Summary of Consultation on Proposed Guidance on Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act | Financial Services Regulatory Authority of Ontario

General information

Consultation Info Link	Consultation on Proposed Guidance: Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act \| Financial Services Regulatory Authority of Ontario (fsrao.ca)
Guidance Link	Proposed guidance on actions to avoid deregistration of a pension plan under the Federal Income Tax Act \| Financial Services Regulatory Authority of Ontario (fsrao.ca)
Consultation Period	August 15, 2022, to September 15, 2022.
Responses Received	3
Legal References	PBA s.14(1)-Void amendments s. 26(1)-Adverse amendments s. 63(1)- Refunds s.62.1-Overpayments by employer s. 78.1-Payment out of pension fund to employer Income Tax Act s.147.5, 147.1 (11)- Revocation of registration Regulation 909 s. 47 (11) to (16)-Exemptions-revocation of registration under the ITA
Main topics	Deregistration of MEPPs Member Communications Notices to FSRA, Notices to Employers and Employees Communication between plan admin and FSRA Timing to avoid revocation of registration

Overview – Guidance:

The Financial Services Regulatory Authority of Ontario’s (“FSRA”) proposed guidance on Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act (“Guidance”) sets out FSRA’s interpretation of the notice and evidence requirements set out in sections 47(11) to 47 (16) of Regulation 909 (General) under the Pension Benefits Act (PBA). These provisions enable an Ontario registered pension plan to make a refund of member contributions, payment to an employer, or plan amendment that is not otherwise permitted under the PBA, where such action is necessary to avoid revocation under the Income Tax Act (Canada).

Outcome of consultation:

FSRA thanks all of those who participated in the consultation process and has carefully considered the comments and suggestions provided.

FSRA received a total of three written submissions during the consultation process from the following participants (see Summary of Feedback and Responses table below):

Segal
Eckler
The Association of Canadian Pension Management (ACPM)

Summary of feedback and responses

Subject	Stakeholder/Link to Submission	Stakeholder Feedback	FSRA Response
Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act	Segal Segal Submission to FSRA - Avoiding Deregistration under the ITA	In general, Segal suggests that the Proposed Guidance asks for too much information from multi-employer pension plans (MEPPs) in accordance with the special approach for such plans set out in section 4.3 of the Guidance. The submission asserts that plans should not be required to report payments that arise under section 4.3 of the Guidance, nor should they be required to report the number of members or amounts refunded to employers. The submission also expresses the view that FSRA should grant a blanket approval for all such payments provided the payment is required under this specific section of the ITA, and if required, the total amount paid should be included in the plan’s annual information return. Segal Contact person: Yen Chung	The guidance interprets and clarifies requirements in the regulation which set out that, in order to use the noted exemptions in section 47 of Regulation 909, plan administrators must provide evidence that their actions are necessary in order to avoid revocation of the plan under the ITA. The Guidance sets out a minimum level of information that FSRA requires in order to be able to assess that the plan administrator’s action is necessary to avoid such revocation. We note that there is no “approval” process. The payment can be made (assuming it complies with the PBA regulation) once at least 60 days have gone by since the notice (with evidence) has been provided to FSRA. The notice to FSRA, with evidence, and the 60-day waiting period are required by the regulation. We also note that in order to pay any ineligible contributions out of the plan, the administrator will need to know what the amount is. The Guidance simply sets out that administrators notify FSRA of that amount. No additional calculation is needed.
Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act	Eckler Eckler Submission to FSRA Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act FINAL	Eckler asserts that, under certain scenarios for specified MEPPs, notifying members of corrections to contributions would create unnecessary administrative work, potentially cause confusion and would not support the administrator’s fiduciary duty. Eckler also suggests that, in situations where a plan amendment is made to effect the refund or payment of non-permissible contributions, and such contributions do not effect a retiree’s/member’s pension, the Guidance should not require the administrator to notify members. Eckler requested additional clarity on section 4.3.2, which relates to refunds of payments. Eckler believes that requirements for MEPPs set out in sections 4.3.2 and 4.3.3 of the Guidance (to provide either the actual or the estimated number of members or amounts refunded to employers) may be unnecessarily burdensome. Eckler Contact persons: Domenic Barbiero & Mark Davis	FSRA has made changes to the guidance to clarify that advance communication to members is only required if the proposed action reduces their benefit or if the action has tax implications. However, with respect to plan amendments, the guidance notes that administrators must adhere to the notice requirements set out in the PBA. FSRA has also made modifications to section 4.3.2 of the guidance to be more clear that MEPPs may file notices with FSRA in advance, which contain estimates of contributions being made, if desired to comply with ITA deadlines. It is in the case of such advance notices that refunds cannot be provided until the relevant contribution is actually received. The optional approach set out sections 4.3.2 and 4.3.3 of the guidance are intended to address potential timing considerations with respect to the provision of information by MEPPs. The approach described in these sections is not required, but may be used if desired by individual MEPPs.
Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act	The Association of Canadian Pension Management (ACPM) ACPM letter to FSRA re Interpretation PE0302INT Oct4-2022	ACPM notes that revocations of pension plans pursuant to subsection 147.1(13) of the ITA are rare and suggests that the guidance should facilitate mitigation of the potential risk of revocation. Elements of the ITA framework that authorize plan administrators to proactively rectify member or employer contributions that are not in accordance with the plan terms or ITA limits seem to have been considered in the special treatment for MEPPs set out in sections 3.3 and 4.3 of the Guidance, but should also inform the notice and evidence requirements in section 4.2. ACPM supports the burden reduction elements of the Guidance – e.g., eliminating the requirement for a copy of a CRA letter confirming the plan is in a revocable position, as well as the position that administrators may act upon an exemption after at least 60 days have passed since notice is given. However, it notes that the requirements for advance communication to members goes beyond statutory requirements and may not be proportionate to the risk in all cases. ACPM also suggests that further consideration be given to section 4.4 of the guidance, as it should not treat an entitlement contrary to the ITA as an “accrued benefit”, but rather as an error which is rectified by action taken by the administrator. Comments by Ric Marrero and Karen Burnett	FSRA generally applies a broad interpretation of requirements in section 47(11) – (16) of Regulation 909, in the manner described in ACPM’s submission. FSRA has modified the guidance to clarify that the approach described in section 4.3 is not required, but rather optional and may be used if desired by a MEPP. FSRA has made changes to the guidance to clarify that advance communication to members is only required if the proposed action reduces their benefit or if it has tax implications. However, with respect to plan amendments, the guidance notes that administrators must adhere to the notice requirements set out in the PBA.

Subject

Stakeholder/Link to Submission

Stakeholder Feedback

FSRA Response

Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act

Segal

Segal Submission to FSRA - Avoiding Deregistration under the ITA

In general, Segal suggests that the Proposed Guidance asks for too much information from multi-employer pension plans (MEPPs) in accordance with the special approach for such plans set out in section 4.3 of the Guidance.

The submission asserts that plans should not be required to report payments that arise under section 4.3 of the Guidance, nor should they be required to report the number of members or amounts refunded to employers.

The submission also expresses the view that FSRA should grant a blanket approval for all such payments provided the payment is required under this specific section of the ITA, and if required, the total amount paid should be included in the plan’s annual information return.

Segal Contact person: Yen Chung

The guidance interprets and clarifies requirements in the regulation which set out that, in order to use the noted exemptions in section 47 of Regulation 909, plan administrators must provide evidence that their actions are necessary in order to avoid revocation of the plan under the ITA. The Guidance sets out a minimum level of information that FSRA requires in order to be able to assess that the plan administrator’s action is necessary to avoid such revocation.

We note that there is no “approval” process. The payment can be made (assuming it complies with the PBA regulation) once at least 60 days have gone by since the notice (with evidence) has been provided to FSRA. The notice to FSRA, with evidence, and the 60-day waiting period are required by the regulation.

We also note that in order to pay any ineligible contributions out of the plan, the administrator will need to know what the amount is. The Guidance simply sets out that administrators notify FSRA of that amount. No additional calculation is needed.

Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act

Eckler

Eckler Submission to FSRA Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act FINAL

Eckler asserts that, under certain scenarios for specified MEPPs, notifying members of corrections to contributions would create unnecessary administrative work, potentially cause confusion and would not support the administrator’s fiduciary duty.

Eckler also suggests that, in situations where a plan amendment is made to effect the refund or payment of non-permissible contributions, and such contributions do not effect a retiree’s/member’s pension, the Guidance should not require the administrator to notify members.

Eckler requested additional clarity on section 4.3.2, which relates to refunds of payments.

Eckler believes that requirements for MEPPs set out in sections 4.3.2 and 4.3.3 of the Guidance (to provide either the actual or the estimated number of members or amounts refunded to employers) may be unnecessarily burdensome.

Eckler Contact persons: Domenic Barbiero & Mark Davis

FSRA has made changes to the guidance to clarify that advance communication to members is only required if the proposed action reduces their benefit or if the action has tax implications. However, with respect to plan amendments, the guidance notes that administrators must adhere to the notice requirements set out in the PBA.

FSRA has also made modifications to section 4.3.2 of the guidance to be more clear that MEPPs may file notices with FSRA in advance, which contain estimates of contributions being made, if desired to comply with ITA deadlines. It is in the case of such advance notices that refunds cannot be provided until the relevant contribution is actually received.

The optional approach set out sections 4.3.2 and 4.3.3 of the guidance are intended to address potential timing considerations with respect to the provision of information by MEPPs. The approach described in these sections is not required, but may be used if desired by individual MEPPs.

Actions to Avoid Deregistration of a Pension Plan Under the Federal Income Tax Act

The Association of Canadian Pension Management (ACPM)

ACPM letter to FSRA re Interpretation PE0302INT Oct4-2022

ACPM notes that revocations of pension plans pursuant to subsection 147.1(13) of the ITA are rare and suggests that the guidance should facilitate mitigation of the potential risk of revocation.

Elements of the ITA framework that authorize plan administrators to proactively rectify member or employer contributions that are not in accordance with the plan terms or ITA limits seem to have been considered in the special treatment for MEPPs set out in sections 3.3 and 4.3 of the Guidance, but should also inform the notice and evidence requirements in section 4.2.

ACPM supports the burden reduction elements of the Guidance – e.g., eliminating the requirement for a copy of a CRA letter confirming the plan is in a revocable position, as well as the position that administrators may act upon an exemption after at least 60 days have passed since notice is given. However, it notes that the requirements for advance communication to members goes beyond statutory requirements and may not be proportionate to the risk in all cases.

ACPM also suggests that further consideration be given to section 4.4 of the guidance, as it should not treat an entitlement contrary to the ITA as an “accrued benefit”, but rather as an error which is rectified by action taken by the administrator.

Comments by Ric Marrero and Karen Burnett

FSRA generally applies a broad interpretation of requirements in section 47(11) – (16) of Regulation 909, in the manner described in ACPM’s submission.

FSRA has modified the guidance to clarify that the approach described in section 4.3 is not required, but rather optional and may be used if desired by a MEPP.

FSRA has made changes to the guidance to clarify that advance communication to members is only required if the proposed action reduces their benefit or if it has tax implications. However, with respect to plan amendments, the guidance notes that administrators must adhere to the notice requirements set out in the PBA.