How we supervise pension plans

We supervise federally regulated pension plans to determine whether they are meeting minimum funding requirements and are complying with other legislative requirements. We act promptly when a pension plan is not meeting these requirements.

Our supervision accepts that pension plan administrators need to take reasonable risks. Pension plans that meet the minimum funding requirements are permitted to operate with a solvency or going concern deficit. We promote good risk management practices and sound governance.

We use our Supervisory Framework to support our:

  • assessments of risks
  • responses to the risks that we identify

The framework applies to financial institutions as well as pension plans. It is differentiated where necessary to reflect the specific characteristics of deposit-taking institutions, insurance companies, and pension plans.

You can read more here about the foundations of our supervisory approach and our key principles of supervision.

Our supervisory process

In the following sections we describe the main elements in our supervisory process:

  • the work we do to identify risks affecting pension plans
  • how we assess risks and assign ratings
  • our response to risks and the monitoring of remediation activity
  • how we report the results of our supervisory work

Risk identification

Factoring in size and complexity

We’re guided by our risk appetite in terms of the supervisory work that we carry out to identify risk. The type of regular supervisory work that we do to identify risks considers a pension plan’s size and complexity, and this is reflected in the pension plan’s Tier Rating.

The Tier Rating helps us apply our risk appetite. It is also linked to supervisory proportionality, since larger and more complex pension plans normally require more sophisticated risk management and governance, and this is reflected in the work we carry out to identify risk at those pension plans.

Risk identification starts with data analytics

We use a series of indicators to detect risks based on information submitted by pension plans in regulatory filings and other sources. These indicators are applied to all pension plans and are a cornerstone of our risk-based approach. We focus our attention on pension plans that are identified as having higher risks.

Analyzing risk trends in a broader context

As part of our monitoring work, we look out for broader economic risks. These include the industry outlook for the employer(s) and market movements that could impact the solvency and funding of pension plans.

Reviewing actuarial reports

We require pension plans with defined benefit provisions to submit an actuarial report annually, or once every three years if the solvency ratio is 1.20 or better. We review filed actuarial reports to assess whether going concern and solvency valuations are aligned with actuarial standards and supervisory expectations. We bring any issues to the attention of the pension plan actuary and the pension plan administrator.

Estimated solvency ratio

Our monitoring of pension plans with defined benefit provisions includes an exercise to estimate the solvency ratio. The objective of this exercise is to identify pension plans that might have experienced a significant deterioration in their solvency position since the latest actuarial report and, if appropriate, take supervisory actions.

Supervisory reviews

We undertake in-depth supervisory reviews in certain situations to support risk identification. This type of work allows us to assess the effectiveness of risk management and controls in more detail. We use supervisory judgment in planning this work, including its scope and depth.

Risk assessment

A pension plan’s risk rating reflects our view of risk to rights and benefits

The Overall Risk Rating (ORR) reflects the level of risk to the security of rights and benefits for pension plan members, retirees, and beneficiaries. It has a 1 to 8 scale (ORR scale).

We follow a structured approach in assessing risk and use our judgment to assign ratings, supported by data and other evidence. Our ratings reflect issues that we want a pension plan administrator or employer(s) to address.

We monitor risk ratings on an ongoing basis and update them when necessary.

A pension plan’s ORR and its Tier drive the intensity of our supervisory activity.

Our assessment highlights the main sources of risk for a particular pension plan

A pension plan’s ORR considers the following risk categories:

  • business risk
  • financial resilience
  • operational resilience
  • risk governance

You can read more about each category in the section on ORR categories.

We do not expect perfection for the strongest ratings

We assign an ORR of 1 when no significant issues are identified. Issues could come up, but we have confidence in the pension plan administrator’s ability to manage them. As a result, there is a minimal level of risk to pension-related rights and benefits.

Pension plan administrators can identify some risks through their own oversight and governance processes. Greater transparency around this process helps us develop and maintain confidence in risk oversight.

Issues identified by pension plan administrators can lead to rating changes where they represent an elevated risk. Rating changes are also more likely when we have concerns about the action plan to address the issue.

Risk response and remediation

We expect pension plan administrators to take prompt corrective action to address supervisory concerns and risk issues, including meeting minimum funding and other statutory requirements.

We are outcomes focused

When we have supervisory concerns relating to practices, controls, and oversight, we highlight these to the pension plan administrator and explain the outcomes we want to see. Generally, the administrator is responsible for managing the way it achieves the outcomes.

We update our rating assessments when we’re satisfied that supervisory concerns are addressed.

Transparency is a cornerstone of effective supervisory relationships

We provide pension plan administrators with information to help them address any supervisory concerns. When necessary, we communicate through formal letters in addition to ongoing discussions. Our letters outline any specific concerns.

We escalate our intervention when outcomes are not achieved

We are ready to escalate intervention activity when the pension plan administrator does not achieve satisfactory outcomes.

Our approach to intervention is explained in our Guide to Intervention. The objective is to intervene as early as possible to minimize problems before they escalate and to reduce the risk of loss to pension plan members, retirees, and other beneficiaries.