulatory Reporting System (RRS) used to file pension plan regulatory returns with OSFI is accessed through the Bank of Canada Secure Site. A Local Registration Authority (LRA) is a pension plan administrator’s authorized representative with responsibility to manage users on the Secure Site and on RRS. An LRA is permitted to authorize and create new RRS Portal Users for the pension plan, to assign access permissions, and to deactivate users and authorize any changes to user accounts for the plan. A pension plan must have a minimum of two LRAs. In order to file pension plan regulatory returns in RRS, an individual must be authorized by an LRA as an RRS Portal User for the plan.

While it remains essential that information in a pension plan’s Organization Profile be kept up to date, it is important for RRS users to be aware that updating information in RRS in the Organization Profile does not have the effect of updating the RRS access and filing permissions for the plan. For example, updating a plan’s Organization Profile to reflect that the plan has a new actuary will not revoke the prior actuary’s filing permissions or provide the new actuary with the permissions necessary to file actuarial reports and related returns in RRS for the plan. An LRA must take additional steps to update a plan’s RRS access and filing permissions. These additional steps involve creating, editing, or deactivating RRS Portal Users or LRA accounts.

Information on how to create, edit, and deactivate RRS Portal Users and LRA accounts is available in the Documents section of RRS. If further assistance is needed, please contact the Bank of Canada at 1-855-865-8636 and follow the instructions to reach RRS Support.

 

June 2016 RRS Filing Update

From OSFI’s perspective, the June 2016 regulatory return filing season appeared to proceed more smoothly than in past years, with requests to OSFI and the Bank of Canada for assistance with the Regulatory Reporting System (RRS) down significantly. We hope that this was an indication that the filing process was also smoother for RRS users. OSFI recognizes and appreciates the efforts that plan administrators and other RRS users have made over the past three years to adapt to the new RRS filing process.

RRS users can find the following links on OSFI’s website on the Pension Plans main page:

• RRS login: This link will direct you to the Bank of Canada Secure Site Login page.
• Annual Filing Process for Pension Plan Returns: This link will direct you to a table that summarizes the filing process for each required regulatory filing.
• Training and Support: This link will direct you to RRS training and support material including user guides, quick reference guides, videos, and other references that you may find helpful.

 

Electronic Filing of Documents with OSFI

Where documents are not required to be filed through the Regulatory Reporting System (RRS) or where, as may be the case for certain documents accompanying applications that require the authorization of the Superintendent, they must be both filed in RRS and submitted to OSFI directly, we would like to encourage plan administrators, custodians, and other pension plan professionals and service providers to submit these documents in electronic rather than paper form. Documents that may be submitted electronically include plan amendments, notices of non-remittance, and applications for approval. Where documents require signatures, OSFI expects to receive scanned versions of the signed documents. The email address to be used to submit electronic documents to OSFI is pensions@osfi-bsif.gc.ca.

 

SIP&P No Longer Required for Member Choice Accounts

Effective July 1, 2016, the Pension Benefits Standards Regulations, 1985 (PBSR) no longer require that a Statement of Investment Policies and Procedures (SIP&P) be established in relation to a plan’s portfolio of investments and loans relating to member choice accounts. As a result, defined contribution plans that offer only member choice accounts are no longer required by the PBSR to have a SIP&P. Plan documents may nevertheless specify that a SIP&P will be established for such plans, in which case OSFI would expect a SIP&P to be established in accordance with the plan documents.

OSFI expects administrators of pension plans that offer member choice accounts to document the process for establishing and evaluating the default investment option that will be applied to plan members who do not make an election and the rationale for its selection.

 

Department of Finance Consultations: The 30 Per Cent Rule

Federally regulated pension plans are prohibited from investing the moneys of the plan in the securities of a corporation to which are attached more than 30 per cent of the votes that may be cast to elect the directors of the corporation (the “30 per cent rule”). The rule does not apply to pension plan investments in the securities of investment, real estate or resource corporations when certain conditions under the Pension Benefits Standards Regulations, 1985 are met.

The 2015 federal budget announced that the 30 per cent rule would be reviewed. In June 2016, the Department of Finance released a consultation paper entitled Pension Plan Investment in Canada: The 30 Per Cent Rule. The consultation paper sought stakeholder input on whether the 30 per cent rule should be retained, relaxed or eliminated for federally regulated pension plans. The consultation paper discusses prudential and tax policy considerations and the implications of the rule on investment performance. In each of these areas, the consultation paper sets out a number of questions for discussion on which interested parties were invited to reflect and provide comments.

These questions included whether the 30 per cent rule restricts pension plans’ investment returns or imposes additional costs on pension plans, whether the 30 per cent rule creates an inequality between larger and smaller pension plans or, conversely, whether the removal of the rule would create such an inequality.

Written comments on the 30 per cent rule and considerations relating to its retention, relaxation or elimination were requested to be submitted to the Department of Finance by September 16, 2016.

 

Guidance Recently Posted to the OSFI Website

Guidance – PBSA Plans

• The new Instruction Guide for Disclosure Requirements for Defined Contribution Pension Plans and Instruction Guide for Disclosure Requirements for Defined Benefit Pension Plans were posted by OSFI in October 2016 and replace OSFI’s March 6, 1998 Guideline on Disclosure of Information to Pension Plan Members and Former Members. The Guides are intended to inform the pension industry of the disclosure requirements under the Pension Benefits Standards Act, 1985 and the Pension Benefits Standards Regulations, 1985 and include recent enhanced disclosure requirements that came into effect on July 1, 2016. In addition to outlining legislative requirements, the Guides provide guidance to assist plan administrators in communicating adequate and appropriate information to members, former members and spouses or common-law partners.
• The updated Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans was posted by OSFI in October 2016. The Instruction Guide updates the previous one published in December 2015 to reflect the following:

  • Additional requirements with respect to the discount rate assumption, including changing the maximum going concern discount rate from 6.25% to 6.00%

  • Further clarifications of OSFI’s position on the mortality assumption, replicating portfolios including the quality of investments supporting these portfolios, termination expenses, and designated plans

  • Greater clarity on expectations and addition of select references to legislation and professional guidance

  • Changes to accepted actuarial practice and other issues, if any, that have emerged since December 2015

• New Guidance on Amendments to the Related Party Rules was posted by OSFI in November 2016. This guidance explains the amendments to the related party rules in Schedule III to the Pension Benefits Standards Regulations, 1985 which came into force on July 1, 2016. It also sets out OSFI’s expectations for plan administrators offering employer stock as an investment option for member choice accounts.

Guidance – PRPPs

• The new Instruction Guide for Registering a Plan as a Pooled Registered Pension Plan was posted by OSFI in October 2016.
• The new Instruction Guide for Applying for a Licence to be a Pooled Registered Pension Plan Administrator was posted by OSFI in October 2016.
• Updated Pooled Registered Pension Plans FAQs were posted by OSFI in October 2016.

 

Pension Plan Examinations Conducted by OSFI

As part of our supervisory process, OSFI regularly conducts examinations of a select number of pension plans. Reasons for conducting examinations include, but are not limited to, problems with the administration of the pension plan, follow-up on a previous examination, a targeted review of a significant activity in the operation of a pension plan (e.g. plan administration, asset management, communication to members), or that there is reason to believe that the employer may be in financial difficulty.

Depending on the scope of the examination or the issues affecting the pension plan, OSFI may decide to conduct a desk review instead of conducting the examination on site. Typically, a desk review involves reviewing documents already filed with OSFI as well as additional documents requested from the plan administrator. If warranted, OSFI may continue the examination on site at the location of the plan administrator in order to have better access to documents related to the administration of the pension plan and to interview individuals involved in plan administration.

Examinations involve a review of the plan administrator’s risk management function, which includes controls and oversight, in order to better understand how effectively the plan administrator manages the risks facing the pension plan. Examinations are not audits or compliance reviews. They are not intended to be exhaustive and should not be understood as approving a plan’s existing administrative practices or confirming statutory compliance. Plan administrators remain responsible for the administration of their pension plans.

 

Qualifying as a Negotiated Contribution Plan under the PBSA

The Pension Benefits Standards Act, 1985 (PBSA) defines a negotiated contribution plan as a multi-employer pension plan (MEPP) that includes at least one defined benefit provision and under which a participating employer’s contributions are limited to an amount determined in accordance with an agreement entered into by the participating employers or a collective agreement, statute or regulation, and which amount does not vary as a function of the prescribed tests and standards for solvency referred to in subsection 9(1) of the PBSA.

We would like to remind employers and plan administrators that in order to meet the definition of a negotiated contribution plan, a pension plan must be a MEPP as defined by the PBSA. A key feature of the PBSA’s definition of a MEPP is that it excludes a pension plan where more than 95 per cent of the plan members are employed by participating employers who are incorporated and are affiliates within the meaning of the Canada Business Corporations Act. Since such a plan does not qualify as a MEPP under the PBSA, it cannot qualify as a negotiated contribution plan under the PBSA.

For information on the administration of negotiated contribution plans, please see OSFI’s Guidance Note on the Administration of Negotiated Contribution Plans.

 

Multilateral Agreement Respecting PRPPs and VRSPs

Representatives of the governments of Canada, British Columbia, Nova Scotia, Quebec, and Saskatchewan have signed a new Multilateral Agreement Respecting Pooled Registered Pension Plans and Voluntary Retirement Savings Plans (PRPP Agreement), which came into effect between those jurisdictions on June 15, 2016. The PRPP Agreement is between the federal government and those provinces that have implemented legislation for pooled registered pension plans (PRPPs) or, in the case of Quebec, Voluntary Retirement Savings Plans (VRSPs).

The PRPP Agreement is intended to streamline the regulation and supervision of PRPPs that are subject to the federal Pooled Registered Pension Plans Act (PRPP Act) and the PRPP legislation of at least one province participating in the agreement. The PRPP Agreement effectively delegates to OSFI responsibility for licensing, registering and supervising PRPPs whose operations fall within the jurisdiction of both the federal government and that of the participating provinces. The PRPP Agreement does not give OSFI responsibility with respect to VRSPs, but permits authorized VRSP administrators to act as PRPP administrators under the federal PRPP Act if they register a PRPP federally.

 

2016 Agreement Respecting Multi-jurisdictional Pension Plans

Representatives of the governments of British Columbia, Nova Scotia, Ontario, Quebec, and Saskatchewan have signed a new 2016 Agreement Respecting Multi-Jurisdictional Pension Plans (the Agreement), which came into effect between those jurisdictions on July 1, 2016. The agreement is intended to facilitate the administration, regulation, and supervision of pension plans that provide benefits for plan members in two or more of the Canadian jurisdictions that are parties to the Agreement.

The Agreement replaces older agreements between the signatories and was negotiated as an interim measure while the Canadian Association of Pension Supervisory Authorities (CAPSA) completes the development of amendments which will address the issue of changing funding regimes across jurisdictions. Further information regarding the Agreement is available on the Multi-Jurisdictional Pension Plans page of CAPSA’s website.

OSFI is a member of the committee of CAPSA that is developing amendments to the Agreement and CAPSA expects to release proposed amendments to the Agreement for public consultation by 2018. Bilateral federal-provincial agreements respecting multi-jurisdictional pension plans remain in effect until such date as the Government of Canada becomes a signatory to the amended Agreement.

 

Important Dates

Under the Pension Benefits Standards Act, 1985:

Action or Required Filing[1]	Deadline
All plans:
Annual Information Returns (OSFI 49)	6 months after plan year end
Certified Financial Statements (OSFI 60) and, if required, Auditor's Report	6 months after plan year end
Plan Assessments	6 months after plan year end
Annual Statements to members and spouses or common-law partners and to former members and spouses or common-law partners	6 months after plan year end
Defined Benefit Plans Only:
Actuarial Report and Actuarial Information Summary and, if required, Replicating Portfolio Information Summary	6 months after plan year end
Solvency Information Return (OSFI 575)	The later of 45 days after the plan year end or February 15

[1] Plan administrators are reminded that the required regulatory filings listed above must be filed using the Regulatory Reporting System (RRS). For more information on RRS, please visit the RRS page on OSFI’s website.

Under the Pooled Registered Pension Plans Act:

Action or Required Filing	Deadline
Pooled Registered Pension Plan Annual Information Return (includes financial statements)	March 31 (3 months after the end of the calendar year)
Plan Assessments	March 31 (3 months after the end of the calendar year)
Annual Statements to members and spouses or common-law partners	February 14 (45 days after the end of the calendar year)