OSFI instruction guide: Authorization of amendments reducing benefits in defined benefit pension
In July 2012, the Office of the Superintendant of Financial Institutions (OSFI) adopted and published an Instruction Guide setting out factors and specific requirements that OSFI considers when reviewing an application seeking the Superintendent’s authorization under the Pension Benefits Standards Act (PBSA) to reduce benefits of federally regulated pension plans.
According to the Guide, if the answer is yes to any of the following questions, it is likely that the amendment is a reducing amendment and requires the authorization of OSFI under the PBSA:
- Does the amendment reduce the commuted value of a member’s or former member’s accrued pension benefit (i.e. the pension benefit credit)?
- Does the amendment reduce any pensions in pay?
- Does the amendment increase the pensionable age for past service?
- Does the amendment remove or reduce a benefit for which the member has already met the eligibility conditions?
- Does the amendment introduce consent to an existing benefit, to which members were entitled without consent?
When reviewing requests from pension plan administrators for authorization of a reducing amendment, OSFI considers the particular circumstances of each case, and it’s review is guided by the following general principles:
- Plan administrators are expected to maintain accrued benefits promised by the plan text and to consider other options prior to adopting the reducing amendment, such as increasing contribution levels or reducing future benefit accruals.
- The amendment must comply with the PBSA.
- Subject to the terms of the plan, the plan administrator should consider the interests of all affected groups (actives, deferred vested, retirees) and apply its discretion in an even-handed manner in deciding on reductions.
The authorization is subject to certain other conditions described in the Guide. Notices to all members, former members, beneficiaries and spouses must be provided with the possibility to make representations to OSFI.
In the case of a negotiated contribution plan, an administrator may make a reducing amendment despite the terms of the plan, provided it also obtains the Superintendent’s authorization.