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FSRA releases additional COVID-19 update

On April 24, 2020, the Financial Services Regulatory Authority of Ontario (FSRA) published additional information setting out its response to the COVID-19 pandemic. The additional information updates the information discussed in the April 2020 News & Views article.

Actuarial valuation report disclosures

Given the impact of the significant stock market and economic decline that occurred in the first half of 2020 on the outlook for plans’ funded status, FSRA has indicated it considers the decline to be a “subsequent event,” which provides additional information about the pension plan as it was at the calculation date.

Therefore, FSRA recommends that administrators preparing actuarial valuation reports as at December 31, 2019 should treat the 2020 economic decline as such a “subsequent event”. FSRA notes that the Canadian Institute of Actuaries’ (CIA) Pension Standards requires disclosure of “subsequent events,” and asks that plan actuaries, “exercise professional judgement to establish the best estimate assumptions for the valuation,” in accordance with CIA Pension Standards.

The CIA Pension Standards also require disclosure based on “plausible adverse scenarios” or “PAS”. FSRA’s states that the PAS should reflect planspecific risks and be developed recognizing all known events such as the market shock and its potential financial impact on the pension plan as well as, in some circumstances, considering financial stresses to the employer that may affect its ability to make contributions when due. FSRA expects the following disclosures to be included in the valuation report based on any PAS that have been identified:

  • The impact on a plan’s funded status, including going concern, solvency, and wind up bases, and solvency and transfer ratios
  • The impact on the required contributions to the pension plan in respect of the normal cost, going-concern and solvency special payments

Filing extensions for off-cycle valuations

FSRA’s usual policy is not to provide extensions for off-cycle valuations. However, FSRA has indicated that, due to the COVID-19 situation, it will provide filing extensions to defined benefit (DB) plans seeking to make an off-cycle valuation with an original due date during the 2020 calendar year. This includes valuations with a December 31, 2019 measurement date.

Administrators are asked to inform FSRA of their intention to file an off-cycle valuation report and request any extensions at least two weeks in advance. A typical extension is granted for 60 days.

If a longer extension is required, FSRA will consider such requests on a case-by-case basis. Request for additional extensions can be made by email to the Pension Officer and should include a description of the reason why an additional extension is required.

FSRA reminds administrators that it may order the preparation of a new valuation report if it deems the assumptions or methods used in the preparation of the report to have been inappropriate or inconsistent with accepted actuarial practice.

Reducing or suspending DC contributions

FSRA reminds defined contribution (DC) pension plan sponsors that, in order to reduce or suspend contributions, they must amend the terms of the pension plan.

Plan sponsors will need to determine if contributions must continue when an employee is on a form of leave or layoff where there are reduced earnings or no actual earnings being paid. The determination of the requirement to continue contributions (or not) will depend in part on employment law considerations, the specific facts involved and the terms of the plan text. Plan sponsors and administrators should obtain the necessary employment law and pension law advice in this regard.

Although it has the power to do so, FSRA states it will not order the wind up of a plan solely because it has been amended to suspend contributions temporarily for a portion of 2020 as a result of the COVID-19 disruption.

PBGF assessments

Where COVID-19-related disruptions have caused a plan to be unable to file its Pension Benefits Guarantee Fund (PBGF) certificate of assessment, FSRA may consider granting a 60 day extension of this deadline. A longer extension may be granted in extraordinary cases, provided no person will be prejudiced by the delay.

Additionally, on April 30, 2020, the Ontario government filed Ontario Regulation 187/20, amending Regulation 909 made under the Pension Benefits Act to reduce the penalty for late payment of a PBGF assessment. Under the amended regulation, plan sponsors that fail to pay PBGF assessments due between April 30, 2020 and December 31, 2020 are only required to pay interest from the date the amount is due to the actual payment date at a rate of 3% plus the chartered banks’ rate on prime business loans on the payment due date. To qualify for this reduced penalty, the sponsor must pay the amount owing with interest by December 31, 2020.

Ordinarily, an employer that fails to pay a PBGF assessment by the assessment date would be required to pay 120% of the past due amount, plus interest equal to the chartered banks’ rate on prime business loans (as of the date the amount is due) plus 3%.

Electronic communications

FSRA advises that it does not have discretion over the requirements of the Pension Benefits Act as it relates to electronic communications. Administrators are still expected to comply with all applicable legislative requirements with respect to electronic communications.

Signature witnessing requirements

Some pension unlocking and family law forms require a witness to sign the form in the presence of the person signing the form. FSRA says that it will not object to proceeding without a witness for unlocking forms and family law forms, provided there is no evidence on record that the signatory does not understand what he or she is signing.

FSRA suggests that administrators and financial institutions may also consider using alternative processes for witnessing, such as follow-up correspondence or virtual witnessing using electronic means. However, anyone attempting to satisfy a signature requirement through alternate means should obtain appropriate legal advice before doing so.

News & Views - May 2020 (PDF)