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.