InfoPensions – Issue 31 – November 2024
InfoPensions includes announcements and reminders on matters relevant to federally regulated pension plans including pooled registered pension plans. To receive email notifications of new items posted to our website, including this newsletter and other pension-related documents, please subscribe using Email Notifications.
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Table of contents
Supervision
Investment risk review
We recently completed a thematic review of selected federally regulated pension plans (FRPPs) of various sizes and risk profiles. Our main objective was to understand to what extent plan administrators adopt policies and procedures designed to control and manage investment risks. You will find below our general observations and comments on opportunities for improvement.
1. Governance documentation and risk management framework
All FRPPs reviewed had appropriate governance documentation and risk management frameworks for the investment function. Given the limited scope of the review, we did not assess the governance documentation and risk management frameworks for non-investment functions.
However, as communicated in InfoPensions 30, prior reviews conducted in 2023 revealed that some plans did not have comprehensive written documentation regarding the roles, responsibilities, and accountabilities of all those involved in the administration of the plan. It was also observed that, while most plans have an appropriate risk management framework with respect to asset management activities, it might not provide an appropriate level of information required for effective risk mitigation for non-investment functions.
2. Governance self-assessment
For the FRPPs reviewed, some plan administrators did not perform regular self-assessments to determine how closely the plan follows best practice governance principles.
Performing a self-assessment enables plan administrators to identify governance gaps and adopt any changes necessary to support proper administration of plans. The insights gained from a self-assessment can enable plan administrators to carry out their fiduciary duties more effectively.
As noted in InfoPensions 30, although OSFI does not require plan administrators to use a specific type of governance model or self-assessment technique, the Canadian Association of Pension Supervisory Authorities' Guideline No. 4 – Pension Plan Governance (PDF) and the Self-Assessment Questionnaire (PDF) are recommended resources to help plan administrators meet their governance responsibilities.
3. Asset-liability matching
For the FRPPs reviewed, most plan administrators performed some form of asset-liability matching to ensure that assets were in line with plan demographics and liabilities.
Asset-liability matching allows plan administrators to efficiently manage their long-term obligations by ensuring that investment strategies align with plan liabilities and funding objectives. A plan administrator can use tools such as stress testing and asset-liability modeling to match assets and liabilities to better manage the risk of the plan.
4. Statement of investment policies and procedures
Most of the statements of investment policies and procedures we reviewed included the prescribed information in subsections 7.1(1) and (2) of the Pension Benefits Standards Regulations, 1985.
We identified some disclosure issues related to categories of investments and asset mix. Categories of investments should describe the type and quality of investment assets permitted. The asset mix should reflect the use of leverage, if any, including the target, minimum, and maximum ranges. Clear documentation promotes transparency and accountability and allows for effective oversight by the plan administrator, regulators, and other stakeholders.
5. Quality of data reporting
The assets reported on some of the Certified Financial Statements (OSFI 60) we reviewed did not accurately reflect the information recorded in the auditor's report. More specifically, we noted that the assets for certain types of investments were not reported in the proper investment category.
We recently made several changes to the OSFI 60 and its accompanying guide and expect these changes to provide plan administrators with greater clarity on the different types of investment categories and to facilitate completion of the OSFI 60.
Clarification of information to be included in the Solvency Information Return
As noted in InfoPensions 29, if a pension plan is using a portion of the surplus to reduce the employer’s normal cost, the plan administrator must disclose this in the Solvency Information Return (SIR). The plan administrator must enter the dollar amount of the portion of the surplus that is being used to satisfy funding requirements for the relevant period covered by the SIR (usually the plan year), on line 002 for the defined benefit provisions and line 003 for the defined contribution provisions.
We would like to clarify that the amount disclosed on the SIR (lines 002 and 003) should reflect contribution holidays taken under subsection 9(5) of the Pension Benefits Standards Regulations, 1985. This includes any use of a portion of an excess surplus within the meaning of paragraph 147.2(2)(d) of the Income Tax Act (i.e., going-concern funded ratio equal to or greater than 1.25). We will update the instruction guide for completing the SIR to reflect this information.
Guidance and legislative matters
Proposed regulatory changes to the Pension Benefits Standards Regulations, 1985 – solvency reserve accounts and multi-employer pension plans
On September 14, 2024, the federal government published a notice in the Canada Gazette, Part 1, of proposed amendments to the Pension Benefits Standards Regulations, 1985. These related to a new regulatory framework for solvency reserve accounts (SRAs) and reduced funding requirements for multi-employer pension plans. Interested persons were able to make representations concerning these proposed amendments until October 14, 2024.
As described in the notice, the amendments would:
- operationalize the legislative framework for SRAs that received royal assent in the Budget Implementation Act, 2022, No. 1 on June 23, 2022. An SRA would be a separate or notional account within a pension fund, from which an employer could withdraw excess funds if their plan is sufficiently funded and subject to certain limits. The amendments set the requirements regarding the establishment of an SRA, the limits on withdrawing funds from the SRA, and the reporting requirements to plan members.
- lower the target solvency ratio for federally regulated defined benefit multi-employer pension plans that are not negotiated contribution plans from 100% to 85%.
Proposed regulatory changes to the Pension Benefits Standards Regulations, 1985 – publication of investment information
In the 2023 Fall Economic Statement, the federal government announced its intention to require large federally regulated private sector pension plans to disclose to OSFI, in a standard format, the distribution of their investments, both by jurisdiction and by asset-type per jurisdiction. This information would be made publicly available. The Pension Benefits Standards Act, 1985 was subsequently amended to enable and require the Superintendent of Financial Institutions to publish prescribed information related to the investments of certain federally regulated pension plans. This legislative amendment received Royal Assent on June 20, 2024.
On November 2, 2024, the federal government published a notice in the Canada Gazette Part I, of their proposed regulatory amendments to the Pension Benefits Standards Regulations, 1985 (PBSR) related to the above requirements.
As described in the notice, the proposed amendments would:
- prescribe the information that OSFI is required to publish with respect to the investments of federally regulated pension plans with assets greater than or equal to $500 million, and how that information would be presented.
- set out requirements for OSFI to publish investment information for plan years 2022 and later.
Interested persons are able to make representations concerning these proposed amendments until December 2, 2024.
Annual statements and plan termination statements to survivors
Under the Pension Benefits Standards Act, 1985 (PBSA), survivors entitled to pension benefits under a pension plan are entitled to receive annual written statements (see paragraph 28(1)(d) of the PBSA). In addition, if a plan is terminated, survivors are entitled to a notice (within 30 days after termination) and a written statement informing them of their pension benefits and other benefits payable under the plan (within 120 days after termination) (see subsection 28(2.1) of the PBSA). These requirements have been in force since June 22, 2023.
OSFI expects plan administrators to keep up-to-date records for each survivor who is entitled to pension benefits under a plan, including up-to-date contact information, so that the PBSA disclosure requirements described above may be met.
CAPSA’s Guideline for Risk Management for Plan Administrators
In September 2024, the Canadian Association of Pension Supervisory Authorities (CAPSA) published Guideline No. 10: Guideline for Risk Management for Plan Administrators (PDF) (Risk Management Guideline) on their website. The Risk Management Guideline sets out principles of risk management and outlines a risk management framework to assist plan administrators in fulfilling their fiduciary duties. It also presents risk considerations for specific topics, including:
- third-party risk
- cyber security
- investment risk governance
- environmental, social, governance issues
- use of leverage
In September 2024, OSFI published a letter to all federally regulated pension plan administrators outlining our expectations with respect to the Risk Management Guideline. In our role as a member of the CAPSA, OSFI contributed significantly to the development of the Risk Management Guideline and expects administrators of federally regulated pension plans to follow it as part of their efforts to meet their fiduciary duties in the administration of their pension plans and their pension funds or plan assets.
CAPSA’s Guideline for Capital Accumulation Plans
In September 2024, the Canadian Association of Pension Supervisory Authorities (CAPSA) published a revised Guideline No. 3: Guideline for Capital Accumulation Plans (PDF) (CAP Guideline) on their website, which incorporates stakeholder feedback received from consultations held in 2022 and 2023, and input obtained from an Industry Working Group in 2020 and again in March 2024. The CAP Guideline reflects regulators’ views regarding the operation of capital accumulation plans (including pension plans with member choice defined contribution components) and is intended to support the development of industry best practices.
While the CAP Guideline applies to all capital accumulation plans and therefore has a broader application than to just pension plans, it provides useful guidance regarding best practices, and we encourage administrators of federally regulated pension plans with member choice defined contribution components to follow its principles.
Basic rate for assessment of pension plans
The Assessment of Pension Plans Regulations require the Superintendent to publish annually in the Canada Gazette, Part I, a notice, which sets out the basic rate that will be applied to the assessment of pension plans in the upcoming fiscal year.
This notice was published on September 28, 2024, and the basic rate is $12 for assessments that are invoiced by us for plan years ending between October 1, 2024, and September 30, 2025. This represents a $1 increase from the basic rate that is currently in effect and results in an increase of $50 to the minimum assessment amount (from $550 to $600) and $20,000 to the maximum amount (from $220,000 to $240,000). The basic rate applies to all pension plans registered under the Pension Benefits Standards Act, 1985 and the Pooled Registered Pension Plans Act.
Please refer to the Pension Plan Assessment Rate Schedule on our website for more information.
We determine the assessment due for a pension plan and send an invoice after the due date of the plan’s Annual Information Return or, where applicable, after having received an application for registration. We typically prepare the invoice approximately 45 days after determining the assessment, for example, approximately 45 days after the due date of the Annual Information Return.
Please continue to wait to be invoiced rather than sending payment for the assessment along with an application for registration or after filing the plan’s Annual Information Return.
Guidance posted on our website
The following documents were posted to our website since the last edition of InfoPensions:
- November 2024 – final Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans. Revisions reflect our updated expectations on the maximum going concern discount rate, and the new funding requirements with regards to negotiated contribution plans.
- November 2024 – final Instruction Guide for Administration of Negotiated Contribution Plans
- September 2024 – OSFI’s letter to administrators of federally regulated pension plans regarding the Canadian Association of Pension Supervisory Authorities’ Risk Management Guideline
Actuarial
Revision to the Instruction Guide for Preparation of Actuarial Reports for Defined Benefit Pension Plans
In November 2024, we revised the Instruction Guide for Preparation of Actuarial Reports for Defined Benefit Pension Plans (Actuarial Guide) to reflect our updated expectations on the maximum going concern discount rate, and the new funding requirements with regards to negotiated contribution plans.
In accordance with the Actuarial Guide, the best estimate rate of return on assets used in the determination of the going concern discount rate should not exceed a certain level so that the assumption used by actuaries in their actuarial reports remains fit for purpose. We have determined that the discount rate for a plan with a fixed-income allocation of 50% should not exceed 6.75%, before implicit margins for adverse deviations and expenses.
The Actuarial Guide also addresses recent updates to the regulatory framework for negotiated contribution plans. These plans are now subject to enhanced going concern funding requirements, based on a normal cost and liabilities that include a margin for adverse deviations. The Pension Benefits Standards Regulations, 1985 requires a minimum provision of 5% to be included in the normal cost, while the margin included in the liabilities is determined by the administrator. Negotiated contribution plans are exempt from solvency funding.
The updated version of the Actuarial Guide applies to actuarial reports with a valuation date on and after December 31, 2024.
Quality of data – Actuarial Information Summary
The Actuarial Information Summary (AIS) should be completed and submitted to us with any actuarial report that is filed with OSFI.
As mentioned in InfoPensions 30, the data collected on the AIS is important and useful to us. We use it to obtain numerous important insights, to assess the overall state of federally regulated pension plans (FRPPs) and their funding. As a result, it is essential that the AIS filed contains accurate and adequate information about the results of the actuarial report.
We observed that several AIS submitted to us were incorrectly completed, and that the information contained in them did not always adequately reflect the information contained in the actuarial report. In some situations, the complexity of the pension plans or the information requested may make the AIS difficult to complete. In these cases, we encourage you to consult the Instruction Guide for Completing the Actuarial Information Summary, which is updated regularly to clarify certain questions and to facilitate its completion.
If you have any questions about the AIS and its instruction guide, please contact us at Pension-Retraite@osfi-bsif.gc.ca.
Regulatory filings and important dates
Updated returns for regular annual filings
Minor changes will be made to the following annual regulatory returns and the changes will apply to filings for plan years ending October 31, 2024, and beyond:
- Actuarial Information Summary (AIS)
- Certified Financial Statements (OSFI 60)
- Annual Information Return (OSFI 49)
We expect returns for plan years ending in October, November, and December 2024, to be available in the Draft Returns Folder in the Regulatory Reporting System in early February 2025.
If you have any questions about the recent changes to the regulatory returns, please contact us at Pension-Retraite@osfi-bsif.gc.ca.
Important reminders and dates
Annual filings and plan amendments must be filed using the Regulatory Reporting System (RRS).
Under the Pension Benefits Standards Act, 1985:
| Action or Required Filing | Deadline |
|---|---|
| Annual Information Return (OSFI 49) and Schedule A – Canada Revenue Agency Information Requirements (OSFI 49A) | 6 months after plan year end |
| Pension Plan Annual Corporate Certification (PPACC) | 6 months after plan year end |
| Certified Financial Statements (OSFI 60), Auditor’s Report Filing Confirmation (ARFC) and, if required, an Auditor's Report | 6 months after plan year end |
| Payment of Plan Assessments | Upon receipt of the OSFI-issued invoice |
| Annual statements to members and former members and their spouses or common-law partners | 6 months after plan year end |
| Amendments to documents that create or support the plan or pension fund | Within 60 days after the amendment is made |
| Action or Required Filing | Deadline |
|---|---|
| Actuarial Report and Actuarial Information Summary and, if required, Replicating Portfolio Information Summary | 6 months after plan year end |
| Solvency Information Return (OSFI 575) | The later of 45 days after the plan year end or February 15 |
Documents in support of an application for plan registration can be submitted by email to Approvals-Approbations@osfi-bsif.gc.ca. All other documents in support of an application that requires the Superintendent’s authorization must be filed using RRS. For additional information including instruction guides for filing an application using RRS, please visit the Amendments, Applications and Approvals section of our website.
Under the Pooled Registered Pension Plans Act:
| Action or Required Filing | Deadline |
|---|---|
| Pooled Registered Pension Plan Annual Information Return (includes financial statements) | April 30 (4 months after the end of the year to which the document relates) |
| Auditor's Report | April 30 (4 months after the end of the year to which the document relates) |
| Pension Plan Annual Corporate Certification (PPACC) | April 30 (4 months after the end of the year) |
| Payment of Plan Assessments | Upon receipt of the OSFI-issued invoice |
| Annual statements to members and their spouses or common-law partners | February 14 (45 days after the end of the year) |
Other topics
Organizational change
Since May 2024, the following staffing change affected staff responsible for federally regulated pension plans:
- Jean-François Lussier moved from his role of Senior Manager, Pension Actuarial to a new role in the Social Insurance Programs team within the Office of the Chief Actuary (OCA). Nicolas Lafontaine will be joining the Private Pension team in the OCA as Senior Actuary (Manager) on December 9, 2024. Jean-François will continue to be involved with the federally regulated pension plans until that time.