Vol. 146, No. 1 — January 4, 2012
Registration
SOR/2011-317 December 16, 2011
OFFICE OF THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS ACT
PENSION BENEFITS STANDARDS ACT, 1985
Assessment of Pension Plans Regulations
P.C. 2011-1667 December 15, 2011
His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, hereby makes the annexed Assessment of Pension Plans Regulations pursuant to
- (a) section 38 (see footnote a) of the Office of the Superintendent of Financial Institutions Act (see footnote b); and
- (b) section 39 (see footnote c) of the Pension Benefits Standards Act, 1985 (see footnote d)
ASSESSMENT OF PENSION PLANS REGULATIONS
INTERPRETATION
1. (1) The following definitions apply in these Regulations.
“Act” means the Office of the Superintendent of Financial Institutions Act; (Loi)
“beneficiary” means a member, a survivor, a person who has either ceased membership in a pension plan or retired and any other person who is entitled to pension benefits and has not, before the termination of the plan, transferred their pension benefit credit under section 26 of the Pension Benefits Standards Act, 1985 or purchased an immediate or deferred life annuity. (bénéficiaire)
“number of beneficiaries” means the total number of beneficiaries
- (a) in respect of a plan that is filed for registration under section 10 of the Pension Benefits Standards Act, 1985, at the time the plan is filed for registration, or
- (b) in respect of a plan that has been registered under the Pension Benefits Standards Act, 1985, at the end of last plan year. (nombre de bénéficiaires)
“plan” means a registered pension plan and a pension plan that has been filed for registration under section 10 of the Pension Benefits Standards Act, 1985. (régime)
(2) The expressions “cessation of membership”, “member”, “plan year”, “survivor”, “termination” and “winding-up” have the same meaning as in subsection 2(1) of the Pension Benefits Standards Act, 1985.
ASSESSMENT TO BE PAID
2. (1) For the purposes of subsection 23(5) of the Act, the amount of the assessment is determined by multiplying the plan assessment base by the basic rate that is in effect for the fiscal year in which the assessment is due to be paid.
(2) The assessment shall be paid no later than
- (a) the day on which the plan is filed under section 10 of the Pension Benefits Standards Act, 1985, if a new plan is established; or
- (b) within six months after the end of each plan year, in any other case.
(3) Despite subsection (1), if a plan terminates and winds up within six months after the end of a plan year, then the assessment to be paid is equal to zero.
DETERMINATION OF PLAN ASSESSMENT BASE
3. The plan assessment base is determined in accordance with the following formula:
A + B + 50
where
A is the lesser of
- (a) the number of beneficiaries in excess of 50, and
- (b) 950; and
B is the lesser of
- (a) 75% of the number of beneficiaries in excess of 1,000, and
- (b) 19,000.
DETERMINATION OF THE BASIC RATE
4. The basic rate for a fiscal year is the rate determined in accordance with the following formula:
(A + B)⁄C
where
A is the estimated total of expenses to be incurred by the Office during the fiscal year for or in connection with the administration of the Pension Benefits Standards Act, 1985;
B is 20% of the difference between
- (a) the aggregate amount of expenses incurred by the Office for or in connection with the administration of the Pension Benefits Standards Act, 1985 and those expenses that were incurred by the Superintendent for the registration of plans and their supervision under that Act, including inspection, in the second to sixth preceding fiscal years; and
- (b) the aggregate amount of assessments received by the Office as well as the fees collected under the Pension Benefits Standards Act, 1985 in the second to sixth preceding fiscal years; and
C is the estimated total amount of the plan assessment bases of all plans.
PUBLICATION OF BASIC RATE
5. The Superintendent shall publish in the Canada Gazette, Part Ⅰ, a notice setting out the basic rate that is in effect
- (a) for the fiscal year beginning on April 1, 2012, no later than 60 days before the beginning of that fiscal year, and
- (b) for each fiscal year beginning on or after April 1, 2013, no later than 180 days before the beginning of that fiscal year.
CONSEQUENTIAL AMENDMENT TO THE PENSION
BENEFITS STANDARDS REGULATIONS, 1985
6. Section 25 of the Pension Benefits Standards Regulations, 1985 (see footnote 1) and the heading before it are repealed.
COMING INTO FORCE
7. These Regulations come into force on the day on which section 175 of the Sustaining Canada’s Economic Recovery Act, chapter 25 of the Statutes of Canada, 2010, comes into force.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issue and objectives
The Office of the Superintendent of Financial Institutions (OSFI) operates on a cost-recovery basis and receives less than 1% of its revenues from parliamentary appropriations. The costs of administering the Pension Benefits Standards Act, 1985 (PBSA) are fully recovered from the pension industry; details regarding the frequency of assessments and the manner in which they are determined are prescribed in regulations. The authority for OSFI to recover costs to administer the PBSA through the annual assessment of federally registered private pension plans was recently transferred from the PBSA to the Office of the Superintendent of Financial Institutions Act (OSFI Act). As a result, regulations pursuant to the new authority under the OSFI Act have been adopted, and the existing Regulations under the PBSA have been repealed.
As at March 31, 2010, OSFI supervised some 1 390 pension plans or about 7% of all pension plans in Canada, representing about 11% of trusteed pension fund assets in Canada; 459 of the federal plans were defined benefit pension plans.
Under both the old and new Regulations, the aggregate value of assessments is established annually based on the estimated costs of OSFI’s supervision and regulation of federal pension plans. (see Footnote 2) The full amount of OSFI’s costs is recovered from federal pension plans through annual fees that are determined by multiplying a plan’s “fee base” by the “basic rate.” The “fee base” is calculated on a plan-by-plan basis, and reflects the number of members in the plan, which included only active members under the old formula. The “basic rate” is the dollar amount that, when multiplied by each plan’s fee base, covers OSFI’s costs. For example, OSFI collected approximately $7.9M from the pension plans it supervised and regulated in 2010–11, and the “basic rate” was $22.
The objectives of the new Regulations are to
- — support the move of the assessment authority from the PBSA to the OSFI Act;
- — set out the formula used to calculate plan assessments effective April 1, 2012;
- — make modest adjustments to the formula, primarily to better align annual assessments with the costs of supervising and regulating pension plans by including retirees and other beneficiaries; and
- — provide for the transition from the old formula to the new formula.
Description and rationale
In addition to supporting the move of the authority from the PBSA to the OSFI Act, the changes also affect the assessment formula. The new assessment formula includes some adjustments to the prior methodology for charging fees under the PBSA, as highlighted in the table below. These adjustments will help to better align annual assessments with OSFI’s costs of supervising and regulating pension plans. At the same time, the total value of assessments collected by OSFI is to remain unaffected.
Summary of old and new pension assessment calculations
Old |
New |
|---|---|
Assessment = plan fee base × basic rate |
No change in formula. However, plan fee base will change. |
Included only active members in calculating the plan fee base. |
Includes all plan beneficiaries (i.e. active members, deferred vested members, retirees and beneficiaries) in the plan fee base. |
Above 1 000 members, each additional member increased the fee base by 0.50 until the fee base cap was reached. |
Above 1 000 members, each additional beneficiary increases the fee base by 0.75 until the fee base cap is reached. |
Fee base cap was 10 000 (i.e. 19 000 active members). |
Fee base cap is 20 000 (i.e. 26 333 members and beneficiaries). |
Minimum plan fee base was 20 (regardless of whether plan had fewer than 20 members). |
Minimum plan fee base is 50 beneficiaries. |
Minimum annual fee $440 |
Minimum annual assessment $600 |
Maximum annual fee $220,000 |
Maximum annual assessment $240,000 |
If the new formula had been used in 2010–11, a basic rate of approximately $12 would have been needed to generate the $7.9M of aggregate assessments because the aggregate assessment base would have been larger due to the inclusion of retirees and other beneficiaries.
Analysis of plan data demonstrates that the impacts of the change to the formula are consistent with the overall objective of better aligning plan assessments with OSFI’s efforts. In addition, including retirees and other beneficiaries in the formula is appropriate in light of trends in plan demographics as well as recent legislative changes that will require five additional years of OSFI’s supervision and regulation for plans that terminate under-funded.
The increase in the fee base cap results in a modest shift in costs to the larger defined benefit plans. This is appropriate, as these plans can demand significant OSFI resources when problems arise. It should be noted that these plans generally have large operating budgets relative to the increase in assessments.
Many defined contribution plans will see a decrease in the amount paid. However, the smallest plans, including a number of First Nation pension plans, will pay slightly more than under the old formula, due to the increase in the minimum assessment base to 50. Even with the increase, the minimum assessment of the smallest plans is relatively modest at $600 (based on a $12 basic rate), especially in relation to OSFI’s effort associated with registering and monitoring these plans. Moreover, the increase in the amount paid is unlikely to deter pension plans from registering, as it remains small relative to other operating costs.
Overall, the key benefits of the new Regulations are that they are issued pursuant to the new authority under the OSFI Act and that the pension plan assessments will be better aligned with the cost of supervising and regulating plans.
The assessment formula does not affect the total amount paid by federal pension plans as assessments will continue to be at a level that enables OSFI to recover the costs it incurs to supervise and regulate all federal plans.
Implementing these changes will generate minimal costs for OSFI and pension plans:
- — The new Regulations will not require any significant change in OSFI’s procedures or impose material additional burden on personnel. Any changes resulting from the new formula can be easily incorporated into the existing OSFI budget.
- — Plan sponsors may incur some modest costs in relation to the changes to the formula, as they would be required to include retirees and other beneficiaries in their reports to OSFI. Given that plan sponsors currently maintain this data, such costs should be minimal.
Consultation
On February 16, 2011, OSFI held an open forum for federal pension plan administrators and other stakeholders during which it informed the pension industry that changes to the assessment formula were being contemplated. General information about the proposed changes was also communicated through OSFI presentations to the industry and stakeholders in May 2011 and in the May issue of OSFI’s InfoPensions newsletter.
The regulatory amendments were pre-published in the Canada Gazette on October 1, 2011. OSFI also posted a link to the pre-published proposed Regulations on its Web site so that interested parties were aware and could provide comments to OSFI during the 30-day comment period. Concerned stakeholders were given the opportunity to make their views known and prepare for the changes to the assessment formula. OSFI received no comments in relation to the new Regulations.
Implementation, enforcement and service standards
With the implementation of the new assessment Regulations, the prior Regulations under the PBSA are repealed.
OSFI is updating the reporting forms affected to accommodate the adjustments to the assessment formula, and existing processes will continue.
Transition provisions are needed for the year in which the new Regulations under the OSFI Act are implemented to ensure that the total value of assessments charged will cover OSFI’s costs of supervising and regulating federal pension plans. The old and new Regulations both indicate that the “basic rate” will be published at least 180 days before an assessment is due. However, in order to transition to the new Regulations by April 1, 2012, this notice period is reduced to 60 days during the transition year. This should not be burdensome, as plans are aware of the changes to the methodology and basic rate, and they were apprised of the details when the new Regulation were pre-published and in the issue No. 6 of OSFI’s InfoPensions newsletter published in November 2011. Furthermore, the majority of plans will not pay assessments until July 2012, and will therefore have an additional three months’ notice.
Full implementation of the new Regulations by April 1, 2012, may mitigate the impact on plans that could face increased assessments under the new formula. This is because OSFI’s costs for supervising and regulating federal pension plans are on a declining trend due to the completion of a large multi-year information management/information technology project. This trend results in a reduction in the basic rate effective April 1, 2012, which will in turn reduce the assessments.
Contact
Pirjo Davitt
Manager
Private Pension Plans Division
Office of the Superintendent of Financial Institutions
255 Albert Street
Ottawa, Ontario
K1A 0H2
Email: pirjo.davitt@osfi-bsif.gc.ca
Telephone: 613-990-8053
Fax: 613-990-7394
Footnote a
S.C. 2001, c. 9, s. 477
Footnote b
R.S.C., 1985, c. 18 (3rd Supp.)
Footnote c
S.C. 2010, c. 25, ss. 196 and 198(8)
Footnote d
R.S., c. 32 (2nd Supp.)
Footnote 1
SOR/87-19
Footnote 2
Estimates are developed as part of OSFI’s budgeting process, which includes setting financial projections over a three-year horizon, by division.
Footnote 3
Based on the basic rate of $22 that was applied in 2010–11.
Footnote 4
Reflecting a basic rate of $12 that would have been used if the new formula had been in place in 2010–11.
Footnote 5
Based on the basic rate of $22 that was applied in 2010–11.
Footnote 6
Reflecting a basic rate of $12 that would have been used if the new formula had been in place in 2010–11.