Office of the Superintendent of Financial Institutions
OSFI's announcement on March 27, 2020 to address issues stemming from COVID-19, we have prepared a series of questions and answers regarding the measures taken to protect pension plan members, former members and other beneficiaries and to allow plan administrators to focus their efforts on addressing the many challenges posed by this crisis.
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When a member of a defined benefit pension plan ceases employment with the employer sponsoring the pension plan, they can choose to leave their entitlement in the pension plan and receive a monthly pension payment when they eventually retire, or they can, in some circumstances, exercise "portability". Exercising portability means transferring the value of the pension (also referred to as "commuted value") to a locked-in vehicle such as a life income fund or locked-in registered retirement savings plan, transferring to another pension plan or using the value of the pension to purchase an annuity.
Pension Benefits Standards Act, 1985 (PBSA) is the legislation that protects members of pension plans who work for federally regulated employers. These protections include limiting the circumstances under which money can leave a plan. The PBSA provides the authority to the Superintendent to prohibit portability transfers if he believes the transfer would impair the solvency of the pension fund. This is what is referred to as a "portability freeze".
The authority of the Superintendent to prohibit portability transfers does not extend to all forms of payments from the fund. Please refer to question 17 for examples of permitted payments of pension benefits from the fund.
The effect of the COVID-19 pandemic on the financial and economic environment has resulted in market volatility. This has made the impact on the solvency ratios of defined benefit pension plans difficult to gauge, and the Superintendent came to the view that transfers or annuity purchases from defined benefit pension plans could impair their solvency.
As a result, the Superintendent determined that it would be prudent, as a temporary measure, to prohibit the transfer of assets from defined benefit plans through portability transfers and buy-out annuity purchases. As such, since March 27, 2020, consent of the Superintendent has been required for any transfers or annuity purchases rather than them being granted the usual automatic consent if certain conditions are met.
Effective August 31, 2020, the portability freeze has been lifted. Please see questions 3 and 4 for more details.
Yes. Effective August 31, 2020 the portability freeze has been lifted. The
Directives of the Superintendent have been revised to once again allow for portability transfers and buy-out annuity purchases subject to conditions similar to those that applied prior to March 27, 2020. Please see questions 5 and 6 for more details on conditions applicable to transfers and annuity purchases.
As explained in question 2, the portability freeze was introduced as a temporary measure in response to the adverse impact that the worsening COVID-19 situation was having on pension plan solvency – mainly as a result of increased market volatility.
OSFI has been closely monitoring market conditions and the estimated solvency ratio of federally registered pension plans. We have observed that while market volatility remains elevated, the recovery of the market lows of mid-March has generally been well sustained and solvency ratios have improved since then. In addition, OSFI has introduced conditions designed to mitigate the risk that such transfers and purchases could disadvantage remaining plan members.
As a result, the Superintendent is no longer of the opinion that all portability transfers or annuity purchases will impair the solvency of the pension fund and has determined it is prudent to lift the portability freeze, subject to conditions. OSFI has determined that these conditions are sufficient to protect the rights and interests of plan members and beneficiaries at this time.
Directives of the Superintendent have been adjusted to include conditions on portability transfers and buy-out annuity purchases similar to those in place prior to the portability freeze.
The Superintendent grants his automatic consent to transfers that relate to defined benefit provisions made pursuant to section 26 of the
Pension Benefits Standards Act, 1985, subject to the following terms and conditions:
In addition, the transfer deficiency shall include interest at the same rate used to determine the commuted value, calculated from the date the commuted value was calculated to the date of the transfer.
Yes. Where a plan administrator wishes to purchase an immediate or deferred life annuity other than for the purposes of section 26 of the
Pension Benefits Standards Act, 1985, and the purchase does not settle all the liabilities of the plan, consent is given subject to the following conditions:
The "solvency ratio following the purchase of the annuity" is the transfer ratio described in question 5, adjusted to reflect the effect of the purchase of the immediate or deferred life annuity.
For transfers made pursuant to section 26 of the
Pension Benefits Standards Act, 1985, the conditions in section 8 of the
Directives of the Superintendent (the Directives) have been adjusted relative to what was in place prior to March 27, 2020.
For buy-out annuity purchases by a plan administrator, as described in question 6, the definition of "solvency ratio following the purchase of the annuity" now refers to the transfer ratio as defined in section 1 of the Directives (and described in question 5) rather than the solvency ratio set out in the most recent actuarial report.
Yes. The Superintendent exercises his authority under section 26.1 of the
Pension Benefits Standards Act, 1985 by issuing
Directives of the Superintendent. The purpose of this authority is to protect the benefits of all plan members and beneficiaries, by granting the Superintendent the ability to restrict transfers out of the plan where they pose a risk to the overall financial health of the pension fund.
As a result of future events, such as a further deterioration in the financial and economic environment, the Superintendent may determine that any transfers would impair the solvency of pension funds and that it is prudent to reintroduce a temporary freeze or to change the conditions for providing automatic consent. For example, in the event of renewed market volatility, the Superintendent has the flexibility to require plan administrators to use a more recent projected solvency ratio as the basis for such transfers, if appropriate.
OSFI has determined that the conditions included in the Directives of the Superintendent (the Directives) are sufficient to protect the rights and interests of plan members and beneficiaries at this time. We are closely monitoring the impacts of COVID-19 on pension plans and are prepared to reintroduce a freeze or adjust the Directives further if necessary. However, at the very least, the Directives will be updated prior to when actuarial reports with valuation dates after March 31, 2020 are due to be filed.
No. The conditions on transfers in the
Directives of the Superintendent do not apply to defined contribution plans, nor do they apply to the benefits payable from the defined contribution provisions of a plan with both defined benefit and defined contribution provisions (i.e. a combo plan).
No. The conditions on transfers in the
Directives of the Superintendent do not affect the monthly pension payments that retirees or surviving spouses are currently receiving from a federally registered private pension plan. The conditions also do not affect the payment of monthly pensions from the plan for future retirees or surviving spouses.
No. A buy-in annuity is not considered an immediate or deferred life annuity under section 26.1 of the
Pension Benefits Standards Act, 1985. As indicated in OSFI guidance on
Buy-in Annuity Products, they are considered investments of the plan and are subject to the same rules that apply to any investment made by the plan administrator.
Now that the portability freeze has been lifted, plan administrators must process member elections in accordance with the
Directives of the Superintendent (the Directives). If a member has already elected portability on their option form (and provided all the necessary supporting documents), the member is not required to take any further action to have their benefit transferred out of the plan.
OSFI expects plan administrators to make best efforts to give effect to member elections as soon as possible. However, we acknowledge that it may take time for plan administrators to adjust their administrative practices to reflect the new terms and conditions in the revised Directives. As such, the timing of when a member will receive their funds will depend on the particular circumstances of the plan.
As a result, we encourage members to allow plan administrators some time before contacting them for more information on the status of their request.
As indicated in question 13, we expect plan administrators to make best efforts to give effect to member elections as soon as possible. However, we acknowledge that it may take time for plan administrators to adjust their administrative practices to reflect the new terms and conditions in the revised Directives of the Superintendent. OSFI is not outlining any expectations as to the order of prioritization of these transfers besides assuming plan administrators will use their best judgement.
Yes. Plan administrators should notify members that the portability freeze has been lifted and the expected amount of time it will take to restart transfers in the ordinary course.
Subsection 18(4) of the
Pension Benefits Standards Regulations, 1985 provides that a member's commuted value must be calculated as at the member's termination date. Where transfer has been delayed, a plan administrator is required to apply interest on the commuted value to take into account the delayed period. More details on interest on delayed transfers are available in
this article in InfoPensions 7.
A plan administrator may re-calculate the commuted value as at a more recent date, if the member notified the plan administrator of their request to transfer within the notice period allowed. However, a re-calculation is only permitted if the re-calculated amount as at the date of transfer is greater than the commuted value calculated as at the member's termination date, plus interest as described above. As a result, a member's entitlement can be no less than their commuted value at termination, plus interest. More information on recalculations is available in
this article in InfoPensions 12.
A member's entitlement to elect a commuted value transfer at termination is based on the member's entitlement at the time of cessation of membership, not at the time the freeze was lifted. That is, the member will continue to be eligible to elect this option, even though it may no longer be available if the member has reached eligibility for early retirement when the freeze is lifted.
Directives of the Superintendent do not affect payments from the fund that are not portability transfers under section 26 of the
Pension Benefits Standards Act, 1985(PBSA). This includes:
The federal government recently signed the
2020 Agreement Respecting Multi-jurisdictional Pension Plans (the 2020 Agreement) that came into effect on July 1, 2020. In addition to the federal government, the following provinces are signatories to the 2020 Agreement: Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario, Quebec and Saskatchewan. Paragraph 6(f) of Schedule B of the 2020 Agreement provides that the portability restriction rules of the jurisdiction under which the plan is registered will apply to portability transfers. OSFI has adjusted the
Directives of the Superintendent to give effect to this provision.
For plans with both federal members and members subject to either the jurisdiction of Manitoba or Newfoundland and Labrador, the following applies:
Newfoundland and Labrador did not sign the 2020 Agreement and there is no other agreement in place between the federal government and the Newfoundland and Labrador government. Members 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.
Manitoba did not sign the 2020 Agreement however, the bi-lateral agreement between the federal and Manitoba governments will remain in effect. The interests of federal members in multi-jurisdictional plans registered in Manitoba may not be best served by imposing federal portability conditions when other members are permitted to exercise portability in accordance with the provincial portability conditions, as these may differ. Therefore, to treat those federal members fairly, OSFI adjusted the
Directives of the Superintendent to allow portability in accordance with the provincial portability conditions for federal members in multi-jurisdictional plans registered in Manitoba.
For more information on the 2020 Agreement, including the effects of Manitoba and Newfoundland and Labrador not signing the 2020 Agreement, please see our related
Frequently Asked Questions.
No. The Superintendent's automatic consent is provided, subject to the terms and conditions set out in the
Directives of the Superintendent, for all transfers that relate to defined benefit provisions under section 26 of the
Pension Benefits Standards Act, 1985 and buy-out annuity purchases.
No. If the Superintendent has previously granted consent for one or more transfers or annuity purchases, the consent and any applicable conditions will no longer apply as of August 31, 2020. Instead, the conditions explained in question 5 will apply to all future transfers and annuity purchases.
OSFI expects plan administrators to make best efforts to apply the terms and conditions in the revised
Directives of the Superintendent (the Directives) as soon as possible. However, we understand that in some cases, administrative processes may be difficult to reverse and that some payments may have to be processed based on previously approved conditions in the days following the revisions.
If a plan administrator has concerns about complying with the Directives, they should contact their OSFI Relationship Manager.
No. If a member is eligible for portability then the member's election must be processed in accordance with the
Directives of the Superintendent (the Directives). If a plan administrator has concerns about complying with the Directives, they should contact their OSFI Relationship Manager.
The transfer ratio is equal to the lesser of:
Therefore, the solvency ratio at the last valuation date (e.g. December 31, 2019) could only be used if it is lower than the projected solvency ratio. In order to determine which ratio is lower, plan administrators are expected to calculate a projected solvency ratio (to a date no earlier than March 31, 2020), before effecting portability transfers.
A projected solvency ratio, as set out in section 1 of the
Directives of the Superintendent, is the solvency ratio of the plan projected to a calculation date no earlier than March 31, 2020, as determined by an actuary. As indicated, the projected solvency ratio must be determined by an actuary; however, it does not require an actuarial certification. The use of a projection tool that takes into account the elements listed below would be appropriate as long as the tool has been developed in accordance with accepted actuarial practice in Canada.
This projected solvency ratio must take into account
between the valuation date of the most recent actuarial report of the plan and the calculation date of the projected solvency ratio. Other items may be taken into account as determined by the actuary.
The determination of how often a projected solvency ratio should be calculated is at the discretion of the plan administrator, who is in the best position to evaluate the financial position of the pension fund. Currently, a solvency ratio projected to March 31, 2020 or later is acceptable.
The only requirement is that the projection be at a date no earlier than March 31, 2020. Currently, a solvency ratio projected to March 31, 2020, or later is acceptable. There is no requirement for the projected solvency ratio to be at a date prior to the member's cessation of membership nor to be related to the month of payment. The determination of the projected solvency ratio to be used is at the discretion of the plan administrator.
The Directives of the Superintendent do not outline specific disclosure requirements. We would expect the termination statement to include all relevant information for a participant to understand their benefit entitlements.
It is not necessary to provide the estimate unless OSFI requests it.
Subparagraph 8(1)(b)(ii) of the Directives of the Superintendent (the Directives) states that the full individual transfer can be made if the transfer deficiency is less than 20% of the Year's Maximum Pensionable Earnings for that year, provided that the aggregate value of all transfers made does not exceed 5% of the assets of the plan at the valuation date of the most recent actuarial report. This aggregate limit must take into account the sum of all commuted values transferred under subparagraph 8(1)(b)(ii) of the Directives from August 31, 2020, onwards. This includes all suspended transfers paid after August 31, 2020 that should have been paid between March 27 and August 30 had it not been for the freeze, as well as any new portability transfers for members ceasing membership on or after August 31.
The value of the aggregate limit should be measured on a plan year basis (i.e. from one valuation date to the next). The only exception is for the first plan year as only transfers made since August 31, 2020 – the effective date of the Directives – are to be included in the total. This means that, if the last filed actuarial report is as at December 31, 2019 (whether this report was filed before or after August 31, 2020), only those amounts that are paid out since August 31, 2020, will count towards the aggregate limit of 5% of assets. After the filing of the December 31, 2020, actuarial report, the 5% limit will be determined using amounts paid between December 31, 2020, and December 31, 2021.
As noted in question 51, plan administrators must disclose the amount of solvency special payments made during the year. Transfer deficiency payments are not considered special payments because they do not improve the plan's solvency ratio. They restore the solvency ratio of the plan to its level prior to the payout of the commuted value of the member. Therefore, transfer deficiency payments should be treated separately from solvency special payments.
At this time, OSFI is not considering extending the deadline for the production of individual statements. If a plan administrator is facing challenges complying with the prescribed timelines, they should contact their OSFI Relationship Manager. Requests will be considered on a case-by-case basis.
Yes. The deadline extension applies to filings that are shared with the Canada Revenue Agency (i.e. the OSFI 49A Schedule A – Canada Revenue Agency Information Requirements).
Yes. The due date for filing a plan's Annual Information Return (AIR) triggers the determination of the assessment and administrators can generally expect to receive an invoice approximately 45 days after the AIR was due to be filed. As the deadline to file the AIR has been extended by three months for all plans with a year-end between September 30, 2019 and March 31, 2020, OSFI will only issue an invoice for the annual assessment after the extended deadline.
The effect of the COVID-19 pandemic on the financial and economic environment may raise questions about the solvency of private pension plans. The market volatility affects the value of plan assets while at the same time lower interest rates increase pension plan liabilities (by increasing the estimated cost of paying future pension benefits). As a result, the solvency position of most defined benefit plans has deteriorated since the end of 2019. Though most pension plans under OSFI's supervision were in a relatively strong financial position heading into 2020, the impact of the COVID-19 pandemic on financial markets and pension plans prompted OSFI to put in place special temporary measures to protect the rights and interests of plan members and beneficiaries.
OSFI is closely monitoring financial market conditions and their impact on federally registered private pension plans and communicates frequently with plan administrators. It is important to remember that pension plans' investment outlook is long-term and they must meet and maintain standards that support their long-term viability. As such, pension plans should be administered in a way that is designed to weather market volatility.
No. Withdrawals for financial hardship cannot be made directly from a pension fund. They are only available from the locked-in vehicles to which a member's benefit may be transferred. More information on whether a member would qualify to withdraw funds under the financial hardship unlocking provisions is available on
On March 13, 2020, OSFI
suspended consultations and policy development. These measures were designed to reduce operational stress on institutions so that efforts could be focused on helping Canadians and Canadian businesses until conditions became more stable. The Superintendent issued a statement on July 13, 2020, with the intent to restart gradually policy development work in the fall at which time OSFI will accept further submissions for a short period of time.
It is expected that the Actuarial Guide will come into effect at a date no earlier than December 31, 2020, including changes related to section 2.7.4 (new section on Alternative Settlement Methods) to clarify current OSFI expectations related to disclosure requirements; other changes to section 2.7.4 which may have an impact on plan liabilities will be finalized at a later date. Until such time, actuarial reports should be prepared using the
October 2017 version of the Actuarial Guide.
There is no prohibition under the
Pension Benefits Standards Act, 1985 or its regulations from reducing the level of employer or employee contributions to a defined contribution plan on a go forward basis because of a pension plan amendment. The plan text cannot be amended retroactively. Employers should consider restrictions under collective agreements and labour and employment law before proceeding with a reduction. If an employer is in a situation where any contributions at all to a defined contribution plan during this crisis are problematic, they should contact their OSFI Relationship Manager.
Some forms prescribed under the
Pension Benefits Standards Regulations, 1985 (PBSR) must be sworn before a notary public, commissioner, or other person authorized to take affidavits. There is nothing in the
Pension Benefits Standards Act, 1985 or PBSR on the process of notarization or commissioning. As a result, OSFI expects that the standard procedures for such processes may be applied.
OSFI would not object to forms being sworn through virtual means, provided those means have been approved by the appropriate provincial or public regulatory bodies responsible for establishing standards for notary publics, commissioners or other persons authorized to take affidavits. If a financial institution has any reason to believe that the procedures required by such bodies were not complied with, then it should not accept the form for processing.
OSFI encourages electronic submissions, which should be sent to the following email address:
Subsection 31.1(1) of the
Pension Benefits Standards Act, 1985 permits information, including required written statements and explanations, to be communicated by way of an electronic document, provided that certain requirements are met. Requirements include that the addressee must have consented to receive information via an electronic document and have designated an information system such as an email address or website for receipt of the document. In addition, the information must be accessible to the addressee and be capable of being retained by the addressee, so as to be usable for future reference.
It is important to be aware that a member (or former member or employee eligible to join the plan) cannot consent to electronic communications on behalf of their spouse or common law partner. A spouse or common-law partner must provide consent to receive the information electronically and designate an information system.
Yes. Section 31.2 of the
Pension Benefits Standards Act, 1985 provides that electronic signatures are permitted if
Pension Benefits Standards Regulations, 1985, solvency special payments must be made at least monthly and are due 30 days after the period in respect of which the payment is being made. For example, a solvency special payment for March 2020 is due by April 30, 2020.
As announced by the Department of Finance, the
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) establish a moratorium that effectively applies to certain solvency special payments that become due during the period beginning on April 1, 2020 and ending on December 30, 2020.
Current service contributions and going concern special payments must continue to be made.
Other than for a
negotiated contribution plan, employers continue to be required to fully fund any solvency deficit in the event of a plan termination.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations), the amounts of any solvency special payments that become due and are made after March 31, 2020, until the coming-into-force date (May 27, 2020), can be deducted from the plan's required current service (or normal cost) contributions and/or going concern special payments in the period beginning on May 27, 2020 and ending on December 30, 2020.
The Relief Regulations also provide that interest is not payable on any unpaid solvency special payment instalments that became due between March 31, 2020 and May 27, 2020.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) apply to all defined benefit plans registered or filed for registration under the
Pension Benefits Standards Act, 1985 that have a solvency deficiency to be funded during the period from April 1, 2020 to December 30, 2020.
The Relief Regulations do not apply to defined contribution plans.
If an employer has already obtained letters of credit to cover solvency special payments for all of 2020, the
Solvency Special Payments Relief Regulations, 2020 allow the employer to reduce the face value of the letters of credit, provided that, after the reduction, the letters of credit are sufficient to cover the 2020 solvency special payments not subject to the moratorium.
Yes. Employers may continue to make solvency special payments during the moratorium.
As solvency special payment requirements are determined on an average solvency ratio basis, plans with a solvency ratio of 1.0 or greater should contact the Canada Revenue Agency before making solvency special payments during the moratorium, as there may be tax implications.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) provide a moratorium on the amounts of any solvency special payments due from April to December 2020. The Relief Regulations specify that solvency special payments made during the moratorium are not considered to be 'additional payments' under subsection 9(6) of the
Pension Benefits Standards Regulations, 1985 unless the payments are in excess of the solvency special payments that would have been required, but for the Relief Regulations.
Solvency Special Payments Relief Regulations, 2020 do not set out a separate amortization schedule for the solvency special payments that were foregone during the moratorium. At the end of the moratorium, if there are no further changes to the
Pension Benefits Standards Regulations, 1985, plans will be subject to the normal funding rules, which provide that any solvency deficiency is to be amortized at least through monthly instalments over a five year period.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) place restrictions on certain types of plan amendments in order to ensure that the amendment does not negatively impact a plan's solvency position and/or improve benefits while reduced funding requirements are in place, unless the plan is well funded on a solvency basis after the plan amendment.
The Relief Regulations provide that, unless authorized by OSFI, any plan amendment would be void, or in Quebec, null if
No. In accordance with section 8 of the
Directives of the Superintendent, employers must still remit a "top-up" payment to the fund (i.e. the amount of the transfer deficiency) if the plan transfers a member's full commuted value.
When a more recent actuarial report is filed with OSFI and the solvency deficiency to be amortized has increased relative to the previous report, a "catch-up" payment (i.e. amount equal to the difference between the new and the previous solvency special payments, plus interest) is normally made in respect of months that have elapsed in the plan year prior to filing the report.
Solvency Special Payments Relief Regulations, 2020, a catch-up payment that would normally be made between the coming-into-force date (May 27, 2020) and December 30, 2020 is considered part of a solvency special payment instalment and therefore is not required to be paid.
Solvency Special Payments Relief Regulations, 2020 (the Relief Regulations) set out that, for plan years in which the moratorium applies, plan administrators must provide information on the amounts of solvency special payments that were made during the plan year, and the amounts of solvency special payments that would have been required, but for the Relief Regulations.