Defined contribution pension plans
Outcomes of the Joint FSRA/OSFI Defined Contribution (DC) Pension Plans Technical Advisory Committee (TAC)
The DC Pension Plans TAC concluded its work in September. FSRA is now publishing the outcomes of the TAC:
Interpretation guidance: Automatic features for defined contribution plans
FSRA has released interpretation Guidance on automatic features in defined contribution pension plans. The new Guidance came into effect on November 8, 2021.
The Guidance affirms that the Pension Benefits Act and its Regulations do not prohibit the use of automatic features. Features including auto-enrollment, auto-escalation and default funds may enhance retirement outcomes for plan members.
FSRA encourages plan administrators to evaluate the use of automatic features within the context of their plan.
Government consultation: Ministry of Finance consultation underway
The Ministry of Finance is proposing regulatory amendments to remove the requirement for the administrators of member-directed Defined Contribution pension plans to prepare a statement of investment policies and procedures.
The Ministry is also proposing regulatory amendments to remove the requirement for the administrators of Defined Contribution plans to file an auditor’s report on the plans’ annual financial statements and to instead enable the CEO of the Financial Services Regulatory Authority of Ontario to require audited financial statements only in certain circumstances.
The consultation draft for these proposals can be found at Proposed Amendments to Ontario Regulation 909 of the Pension Benefits Act: Removing Certain Requirements for Administrators of Defined Contribution Pension Plans. Comments are due by November 23, 2021.
New approach and transition for Form 7
As previously announced, FSRA is updating its Form 7 and related processes. The changes will take effect on a voluntary basis January 1, 2022 and become mandatory March 31, 2022. These changes include releasing updates of all relevant forms.
Updated forms are now available on FSRA’s website.
Under the revised process:
- Annual Form 7 - Plan administrators will continue to complete and submit their annual Summary of Contributions / Revised Summary of Contributions (Form 7) to the trustee(s) of the pension fund in accordance with the legislative framework.
- Non-remittance Reporting - Trustee(s) will continue to report failures to remit any contribution(s) to FSRA. Non-remittance reporting must be made to FSRA within 60 days following the contribution due date. This reporting remains on a monthly basis. In addition, any variance in special payments shall be included in this monthly reporting.
- Variance Reporting - The threshold for reporting variances in expected contributions will be increased from 10% to 25%. Special payments to DB plans are an exception. Any variance in special payments will be treated as non-remittances as per the paragraph above. Similar to Alberta and British Columbia, the reporting period for informing FSRA of variances will change from monthly to quarterly. Trustees will be required to report any variances of 25% or more to FSRA within 60 days after the end of each quarter. There continues to be no requirement to report variances that are “over-contributions”.
Family Law Guidance, Guide and New Forms
FSRA is releasing final Guidance on the Administration of Pension Benefits Upon Marriage Breakdown. This Guidance provides a principles-based approach with examples plan administrators can use to interpret and comply with their legal obligations. The new Guidance came into effect on November 9, 2021.
As a result of feedback received, the Guidance better clarifies FSRA’s position on issues relating to valuation, payment and division, and survivor benefits.
We are also releasing an updated plain language guide for plan members and their spouses to support their understanding of this topic.
In response to your feedback, we are also releasing updated and simplified forms to accompany the Guidance. These forms are used to initiate the valuation of the pension asset, provide a standardized explanation of the calculations and divide the pension asset. To allow time for transition, the existing and updated family law forms will both be available for use until the end of April 2022. Effective May 1, 2022, the updated family law forms will replace the existing forms.
In response to the pandemic, FSRA advised plan administrators to contact FSRA in advance of filing deadlines if they were unable to meet filing deadlines. Where appropriate, FSRA indicated it would not levy administrative monetary penalties.
FSRA has provided plan administrators and service providers significant time to adapt to working remotely. In the coming weeks, FSRA will begin reinstituting its processes for following-up with plan administrators on outstanding filings. These processes include levying administrative monetary penalties, where appropriate. FSRA will employ a phased approach to compliance with legislative filing requirements and does not anticipate levying any penalties before the end of 2021.
A further update will be provided in our next eblast, including anticipated timing of any potential administrative monetary penalties.
To avoid the risk of regulatory action please ensure your processes and filings are up to date.
Q3 2021 solvency report
Solvency status of Defined Benefits Plans unchanged in Q3
FSRA has released its Q3 2021 Quarterly Estimated Solvency Report for Ontario’s Defined Benefit Pension Plans. This report is one of the supervisory tools FSRA uses to improve outcomes for pension plan beneficiaries and to proactively engage in a dialogue with plan sponsors.
The report indicates the funded positions of pension plans remained steady over the quarter after five consecutive quarters of improvement. About two thirds of plans have a solvency funded ratio exceeding 100%.
Despite the stable funding level in pension plans, there was significant volatility in the capital markets during the quarter.
Plan sponsors and administrators should consider their plan’s performance and review their funding and investment policies and strategies to manage through future uncertainties.
Alternative assets and risk management report
FSRA reviewed the risk management practices for alternative assets of Ontario’s six largest public sector pension plans. These plans were reviewed in response to the International Monetary Fund’s stability assessment of Canada’s financial system as well as the FSRA business plan.
These plans play a key role in the financial safety of Ontarians with over 1.5 million members and over $475 billion of assets undermanagement. Alternative assets are a significant and strategically important part of the plans’ investment portfolios. The plans have adopted practices to manage the risks of investing in this asset class and to meet their standard of care.
The leading practices summarized in the report can help all plans to self-assess in meeting their standard of care for investing in alternative assets. The six large public sector pension plans in Ontario that we reviewed are unique not only by virtue of their size but also their governance, risk management and investment expertise. Plan administrators of smaller plans are expected to address the risks of investing in this asset class proportionately to the size and within the context of their plan. The report includes questions for plan administrators to consider if considering investing in this asset class.