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Proposed amendments to the federal Pension Benefits Standards Regulations

On September 19, 2014, the Minister of State (Finance) Kevin Sorenson announced proposed amendments to the federal Pension Benefits Standards Regulations (PBSR), Pooled Registered Pension Plans Regulations and the Solvency Funding Relief Regulations, Solvency Funding Relief Regulations, 2009 and Canadian Press Pension Plan Solvency Deficiency Funding Regulations, 2010.

Amendments to the Pooled Registered Pension Plans Regulations would ensure consistency with the PBSR and amendments to the Solvency Funding Relief Regulations, Solvency Funding Relief Regulations, 2009 and Canadian Press Pension Plan Solvency Deficiency Funding Regulations, 2010 would mainly address discrepancies between the English and French versions.

This article summarizes the amendments to the PBSR. The proposed amendments to the PBSR can be divided in three categories: 1) additional regulatory framework for defined contribution plans; 2) new investment rules; and 3) enhanced disclosure and new forms.

1) Additional regulatory framework for defined contribution plans

Variable benefits under DC components

In 2010, the Pension Benefits Standards Act was amended to allow DC pension plans to offer their members and former members to receive variable retirement income payments directly from the plan pursuant to a formula similar to that applicable to life income funds, although those provisions are not in force yet. The proposed new provisions set the minimum and maximum variable payment amounts and the content of the spousal consent that would be required.

Member choice accounts

Most DC pension plans allow members to choose their own investments among a certain number of options selected by the administrator. Under the new provisions, there will be an obligation for the administrator to provide members who are permitted to make investment choices with more information. More precisely, the administrator will need to provide a written statement that includes a description of each investment option (with prescribed specific information that will need to be indicated), a description of how the person’s funds are currently invested and any timing requirements that apply to the making of an investment option. However, the new Regulations would clarify that member choice accounts are excluded from the plan’s Statement of Investment Policy and Procedures (SIP&P).

2) New investment rules

Amendments to the investment rules of the PBSR, commonly referred to as "Schedule III Rules", have been expected for a long time. They will affect all federally registered plans as well as all plans registered in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba and Newfoundland & Labrador, which have incorporated those investment rules, as amended from time to time, in their provincial pension legislation by reference. The most significant changes are the following:

  • The current investment rules prohibit plan administrators from investing more than 10% of the total book value of the plan’s assets in a single entity. The new rule would apply the 10% limit to the market value of the plan’s assets.
  • The definitions of mutual fund and pooled fund would be replaced with a single term, investment fund, and the definition of public exchange, which was obsolete, would be replaced with the new defined term marketplace.
  • The proposed amendment would modify the related party restrictions, which prohibit a plan administrator from investing in or lending money to or entering into transactions with related parties, subject to certain exceptions. One of those exceptions is the nominal or immaterial exemption, an exception for transactions which are nominal or immaterial to the plan. The related party restrictions have been a source of concern for many plan administrators who need to ensure that they do not unintentionally invest in such related parties, such as through pooled funds. Under the proposed amendments, the nominal or immaterial exemption would be removed but investments in a related party would be allowed if the securities are held in an investment fund that otherwise complies with the investment rules of the Regulations.

Administrators will have five years from the date the proposed amendments come into force to comply with the new investment rules. In most cases, the SIP&P will need to be reviewed by the administrator.

3) Enhanced disclosure and new forms

The proposed amendments expand and detail the contents of annual and plan termination statements that must be given to plan members. In addition, they would specify the information to be included in the annual statements that will now be required for former members, in accordance with the changes introduced in the legislation in 2011.

The proposed regulations would also prescribe new forms for spouse’s (or common-law partner’s) consent for the transfer of a pension benefit credit out of the plan and for spouse’s (or common-law partner’s) consent to the election to receive a variable benefit from a DC pension plan.

Finally, the amendments establish rules with respect to the use of electronic means to satisfy requirements to provide information to members.

This is the third and likely the last set of amendments since the 2009 federal government initiative to improve the regulatory framework for federally regulated private pension plans.

The proposed regulations have been released for public comment with a 30 day consultation period commencing on September 27, 2014.