Pension update - November 22, 2023

Q3 2023 Solvency report: DB plans remain strong despite global economic uncertainty

Most Defined Benefit (DB) pension plans in Ontario remained financially healthy in the third quarter. FSRA’s Q3 2023 Solvency Report projects 85% of plans to be fully funded on a solvency basis. In fact, the median solvency ratio for the quarter reached 117% – a historic peak. However, investment returns were negative and averaged out to -4.5% for the quarter. FSRA encourages plans to continue to be vigilant and focus on adopting appropriate risk management strategies to protect their members.

To learn more, access the report.

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Seeking additional input on Pension Plan Amendments Guidance

After receiving substantive feedback from pension stakeholders in 2022, FSRA has revised the Pension Plan Amendments Guidance and is releasing it for a second public consultation. We welcome your feedback by the consultation closing date on January 19, 2024.

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Seeking feedback on areas within Family Law

To help ensure processes are clear for plan members, spouses, and administrators, we are seeking public feedback on a consultation paper that considers the benefits of developing a FSRA Family Law Rule. The consultation is now open for feedback until January 19, 2024

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Better protecting plan members against harmful IT Risks

FSRA has released its final Information Technology (IT) Risk Management Guidance following a robust consultation. The guidance applies to all FSRA-regulated sectors and includes specific requirements for pension plan administrators. The Guidance will help you effectively manage threats to your IT systems, infrastructure and data to protect your members. It will become effective on April 1, 2024.

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FSRA requires plans to submit their filings on time

FSRA has released a report summarizing some actions taken following an extensive engagement with DC plans that were late in their filings.

FSRA expects plan administrators to complete and submit their plan filings in a timely manner, and will continue to impose monetary penalties to encourage compliance after warnings are not effective. The report provides a summary of this penalty process.

Taking a new approach to better protect pension benefits

FSRA continues to pilot its new approach to pension plan examinations. Intended to be fully implemented in 2024, the new framework builds on FSRA’s risk-based, outcomes-focused supervisory approach to protect pension benefits and ensure good administration of plans.

To date, we have initiated the examination of 10 pension plans as part of the pilot, with the intention of conducting a total of 15 examinations.

Key changes made to the FSRA pensions plan examinations process include:

1. An increased focus on a plan’s governance and risk management structure and procedures. While we will still be identifying compliance issues, reports back to the plan fiduciaries detail opportunities for improvement, as well as acknowledging what is being done well with overall governance and risk management of plans sponsored.
2. A dynamic selection process has been implemented. Plans to be examined are selected quarterly on risk-based criteria.
3. Examinations are being primarily conducted remotely with the possibility of some in-person interaction.

Feedback to date has been positive and commentary provided by stakeholders has been constructive. Administrators have been receptive to the overall approach, having noted that the examination experience has been informative.

As part of the implementation of the new pension examination framework in 2024, FSRA will provide some guidelines in writing to detail the process and what is to be expected.

If you have any feedback, suggestions, or further questions, please contact Paul Martiniello, Director of Relationship Management at [email protected].

Requirements for filing an annuity discharge

Recently, FSRA has noticed an increase in the number of employers purchasing buy-out annuities to de-risk the plan’s liabilities ahead of a full plan wind-up. When FSRA reviews the windup report, we look at these buy-out annuity contracts and have noticed some errors. Specifically, some annuity contracts do not include portability rights for former members at wind-up and the plan terms, including ancillary benefits and indexation provisions (if any), do not always match the terms of the annuity contracts. This can result in significant and costly compliance issues at wind-up.

Section 43.1 of the PBA sets out the requirements that must be met by plan administrators in order to obtain a discharge with respect to pension benefits that have been purchased through buy-out annuities for former members, retired members or surviving spouses. Plan administrators should file with FSRA the following documents showing compliance with the legislative requirements:

1. a certificate prepared and signed by an actuary, certifying that all legislative requirements have been met
2. a member listing of the annuitants
3. a copy of the annuity contract

Starting January 1, 2024, to help identify any compliance issues with buy-out annuities ahead of a plan wind-up, FSRA will be requesting a copy of the Request for Proposal (RFP) or Request for Quotation (RFQ) provided to the Insurer. This document, which includes an outline of the plan provisions, should ensure that the annuities purchased provide the same benefits that plan beneficiaries would have received from the plan. If the annuity contract filed sets out the plan provisions that must be adhered to, then there is no need to file a separate copy of the RFP or RFQ.

An opportunity for member education: Commuted Values and interest rates

Since 2022, yields on Bank of Canada bonds have been increasing. For plans that provide defined benefits, this has decreased the value of commuted value (CV) amounts. Recently, FSRA has seen a spike in the number of member complaints it has received about decreasing CVs, particularly where:

1. administrators recalculated CVs (e.g., when the plan provisions give former members another opportunity to exercise their portability rights)
2. when administrators provide members with estimated CVs for financial planning purposes and then, upon termination, the actual CV is lower

Many complaints highlight the lack of knowledge about the significant impact that interest rates have on CVs. For greater transparency and member awareness, it may be helpful for plan administrators to educate members on how their CVs are calculated and/or any recalculation policies. Earlier this year, FSRA developed a Member Guide about Commuted Values, which is a useful resource to aid in member education. It is written in a question-and-answer format to provide defined benefit pension plan members with information about commuted values

Meet your FSRA team

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The Operations and Regulatory Effectiveness team, headed by David Bartucci, is the front line of Pensions at FSRA. This is the team that has front-line contact with the approximately 4,000 pension plans that FSRA supervises.

The team is also responsible for:

• pension plan operations, including record keeping and relationship management between FSRA and the plans we regulate
• responding to questions from plan members, administrators, sponsors and consultants
• special transactions such as DB asset transfer, wind-up, conversion and surplus applications
• filings compliance and records management, including non-remittances, summary administrative monetary penalties and plan viewings
• regulatory effectiveness, including maintaining data integrity of our external-facing pension management system – the Pension Services Portal, and our internal pension management systems

Seeking your help

We are seeking new members for our Standing Technical Advisory Committees. These committees advise FSRA on proposed pension regulatory guidance and identify issues arising out of existing pension legislation. Committee members will be selected based on their pension knowledge, areas of expertise and level of experience, ensuring that each committee has diverse perspectives and representation from unions, plan members and retirees. If you are interested in joining a committee, please send your biography or CV to Jennifer Mullen. Please indicate which committee you would like to join. Terms for new members may begin in the fall or winter – selected individuals will be notified of their appointment term.