OSFI provides automatic consent for portability transfers for retirement eligible members
On May 7, 2020, the Office of the Superintendent of Financial Institutions (OSFI) announced that it has revised its Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 (the Directives) to ease the restrictions on portability transfers for members who are retirement eligible.
OSFI has also clarified some other matters related to the portability freeze in a revision to its COVID-19 Measures – FAQs for Federally Regulated Private Pension Plans (FAQ) publication, which was discussed in the April 2020 News & Views.
Automatic consent for retirement eligible members
The revised Directives provide for automatic consent to portability transfers to locked-in vehicles for members who are retirement eligible (i.e., at least eligible for early retirement). The new automatic consent provision applies to transfers to prescribed retirement savings plans, such as locked-in registered retirement savings plans (RRSPs), life income funds and restricted life income funds. Transfers to other pension plans or transfers used to fund an annuity purchase still require OSFI’s consent.
The automatic consent for members who are eligible to retire are subject to three criteria, which OSFI says are designed to ensure that the plan’s financial position is considered in determining the amount of the transfer. The criteria are as follows:
- The amount of the initial transfer cannot exceed the “transfer value” (i.e. the commuted value of the pension benefit multiplied by the plan’s “transfer ratio”). The transfer ratio is the lesser of (1) the solvency ratio, as determined in the plan’s most recent actuarial report and (2) the solvency ratio projected to a date no earlier than March 31, 2020.
- If the plan’s transfer ratio is less than one, the full commuted value can only be transferred if the plan sponsor remits to the fund an amount equal to the “transfer deficiency” (i.e. the amount by which the commuted value exceeds the transfer value).
- If the full amount of the commuted value is not transferred to an individual, the transfer deficiency shall be transferred on the earlier of:
- Five years from the date the commuted value of the pension benefit was calculated; and
- The date on which the solvency ratio of the plan is determined to be one (based on an actuarial report with a valuation date no earlier than March 31, 2020).
The transfer deficiency must also include interest at the same rate as that used to determine the commuted value, calculated from the date the commuted value was calculated to the date of the transfer.
The automatic consent would also apply to preretirement death benefits where the member was retirement eligible.
Where the member or survivor has a transfer subject to automatic consent, the plan administrator is required to comply.
Projected solvency ratio
OSFI explains that, under the Directives, a plan’s projected solvency ratio, being the solvency ratio projected to a calculation date no earlier than March 31, 2020, as determined by an actuary, must take the following into account between the valuation date of the plan’s most recent actuarial report and the calculation date of the projected solvency ratio:
- Changes in interest rates on a solvency basis;
- The fund’s actual investment return;
- Contributions made; and
- Benefits paid.
It is not necessary to file the estimate with OSFI unless OSFI requests it.
OSFI has indicated that, although the financial and economic environment remains uncertain, it believes easing portability in a limited way will help accommodate plan members who were counting on being able to access funds for their retirement, while still safeguarding plan solvency.