Recalculation of a Member’s Pension Benefit Credit – Correction

OSFI’s policy that a pension benefit credit could be recalculated in cases where a pay-out was delayed and the terms of the plan required that the calculated amount be valid for only a certain amount of time, has changed.

In accordance with subsection 26(1) of the Pension Benefits Standards Act, 1985 (PBSA), if a member, before becoming eligible for early retirement, ceases to be a member of a pension plan or dies, the member or the survivor is entitled to transfer the pension benefit credit in accordance with the portability options set out in that subsection.  Subsection 18(4) of the Pension Benefits Standards Regulations, 1985 (PBSR) provides that a pension benefit credit shall be determined as of the date that the plan member ceases to be a plan member or, in the case of a survivor benefit, as of the date of death. OSFI expects that interest will be paid on the pension benefit credit from that date until at least the beginning of the month in which the pension benefit credit is transferred, at the rate of interest used in the determination of the pension benefit credit.

In a previous newsletter article, OSFI had indicated that in cases of delayed pay-out, if the terms of the plan required a limited period during which the calculated pension benefit credit remains valid, the pension benefit credit could be recalculated if transferred after that period ended.  We have recently reviewed this policy and determined that if the member or survivor notified the plan administrator of their request to transfer by completing the prescribed form within the period allowed, a re-calculation will only be permitted if the re-calculated amount is greater than the pension benefit credit calculated at the termination date (or date of death) plus interest as described above.  The plan terms cannot override the member’s or survivor’s entitlement under subsection 26(1) of the PBSA and subsection 18(4) of the PBSR.

If the issuance of a termination statement is delayed, and the member or survivor notifies the plan administrator of their request to transfer their pension benefit credit within the period allowed they would be entitled to interest as described above. Subsection 26(1) requires a notice period of 60 days after the administrator has given the termination statement.  

If a plan administrator receives notification within the notice period allowed but is restricted by OSFI from paying-out benefits from the plan at that time, interest, as described above, would be paid on the pension benefit credit when the restriction is lifted.

In circumstances where the administrator offers portability beyond what is required under subsection 26(1) of the PBSA, the plan administrator may either re-calculate or apply interest to the member’s or survivor’s pension benefit credit. This could occur when

• notification is received from the member or survivor after the notice period allowed has already expired and the administrator still chooses to offer portability; or
• portability is offered a second time to a deferred vested member.

If re-calculation is a possibility the transfer option statement should note this.