On February 12th, the Office of the Superintendent of Financial Institutions (OSFI) hosted its annual pension forum in Toronto to discuss issues and initiatives affecting federally regulated pension plans.
Administrators, advisors and service providers had the opportunity to hear OSFI’s perspective on the current pension environment, updates on federal legislative developments and its regulatory role and expectations. There are currently 1,354 registered pension plans (358 Defined Benefit, 902 Defined Contribution, 94 Combination) under the supervision of OSFI.
In the session OSFI indicated that one of its key priorities in 2013 was to support the recently introduced Act and Regulations regarding Pooled Registered Pension Plans (PRPPs – see our previous article in the News & Views of January 2013 ). The federal government is taking the lead by enacting legislation that may serve as a model for other jurisdictions. OSFI provides guidance to companies who wish to be licensed PRPP administrators. One specific requirement of the Regulation is that the costs for the PRPP be at or below those of DC plans with 500 or more members, but it is not clear how OFSI will determine this. OSFI indicated that it views this as a benchmark and expects that it will be approached in good faith, with each company basing it on its own block of business.
There were many useful topics specific to defined benefit pension plans that were covered. Three specific items are described below.
One particular issue that OSFI discussed, with respect to the valuation report, was the settlement method used in the solvency valuation for some large plans. In light of recent draft guidance from the Canadian Institute of Actuaries (CIA) addressing alternative settlement methods when annuity purchase may not be possible, OSFI indicated that only the replicating portfolio method was permitted under federal legislation. Other suggested methods, such as lump sum payments to beneficiaries and modification of plan terms (e.g. replacing inflation adjusted pension increases related to CPI by a fixed rate), cannot be accommodated under current legislation. OSFI informed the group that it will continue to monitor the CIA guidance and determine if alternative methods can be accommodated by the legislation.
OSFI also addressed recent developments at the CIA on Canadian-specific mortality experience. The results of initial studies indicate that Canadian pensioner mortality rates are lower than the rates in the table currently prescribed for solvency valuations, which are based on US experience. The ultimate outcome of the CIA’s analysis will likely be a Canadian mortality table that, if adopted by the CIA, will be used for determining pension liabilities, for commuted value and funding purposes, resulting in an increase in liabilities. OSFI mentioned that administrators should consider the impact of longer life expectancy on their pension plans.
In addition, OSFI outlined the requirements and common deficiencies it observed related to plan registrations, plan terminations, asset transfer approval applications and benefit reduction authorization requests. Common deficiencies cited were incomplete submissions, unclear notification to members and missing documents. To reduce approval delays, OSFI is looking for plan administrators to follow relevant instruction guides and forms and to keep OSFI informed. Discussions with OSFI during the process are beneficial as it may make suggestions on changes to the application and can review draft member communications.