FSRA releases draft supervisory approach to asset transfer applications
The Financial Services Regulatory Authority of Ontario (FSRA) published a draft of its new guidance document on asset transfer applications, Approach No. PE0205APP – Supervisory Approach to Asset Transfers Under the Pension Benefits Act (the Supervisory Approach). The draft Supervisory Approach sets out FSRA’s expectations with respect to applications to transfer defined benefit (DB) entitlements between pension plans under sections 80, 81 and 80.4 of the Ontario Pension Benefits Act (the PBA). These sections apply to DB asset transfers between pension plans upon the sale of a business, between pension plans sponsored by the same or affiliated employers, and from a single employer pension plan to a jointly sponsored pension plan, respectively. FRSA has also released new information disclosure forms to accompany asset transfer applications.
Principles for FSRA’s review
FSRA will act consistent with its statutory objectives to promote good administration of pension plans and protect and safeguard the pension benefits and rights of pension plan beneficiaries. Where a proposed asset transfer transaction may raise concerns regarding the security of benefits or the administration of the plan, FSRA may undertake a more detailed review of the application.
FSRA says that, depending on the outcome of a detailed review, it may withhold its consent and ask further questions of the applicant. These questions may focus on the following:
- Member complaints;
- Changes to previously accrued benefits;
- Issues relating to member or union consent, where applicable;
- Complexity (i.e. where a transfer affects benefits subject to pension legislation of another jurisdiction or where an asset transfer application includes multiple pension plans);
- Impact on the plans’ financial positions; and
- Sustainability of the plans and their sponsors.
Due diligence expectation
Applications should reflect that administrators and their advisors are familiar and comply with applicable fiduciary duties and regulatory requirements for asset transfer transactions and related professional obligations for their advisors. FSRA expects asset transfer applications to demonstrate that administrators have performed sufficient due diligence in advance of the asset transfer, including with respect to the following:
- Whether any amendment to plan documentation is required;
- Whether any plan investments require special treatment;
- Whether additional funding is required;
- Whether any unresolved regulatory issues remain.
FSRA asks administrators contemplating large or complex transactions to engage proactively with FSRA in order to explain the unique features of the asset transfer and the rationale for any variances or waivers sought with respect to specific regulatory requirements.
Any unresolved regulatory issues should be raised with FSRA prior to an application’s submission and, if they are not resolved beforehand, identified in the application together with an explanation for how they will be resolved and how benefits will be impacted.
FSRA indicates that, if an amendment associated with the asset transfer has been filed through the Pension Services Portal rather than being attached to the application, this should be noted in the application.
FSRA also suggests that it considers any amendment to the original plan that ceases benefit accruals or contributions to be adverse, and must therefore comply with the PBA requirements respecting adverse amendments.
Letters of credit
FSRA indicates that administrators should take care to consider the role of letters of credit in original and successor plans, given that they are provided to particular employers and cannot be included among the transferred assets. The implications of any letters of credit and how they will be addressed should be explained in the asset transfer application.
Waiver or variance of regulatory requirements
The PBA allows FSRA to vary or waive some of the requirements for assets transfers. This includes the requirements for the content and timing of notices. Applicants should inform FSRA if they intend to request a waiver or variance early in the asset transfer process (i.e., before notices are issued).
FSRA provides a number of examples of types of variances to regulatory requirements that it would consider approving:
- Using the most recent annual pension statement rather than duplicating the information in the asset transfer notice where the information is the same or substantially similar, even if the date of the annual pension statement does not align with the effective date of the proposed asset transfer;
- Using an existing summary of benefits or employee booklet where the transferred benefits are not being changed, rather than reproducing the information in the notice;
- Summarizing information for members, and directing them to where they may receive further detailed information;
- Extending deadlines for notices to members; and
- Variation of notice content, where content is technically non-compliant in a way that is not material to the transfer and could not reasonably be expected to affect a decision to consent to the transfer, if consent is required.
Applications to FSRA
FSRA has developed optional information disclosure forms to be included with an asset transfer application. In order to facilitate FSRA’s review of such an application, forms are provided for two components of the asset transfer application process:
- The Application Summary, which must be certified by the plan administrator; and
- The Actuary’s Certification (for defined benefit or hybrid plans only).
If an applicant provides an Information Disclosure form, FSRA will endeavour to respond within 150 days of its receipt. FSRA may simply approve applications or it may make additional requests for information.
While completing the Information Disclosure forms is not a regulatory requirement, FSRA indicates applicants who do not submit an Information Disclosure form should expect much longer review times.
The draft Supervisory Guidance will be welcome to pension plan sponsors and administrators making DB asset transfer applications, in that it will clarify FSRA’s expectations and set out cases where exceptions may be granted. In addition, the new Information Disclosure forms may speed up FSRA’s review process and provides a timeline within which pension plan administrators may expect a response from FSRA.