When an employer decides to wind up the pension plan it sponsors, or FSRA orders a pension plan to be wound up, there are various filing requirements and procedures the plan administrator must follow before it can settle benefits, pay expenses, distribute surplus assets (if any), and complete the wind up.
Compliance with legislative requirements and FSRA’s guidance will help avoid delays in obtaining approval of wind-up reports, payment requests and surplus applications. FSRA does not require “hard copies” for compliance purposes. Therefore, all documents related to a wind up should be filed electronically through the Pension Service Portal (PSP) to facilitate processing.
The wind-up process for a defined benefit (DB) pension plan and a defined contribution (DC) pension plan, are both governed by the Pension Benefits Act (PBA), with regulatory oversight by FSRA. Administrators of DC and DB plans should complete their wind-up report using the online smart form that’s available through the PSP and use the PSP to submit wind up notices and wind up interim payment applications.
There are three ways that a plan can apply to distribute surplus on wind up (or in an ongoing plan):
distribute 100% of the surplus to affected plan members via a plan amendment
through a surplus sharing agreement with at least two-thirds consent of affected plan members and two-thirds consent of former members, retired members and other persons entitled to payment
Through an employer’s application for payment of the surplus by demonstrating the employer’s entitlement to the surplus based on the documents that create and support the plan from the plan’s inception, or by a court order declaring that the employer is entitled to the surplus.
Surplus application overview
Key topics for employers submitting surplus applications
These topics highlight information of the surplus application process that can often be interpreted as complex, aiming to provide a better understanding for employers.
For a multi-jurisdictional pension plan, the plan’s assets must be allocated between the participating jurisdictions in accordance with the 2020 Agreement Respecting Multi-Jurisdictional Pension Plans (the Agreement). The asset allocation by jurisdiction must be included in the windup report, and the surplus application must show the surplus by jurisdiction.
Employers must ensure the legislation of each jurisdiction involved in a multi-jurisdictional pension plan surplus application is followed in relation to the surplus assets related to each jurisdiction. If an employer applies to withdraw surplus via a surplus sharing agreement, but the plan has members in a jurisdiction that does not permit a surplus sharing agreement, then the surplus application must provide for a surplus distribution that complies with the legislation applicable to those members.
Plan administrators have a fiduciary duty to act in the best interest of plan members, including respecting expenses charged to the pension plan. Plan administrators need to provide supporting evidence for any charges to the plan related to the withdrawal of surplus. FSRA may ask the plan administrator for an explanation of the appropriateness of the expenses incurred for the surplus application upon review.
The PBA does not distinguish between DB and DC plan members within pension plans that contain both DB and DC components, with respect to their rights under a surplus sharing agreement. Consent is needed from members of both the DB and DC components of a DB/DC combination pension plan, before surplus funds can be distributed to the employer under any surplus sharing agreement. FSRA will not approve any surplus application via a surplus sharing agreement for DB/DC combination pension plans without including the DC members of the plan in the surplus sharing agreement.
When an employer applies for consent to receive a payment of money out of the pension fund that is surplus, the employer must provide notice of the application to members, former members, retired members, trade unions that represent members of the pension plan and any other persons entitled to payments under the pension plan (Affected Persons). Please consult this guidance for further information on the requirements.
An employer must file a copy of the surplus notice with FSRA. The notice must be sent to Affected Persons, as required by the PBA. If the surplus notice is not compliant, FSRA may ask that the surplus notice be re-issued at any time prior to the approval of the surplus distribution to Affected Persons, as required by the PBA.
After the surplus notice has been sent to the Affected Persons with all the prescribed supporting information, the employer must file a surplus application with FSRA. If the plan administrator is not the same entity as the employer, any materials filed by the employer must be given to the plan administrator.
Where a plan is winding up, the plan administrator must make sure all benefits and liabilities under the plan are settled, and that any surplus owing is distributed or provided for in a manner approved by FSRA. The plan administrator must notify FSRA in writing within thirty (30) days of the final distribution of the assets of the pension plan, including surplus. Once all assets, including surplus, have been distributed, FSRA will close the plan’s registration.
A member is considered missing if the plan administrator cannot find or communicate with a member and believes that the address for the member is no longer valid. Plan administrators continue to have fiduciary obligations to missing members in a surplus application and must follow FSRA guidance on their treatment. Please refer to FSRAs guidance on missing members, as well as FSRA’s online missing member resources.
Key considerations for employers when preparing a surplus application
Applications to withdraw surplus from pension plans can be made both on wind up and for continuing plans, however they each have unique legislative requirements. Keep these key considerations in mind to help ensure a smooth and timely review of your surplus application. These factors should be evaluated alongside the surplus application Guidance.
Where a surplus application proposes to pay 100% of the surplus to the plan sponsor (employer), employers can expedite the application’s review by providing FSRA with a legal opinion. The legal opinion should provide a legal analysis which demonstrates the employer’s entitlement to the surplus under the historical documents that create and support the pension plan and pension fund from the plan’s inception, along with supporting documents to substantiate the opinion.
The plan’s assets must be allocated between participating jurisdictions in accordance with the Agreement, and the asset allocation (including surplus by jurisdiction) must be included in the surplus application to FSRA.
Remember to include the date of the application, the full name and registration number of the pension plan, and the names of employer and the applicant.
Provide a full description of the application to FSRA with reference to the relevant section(s) of the PBA and Regulations under which the application is being made.
Plan wind up and surplus application guidance
This collection of FSRA-issued Guidance provides detailed information for employers, administrators, their actuarial advisors, and legal counsel working through pension plan wind-ups and surplus distribution applications in compliance with regulatory requirements.
