Inadvertent Changes When Making Plan Amendments

While revising plan documents to comply with the recent changes to the Pension Benefits Standards Act, 1985 (PBSA), some plan administrators are taking the opportunity to consolidate their plan texts and clarify the wording of certain provisions. OSFI would like to advise plan administrators to be careful when amending their plan text not to inadvertently change a plan provision. One such change that OSFI is aware of is that amendments intended to clarify the wording of unreduced early retirement benefits have removed wording that indicates that the benefit is subject to the consent of the plan administrator. For example:

• The original plan document stated that:
  • The normal retirement age is 65 (i.e. a member could retire with an unreduced pension at age 65) and
  • A member with 30 years of service could retire with an unreduced pension at age 60, with the administrator’s consent.
• The amended plan document removed the requirement for consent, so that the plan now provides that the normal retirement age is 65 and members with 30 years of service can retire at age 60 with an unreduced pension.

The removal of the requirement to receive consent from the plan administrator has the effect of introducing a new ‘pensionable age’ in the plan.  Under the PBSA, pensionable age is the earliest age at which members may receive an unreduced pension without the consent of the plan administrator.  In the example above, members who have less than 30 years of service will receive a pension benefit (upon termination, death or retirement) payable at age 65. With the removal of the plan administrator’s consent, members who have 30 years of service would be entitled to receive a pension benefit payable at age 60 (on termination, death or retirement). For further information on benefits payable on pensionable age, please see OSFI's Policy Advisory on Vested Benefits Payable to Terminating Employees.

The introduction of a new pensionable age has a significant impact on solvency liabilities. For the plan in this example, benefits of members who have 30 years of service would be valued as being payable at age 60.

In a situation such as this, where pensionable age is changed in the plan text, any subsequent plan amendment to reintroduce consent would be considered void under section 10.1 of the PBSA unless authorized by the Superintendent through a benefit reduction application. An alternative approach for dealing with such a situation would be for the plan administrator to consider seeking a court ordered rectification of the plan documents.

In order to avoid these kinds of errors, plan administrators and their consultants should carefully review the implications of any amendments they are making to their pension plan documents. As communicated in InfoPensions 6, OSFI does not expect formal amendments to plan documents as a result of recent legislative changes to be made until all amendments to the PBSA and the Pension Benefits Standards Regulations, 1985 announced by the federal government in late 2009 have come into force.