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OSFI freezes defined benefit transfers and annuity purchases, extends regulatory deadlines

The Office of the Superintendent of Financial Institutions (OSFI) has announced that it is implementing certain regulatory adjustments to support federally regulated banks, insurers and private pension plans in light of the extraordinary circumstances posed by the COVID-19 crisis. OSFI made these adjustments to its policies in order to allow administrators to focus on addressing recent challenges, including current market conditions.

Full freeze on defined benefit portability transfers and annuity purchases

According to OSFI, the effect of the COVID-19 pandemic on the current financial and economic environment has resulted in significant market volatility. The impact on the solvency ratios of defined benefit (DB) pension plans is currently uncertain and the Superintendent believes that any transfer or annuity purchase at this time could impair the solvency of plans.

OSFI has determined that it would be unfair to the remaining members and beneficiaries if the benefits of some members were transferred from the fund. The portability freeze addresses the potential risk that these transactions could be done at the expense of the security of the rest of the plan members.

Therefore, OSFI has amended the Directives of the Superintendent to implement a temporary freeze on portability transfers and annuity purchases relating to DB provisions of pension plans.

In follow-up communications, OSFI has clarified that the portability freeze applies to the following types of transfers:

  • Buy-out annuities
  • Death benefits payable to a surviving spouse or common-law partner
  • Transfers to former spouses on marriage breakdowns
  • Transfers and annuity purchases in the context of a plan wind-up, including if a termination report has already been approved
  • Any buy-out annuity purchases that had begun to be negotiated or were in progress but were not completed by March 27, 2020

The temporary freeze does not affect ongoing pension payments to pensioners and beneficiaries and defined contribution pension plans (including additional voluntary contributions in defined benefit plans). Small benefit payouts, buy-in annuities, death benefits payable to non-spousal beneficiaries or estates, and death benefits of pensioners where the settlement is a lump sum (e.g. remaining guarantee period) are also not affected.

The freeze is a temporary measure. OSFI will need a better understanding of the solvency position of pension plans and evidence of some level of financial market stability before considering adjustments to the freeze.

Granting exceptions

Plan administrators can request the Superintendent’s consent to effect a transfer or annuity purchase based on plan-specific or special circumstances.

While OSFI will not permit withdrawals for reasons of financial hardship to be made directly from a pension fund, this may be grounds for an exception permitting the member to transfer the commuted value to an appropriate vehicle, such as a locked-in RRSP, from which it can be unlocked.

Requests for an exception should demonstrate that the transfer will not materially impair the solvency of the plan. Administrators seeking for an exception to be made should provide documentation demonstrating that the transfer or annuity purchase would not unduly impact the security of the remaining members’ and beneficiaries’ benefits.

Administrators should continue to provide members with termination and retirement statement option forms. Once the freeze is lifted, members who have selected a commuted value transfer option will be able to have their benefits transferred out of the plan. Interest must be added to any such delayed transfers.

Extension of filing deadlines

In addition, OSFI has extended the deadlines for certain actions and filing requirements under the Pension Benefits Standards Act, 1985 (PBSA). These changes will apply to actions or required filings for plans with a year-end between September 30, 2019 and March 31, 2020. The reporting deadlines have been extended from six months after the plan year-end to nine months after the plan-year end for the following:

  • Annual Information Return (AIR)
  • Certified Financial Statement
  • Actuarial Report and Actuarial Information Summary (AIS) and, if required, Replicating Portfolio Information Summary (RPIS)
  • Annual statements to members and former members, as well as spouses and common-law partners

OSFI notes that its annual assessment invoices will be issued after the new extended AIR deadline. Recipients should be notified of any expected delay in the provision of annual statements.

At this time, OSFI is not considering extending the deadline for the production of individual statements on retirement, termination or death. If a plan administrator is facing challenges complying with the prescribed timelines, it should contact OSFI. Requests will be considered on a case-by-case basis.

Other clarifications

With respect to contributions to a defined contribution pension plan, OSFI has stated that there is no prohibition on reducing the level of employer or employee contributions to a defined contribution plan on a go forward basis as a result of a pension plan amendment. These amendments cannot be made retroactively. OSFI states that employers should consider restrictions under collective agreements and labour and employment law before proceeding with such a reduction.

News & Views - April 2020 (PDF)