InfoPensions – Issue 23 – November 2020

InfoPensions includes announcements and reminders on matters relevant to federally regulated private pension plans and pooled registered pension plans.

To receive email notifications of new items posted to OSFI’s website, including this newsletter and other pension-related documents, please subscribe using Email Notifications. If you have any questions about the articles you read in InfoPensions or if you have suggestions for future articles, please contact us at pensions@osfi-bsif.gc.ca. This year, due to the demands of responding to the COVID-19 crisis, the May 2020 issue of InfoPensions was not posted. The next issue of InfoPensions will be available in May 2021.

Management team changes in the Private Pension Plans Division

Christine Thibault joined the Private Pension Plans Division in July as the Manager of the Approvals team replacing Claire Ezzeddin who is on parental leave.

Tina Magloé Francis was promoted to Manager of the Supervision team in June replacing Paul Rozon who joined the Financial Consumer Agency of Canada.

Update on temporary portability freeze

On March 27, 2020, OSFI announced regulatory adjustments to protect the interests of pension plan members and beneficiaries, and to allow administrators of federally regulated private pension plans to focus their efforts on addressing the many challenges posed by COVID-19. One of the measures taken was a temporary portability freeze that prohibited portability transfers and annuity purchases relating to defined benefit plan provisions. This freeze was effected through a change to the Directives of the Superintendent pursuant to the Pension Benefit Standards Act, 1985 (Directives).

On August 31, 2020, OSFI announced that, subject to certain conditions, the Superintendent had lifted this temporary portability freeze. The Directives were adjusted to include conditions on portability transfers and buy-out annuity purchases similar to those in place prior to the portability freeze. Please refer to the article in this newsletter titled Amendments to the Directives of the Superintendent and our FAQs for more information about the conditions now applicable to portability transfers and annuity purchases.

OSFI continues to monitor the impacts of COVID-19 on pension plans and is prepared to reintroduce a portability freeze or adjust the Directives further, if necessary.

Extension to filing deadlines

On March 27, 2020, OSFI extended the deadlines for certain actions and annual filing requirements under the Pension Benefits Standards Act, 1985 (PBSA) and the Pooled Registered Pension Plans Act (PRPPA) for plans with a year-end between September 30, 2019 and March 31, 2020, as detailed in this table.

OSFI did not extend the deadline for filing the Solvency Information Return and it is due the later of 45 days after the plan year-end or February 15, 2021.

Annual plan assessments remain due upon receipt of the OSFI-issued invoice that administrators can expect to receive approximately 45 days after the extended filing due date for the Annual Information Return (AIR).

Restarting consultation initiatives and policy development

On March 13, 2020, OSFI announced that it had suspended a number of consultation initiatives and policy development work related to new or revised guidance until conditions stabilized. On July 13, 2020, OSFI announced the gradual resumption of consultations and policy development work in the Fall of 2020. Accordingly, OSFI's Private Pension Plans Division has resumed work on pension-related guidance that was previously suspended. Please refer to the articles in this newsletter titled Actuarial guide revisions and Recently posted guidance for more details.

COVID-19 solvency special payments relief

On May 29, 2020, the Department of Finance announced the coming into force of new Solvency Special Payment Relief Regulations, 2020 (Relief Regulations).

The Relief Regulations provide funding relief to plan sponsors whose pension plans have a solvency deficiency, and who are normally required to make monthly payments to fund the deficiency and/or address their obligations using letters of credit.

Under the Relief Regulations, from the coming-into-force date (May 27, 2020) until December 30, 2020, federally regulated defined benefit pension plan sponsors are not required to make solvency special payments. The Relief Regulations also provide accommodations for solvency special payments made between April 1 and May 27.

Please refer to our FAQs for more details on the Relief Regulations.

CAPSA's 2020 Agreement Respecting Multi-Jurisdictional Pension Plans

On June 4, 2020, the Department of Finance Canada announced the signing of the 2020 Agreement Respecting Multi-Jurisdictional Pension Plans (2020 Agreement). The 2020 Agreement came into effect on July 1, 2020.

The federal government, together with governments of British Columbia, Alberta, Saskatchewan, Ontario, Quebec, New Brunswick and Nova Scotia, signed the 2020 Agreement to simplify and clarify the supervision of pension plans in Canada with members in more than one jurisdiction. The existing bi-lateral agreement between the federal government and Manitoba remains in effect.

The 2020 Agreement was developed by the Canadian Association of Pension Supervisory Authorities (CAPSA) in order to coordinate and harmonize pension regulation across Canada.

Among other elements, the 2020 Agreement

• requires that a multi-jurisdictional plan only register with one pension regulator (the major authority);
• sets out rules for determining the major authority;
• provides that certain requirements of the major authority's pension legislation such as plan-wide funding and investment requirements will apply to the entire plan;
• requires that the final location approach be used to determine a plan member's benefits where the member has been employed in more than one jurisdiction while a member of the plan; and
• sets out clear rules for allocating the assets of a plan between jurisdictions in the event of a plan termination and wind up or a plan split.

Please refer to CAPSA's Communique Summer 2020 and OSFI's new FAQ series for additional details on the 2020 Agreement.

Actuarial guide revisions

On December 20, 2019, OSFI issued a draft revised Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans (Actuarial Guide) for consultation with pension plan stakeholders. The consultation period was suspended because of COVID-19. OSFI initiated a new consultation period on September 11, 2020 that ended on October 9, 2020. We would like to thank everyone who provided input on the draft revisions.

OSFI will post shortly the updated Actuarial Guide and a non-attributed summary of comments received along with our responses on OSFI’s website; however, changes to the section on Alternative Settlement Methods that have an impact on solvency liabilities of plans using a replicating portfolio approach will be finalized at a later date.

The Actuarial Guide, which was last revised in October 2017, sets out the reporting requirements of actuarial reports filed with OSFI for defined benefit pension plans, including those with a defined contribution component.

The draft revisions to the Actuarial Guide provide further details regarding OSFI's expectations for actuarial reports. The revisions include the following:

• Additional requirements with respect to
  • plans that have a flexible benefits feature;
  • the discount rate assumption, including a modification to the maximum going concern discount rate; and
  • risk assessments performed by plan administrators to inform better risk management
• Further clarifications of OSFI's position on mortality assumptions
• Updated requirements for plans using a replicating portfolio approach
• Further disclosure requirements with respect to membership data and when stochastic modeling is used for determining the indexation rate
• Greater clarity on other expectations and the addition of some references to legislation and guidance material
• Changes to accepted actuarial practice and other issues, if any, that have emerged since October 2017

Revised standards of practice of the Canadian Institute of Actuaries

In January 2020, the Canadian Institute of Actuaries' (CIA) made changes to its standards of practice that describe how commuted values of pension plans are calculated (section 3500). These revised standards will take effect on December 1, 2020.

Subsection 18(1) of the Pensions Benefits Standards Regulations, 1985 (PBSR) provides that a pension benefit credit (the commuted value of a pension benefit) must be determined in accordance with the recommendations issued by the CIA as amended from time to time. The revised standards therefore automatically apply to the calculation of a pension benefit credit under the PBSR.

Key changes to the revised standards for calculating commuted values include the following:

• changes to the interest rate assumption
• changes to the assumed pension commencement age
• the addition of specific standards for target pension arrangements including the ability to use a pension plan's going concern funding assumptions with certain adjustments to calculate the commuted value under these types of pension plans

The CIA revised standards define a target pension arrangement as
"a pension plan for which applicable legislation contemplates the reduction to the accrued pensions of plan members and beneficiaries while the pension plan is ongoing as one of the available options for maintaining the funded status of the pension plan, and where the reduction in accrued pensions is not necessarily caused by the financial distress of the plan sponsor or sponsors"

A negotiated contribution plan as defined in the Pension Benefits Standards Act, 1985 (PBSA) meets the CIA's definition of a target pension arrangement. This is because section 10.11 of the PBSA provides that the administrator of a negotiated contribution plan may, subject to the Superintendent's consent and despite the terms of the pension plan, make an amendment that has the effect of reducing pension benefits or pension benefit credits.

For more information on how the CIA’s revised standards affect federally registered pension plans, please refer to OSFI’s new FAQ series, which will be posted shortly on OSFI’s website.

For information on how the CIA's revised standards may affect the preparation of actuarial reports, please refer to OSFI's Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans.

New FSRA/OSFI collaboration on defined contribution plans

In December 2018, OSFI initiated a targeted review of all federally regulated pension plans with defined contribution (DC) provisions. The intention of this DC pension plan study was to enhance OSFI's risk-based approach to supervision by analyzing specific information on plan fees, default investment options and the number and type of investment options offered to members. In 2019-2020, OSFI analyzed the valuable information collected from federal plan administrators and outlined preliminary observations in InfoPensions - Issue 22 (November 2019).

Recently, the Financial Services Regulatory Authority of Ontario (FSRA) and OSFI decided to establish a special purpose committee (the committee) to review the approaches of both regulators to supervising DC plans and, where possible, find opportunities for regulatory harmonization. OSFI will leverage the information that we received from the DC pension plan study in 2018, to support our analysis and the recommendations produced by the committee.

Through this collaboration, FSRA and OSFI will work towards improving outcomes for plan members. The committee will also focus on enhancing regulatory efficiency and effectiveness for DC plans.

The committee expects to begin its work in December 2020. For more information, visit the committee's Terms of Reference.

50% rule and benefit increases

It has come to OSFI's attention that not all plan administrators are correctly applying subsection 21(1) and paragraph 26(3)(b) of the Pension Benefits Standards Act, 1985 (PBSA) relating to what is known as the 50% rule.

Subsection 21(1) provides that the pension benefit is to be increased by the amount that can be provided by the excess contributions (i.e. the amount of member contributions in excess of 50% of the pension benefit credit). The additional benefit resulting from the application of the 50% rule is calculated only once and added to the member's pension benefit as of the date of the event leading to the benefit determination (e.g. cessation of membership, death, retirement). The benefit attributable to the 50% rule then becomes part of the pension benefit on which any subsequent calculation of a pension benefit credit is based.

Paragraph 26(3)(b) of the PBSA allows a plan to include a provision forcing a transfer of the excess contributions to one of the portability transfer options offered in this paragraph rather than increasing the pension benefit in accordance with subsection 21(1) of the PBSA.

Only if a plan's terms provide this force-out provision can the administrator include options for the transfer of excess contributions in the member's or survivor's individual statement on cessation of membership or death. If permitted by the plan's terms the transfer of excess contributions must occur at the time of the cessation of membership or death. The statement should also indicate the option that the administrator will use to force-out the transfer of excess contributions if the member or survivor fails to indicate their choice, or if the administrator will instead increase the pension benefit as a default.

The PBSA does not provide the option for excess contributions to remain in the Plan and accumulate with interest to the date of retirement. Excess contributions must either be added to the pension benefit in accordance with subsection 21(1) of the PBSA or transferred out under paragraph 26(3)(b) of the PBSA, if permitted by the terms of the plan.

Entitlement to pension while employed

NOTE: OSFI has provided the general guidance below based on an interpretation of current legislation governing federal private pension plans. This information is currently under review by OSFI and, pending completion of this review, should not be taken as definitive guidance on the issue of pension entitlement while employed. No amendments to plan provisions are required at this time.

OSFI has received enquiries regarding a member's entitlement to a pension while remaining employed with the employer.

Subsection 16(1) of the Pension Benefits Standards Act, 1985 (PBSA) states that a pension plan shall provide that each member is entitled to an immediate pension benefit on attaining pensionable age.

Subsection 2(1) of the PBSA defines pensionable age as "the earliest age (taking into account the period of employment with the employer or the period of membership in the pension plan, if applicable) at which a pension benefit, other than a benefit in respect of a disability (as defined in the regulations), is payable to the member under the terms of the pension plan without the consent of the administrator and without reduction by reason of early retirement".

Subsection 2(3) of the PBSA states that "a member of a pension plan shall be deemed to retire on commencing to receive an immediate pension benefit, whether the member's employment has terminated or not", confirming that a cessation of employment is not a condition of obtaining a pension benefit.

Based on these provisions, our position is that, under the PBSA, a pension plan cannot require a member who has attained pensionable age to cease employment before commencing payment of their pension. Employees who are entitled to an immediate pension benefit may therefore begin drawing their pension before ceasing employment.

No change to basic rate for assessment of pension plans

The Assessment of Pension Plans Regulations require the Superintendent 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 September 26, 2020, setting out that the basic rate in effect for assessments that are invoiced by OSFI for plan years ending between October 1, 2020 and September 30, 2021 is $10. This basic rate is the same as last year's rate and applies to all pension plans registered under the Pension Benefits Standards Act, 1985 and the Pooled Registered Pension Plans Act.

OSFI will determine a pension plan's assessment after the plan has filed its Application for Registration or its Annual Information Return (AIR). OSFI expects to prepare the invoice approximately 45 days after the due date of the AIR. For example, if a plan's AIR is due by June 30, 2021, the plan administrator can expect to receive an invoice in August 2021 even if they have filed the AIR before its due date. For more information, please refer to our notice on Regulations Amending the Assessment of Pension Plan Regulations.

Please refer to the Pension Plan Assessment Rate schedule on our website for more information on the applicable rate.

OSFI discussion paper "Developing financial sector resilience in a digital world"

On September 15, 2020, OSFI issued the discussion paper, Developing financial sector resilience in a digital world. Although the paper is largely targeted towards financial institutions, federally regulated pension plans may face similar risks and therefore the themes raised in the paper may apply to pension plans. Stakeholder comments on the discussion paper should be sent to Tech.Paper@osfi-bsif.gc.ca by December 15, 2020.

Recently posted guidance

On March 13, 2020, OSFI announced that it had suspended a number of consultation initiatives and policy development work related to new or revised guidance until conditions stabilized. On July 13, 2020, OSFI announced the gradual resumption of consultations and policy development work in the Fall of 2020.

• In November 2020, OSFI resumed its consultation on the draft revisions to the Instruction Guide for the Termination of a Defined Benefit Pension Plan (previously posted for comment in January 2020) and began consultations on the Instruction Guide for the Termination of a Defined Contribution Pension Plan. The consultation periods for each guide end November 30, 2020 and January 15, 2021 respectively. We expect to post final versions of the guides on OSFI's website early next year.
• In September 2020, OSFI resumed its consultation on the draft revisions to the Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans. Please refer to the article in this newsletter titled Actuarial guide revisions for more details.
• Throughout the first quarter of 2020, OSFI issued a number of updated guides and forms for plans with defined benefit provisions to improve the quality and usefulness of data collected and assist plan administrators in completing and submitting annual regulatory filings. More specifically, revisions were made to the following:
  • January 2020 - the Instruction Guide for the Solvency Information Returns (SIR)
  • February 2020 - the Instruction Guide for the Replicating Portfolio Information Summary (RPIS)
  • March 2020 - the Instruction Guide for Completing the OSFI 60 Certified Financial Statements (CFS)
  • March 2020 - the Instruction Guide for Completing the Auditor's Report Filing Confirmation (ARFC)
  • March 2020 - the Instruction Guide for the Actuarial Information Summary (AIS)
  • March 2020 - the Instruction Guide for Completing the OSFI 49 Annual Information Return, OSFI 49A Schedule A – Canada Revenue Agency Information Requirements and the Pension Plan Annual Corporate Certification (PPAC)
  • March 2020 - the Annual Information Return (OSFI 49).

Estimated solvency ratio results

OSFI regularly estimates the solvency ratio for federally regulated pension plans with defined benefit provisions. The Estimated Solvency Ratio (ESR) results help us identify any solvency issues that could affect the security of members' promised pension benefits before a plan files their actuarial report. The ESR results also help identify broader trends.

The ESR results are calculated 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 the rate of return provided on the Solvency Information Return or an assumed rate of return for the plan. Solvency liabilities are projected using relevant commuted value and annuity proxy rates from the Canadian Institute of Actuaries. Expected contributions, benefit payments, and expenses are taken into account and an ESR, based on the estimated adjusted market value of the fund and estimated liabilities, is then calculated for each plan.

ESR results as at December 31, 2019

The results of OSFIs calculation of the ESR as at December 31, 2019 were determined in March 2020. Given the impact of the crisis on our priorities, we did not publish the InfoPensions in May 2020 as typically scheduled. Nevertheless, although outdated, we thought it still be beneficial to produce, in the November 2020 InfoPensions, the results of this exercise as shown below.

The median ESR for all 348 plans (down from 361 last year) hardly changed (0.95 as at December 31, 2019, up from 0.94 at the end of 2018). Similarly, the liability-weighted average ESR for all plans increased slightly to 1.01 as at December 31, 2019 from 0.98 at the end of 2018. The graph below shows the current and previous ESRs and median ESRs dating back to December 2010.

Description of chart 1

The most recent ESR results shows a reduction in the percentage of plans that were underfunded (66% in 2019 versus 74% in 2018) while the number of plans that were significantly underfunded (ESRs below 0.80) did not change markedly (15% in 2019 versus 16% in 2018). The bar graph below illustrates the distribution of the ESR results as at December 31 of each year since 2010. It shows the percentage of plans with ESRs below 0.80, between 0.80 and 0.90, between 0.90 and 1.00, and over 1.00 in each year.

Description of chart 2

Impact on ESR since December 31, 2019

In the first quarter of 2020, the COVID-19 pandemic disrupted life around the world. Defined benefit plans felt an impact to both plan assets and liabilities, as the equity market decline reduced asset values and the continued drop in bond yields increased liabilities. Market volatility had a significant effect on the ESR, which reached a low of 0.89 as at March 31, 2020. At the time of writing, equity markets have for the large part recovered, and the ESR has subsequently improved, but has not reached the level it was at on December 31, 2019. Volatility remains elevated and continues to have a significant effect on the solvency ratio of pension plans, which will not crystalize until the end of the year. For the majority of federally regulated defined benefit pension plans (i.e. those that have a December 31 or January 1 year-end), funding requirements will only be impacted in 2021.

Actuarial reports – Items warranting review

A plan’s Relationship Manager in the Private Pension Plans Division generally reviews the actuarial report submitted to OSFI and may refer the report to the division’s actuarial team for a more detailed review.

The Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans sets out the reporting requirements for actuarial reports filed with us. Based on the Canadian Institute of Actuaries (CIA) Standards of Practice, we expect plan actuaries to provide sufficient details in their actuarial report to enable another actuary to assess the reasonableness of the data, assumptions, and methods used.

We would like to share with plan actuaries our expectations relating to the following items that warranted a more detailed review in some actuarial reports:

1. Going concern valuation – Disclosure of active and passive investment management expense assumptions

   In accordance with the CIA Standards of Practice, it is generally acceptable to assume that active investment management will generate additional return only to the extent that management expenses associated with active management exceed those for passive management.

   Where a plan pursues an active investment management strategy, we require separate disclosure of active and passive investment management expense assumptions. The passive investment management expense assumption should reflect the costs of maintaining a passive investment portfolio based on the target asset mix stipulated in the plan's investment policy, which typically includes investment administration, rebalancing, transaction, and custodial fees relating to the management of assets. The assumption for active investment management expenses should account for expenses expected to be incurred by the plan in excess of the assumed passive investment management expenses.

   When reviewing assumptions, we take into account, among other things, actual expenses experienced by the plan in recent years, and the level of additional return assumed for active management. Therefore, the separate disclosure of active and passive investment management expense assumptions is required even if the additional return due to active management is assumed to be exactly offset by the additional associated expenses.

2. Adjustment of contribution amounts for subsequently filed valuation report

   In accordance with subsection 9(14) of the Pension Benefits Standards Regulations, 1985 (PBSR), current service cost contributions and special payments due to the plan must be paid not less frequently than monthly and not later than 30 days after the end of the period in respect of which the installment is paid. Any payment that is not paid at the times set out in subsection 9(14) of the PBSR is subject to the interest adjustment described in subsection 10(2) of the PBSR.

   Given that the actuarial report is generally prepared after the beginning of the plan year to which the funding recommendation applies, it is our expectation that, until a subsequent actuarial report is filed, current service contributions and special payments continue to be paid based on the most recent actuarial report. If a subsequent actuarial report reveals required current service cost contributions or special payment amounts that are greater than those paid to the plan, the outstanding amount, accumulated with interest from the required payment date as described in subsection 10(2) of the PBSR, is due at the time of filing. No interest adjustment should be made in the case where special payments were made in excess of those required.

   The actuarial report should state that any adjustments to current service cost contributions and special payments applicable to the year should be made when the report is filed.

3. Plan provisions

   The administrator of a pension plan is required to file a copy of the plan text and any subsequent plan amendments with OSFI. In cases where a plan has been amended several times, it can be difficult to ascertain the plan provisions currently in effect in the absence of an up-to-date consolidation. In accordance with section 30 of the PBSR, the Superintendent may request an up-to-date consolidation of a plan and any amendments thereto.

   We expect an actuarial report to include a detailed summary of the plan provisions in effect at the valuation date that have a material impact on the valuation results. Where the summary of plan provisions is incomplete or inconsistent with the plan text, we may contact the actuary for an explanation.

Pension Plans Survey

Since 2005, OSFI has commissioned consultations with administrators and professional advisors of federally regulated private pension plans to obtain their perceptions of OSFI's effectiveness as a regulator and supervisor of private pension plans. These consultations are part of our ongoing commitment to be responsive to stakeholder input and to continuously improve performance. OSFI's previous Pension Plans Survey was conducted in the Fall of 2017 and the results of that survey can be found on the Consultations and Surveys page of OSFI's website.

OSFI has commissioned Phoenix Strategic Perspectives Inc. to conduct the next Pension Plans Survey by means of an online confidential questionnaire. We expect the survey will be conducted at the end of January or early February 2021.

Amendments to the Directives of the Superintendent

The Superintendent of Financial Institutions issues directives and specifications related to certain requirements under the Pension Benefits Standards Act, 1985 (PBSA) and the Pension Benefits Standards Regulations (PBSR) to assist plan administrators in meeting their legislative and regulatory requirements. Over the past year, OSFI has made several amendments to the Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 (Directives).

Section 1

Section 1 defines certain terms used in the Directives. In March 2020, OSFI amended this section to remove the definition of solvency ratio and add the definition of transfer ratio. The transfer ratio is the lesser of

1. the solvency ratio determined in the most recent actuarial report of the plan; and
2. this same solvency ratio projected to a date no earlier than March 31, 2020.

OSFI implemented this change to ensure that the solvency ratio applied to portability transfers and annuity purchases accounted for the market volatility caused by the COVID-19 crisis. Should economic circumstances require it, the March 31, 2020, date may be updated in the future. Updates to the Directives are being considered to accommodate actuarial reports with valuation dates after March 31, 2020.

Section 2

Section 2 establishes when actuarial reports shall be prepared. In March 2020, OSFI amended section 2 to remove dated references.

Section 4

Section 4 establishes the filing deadlines for the annually filed documents referred to in section 12 of the PBSA. In March 2020, OSFI amended this section of the Directives to extend the deadlines for annual filing requirements from within six months to within nine months after the end of the plan year, for plans with a year-end between September 30, 2019, and March 31, 2020.

Section 6

Section 6 establishes the interest rate for purposes of paragraph 19(2)(a) of the PBSA (crediting interest to member contributions in a defined benefit plan) and previously referenced the monthly 5-year personal fixed term chartered bank deposit rate. In 2019, the Bank of Canada discontinued this monthly series but continues to publish the rate as a weekly series.

In December 2019, OSFI amended section 6 to use the value of the last weekly series of the 5-year personal fixed term chartered bank deposit rate for each month. This will not result in any change in how the rate is calculated. However, some plan texts may need to be amended if they refer to the monthly series.

Section 8

Section 8 sets out conditions that must be satisfied for the Superintendent to give consent under section 26.1 of the PBSA to the transfer of a member's pension benefit credit to another plan or locked-in vehicle, or to the purchase of an immediate or deferred life annuity, if the plan's solvency ratio is less than one.

As noted in the article in this newsletter titled Update on portability freeze, as part of OSFI's COVID-19 response, OSFI revised the Directives to freeze portability transfers and annuity purchases and this freeze is now lifted. Paragraph 8(1)(b) currently requires that where a plan has a transfer ratio that is less than one, the full value of the pension benefit credit may be transferred where

1. an amount equal to the transfer deficiency has been remitted to the fund; or
2. the transfer deficiency for any individual transfer is less than 20% of the Year's Maximum Pensionable Earnings for that year, provided that the aggregate value of all pension benefit credits transferred under this subparagraph since the later of the effective date of these Directives and the valuation date of the most recent actuarial report does not exceed 5% of the assets of the plan at the valuation date of the most recent actuarial report.

Paragraph 8(1)(c) explains when the transfer deficiency must be transferred to the member in the situation where the full value of a pension benefit credit is not transferred to the member.

In March 2019, OSFI amended paragraph 8(1)(c) to require that interest be calculated using the rate of interest used to calculate the pension benefit credit. The revised rate is consistent with our expectation with regard to interest applied to delayed pension benefit credit payouts as set out in InfoPensions - Issue 12 (November 2014). Previously, the required interest rate was the rate calculated in section 6 of the Directives.

Subsection 8(2) was added to clarify that any transfer restrictions set by a province applies to federal members in a provincially registered multi-jurisdictional plan, where the plan is regulated by that province on behalf of the Superintendent under a bi-lateral agreement or the 2020 Agreement Respecting Multi-Jurisdictional Plans (the 2020 Agreement).

Please note that Newfoundland and Labrador did not sign the 2020 Agreement and there is no bi-lateral agreement in place between the federal government and the Newfoundland and Labrador government. Members whose benefits are subject to Newfoundland and Labrador's jurisdiction are not subject to portability conditions imposed by OSFI in a multi-jurisdictional plan registered federally and with Newfoundland and Labrador. Therefore, any portability restrictions that apply under Newfoundland and Labrador's pension legislation will apply to the benefits eligible for transfer of those provincial members, former members or surviving spouses. However, to ensure fair treatment of federal and provincial members in these multi-jurisdictional plans, administrators are encouraged to contact their OSFI Relationship Manager to determine whether the Superintendent wishes to impose different portability conditions to federal members.

Additional information on the conditions currently applicable to portability transfers and annuity purchases can be found in our updated FAQs.