Regulations Amending the Assessment of Pension Plans Regulations: SOR/2019-53

Canada Gazette, Part II, Volume 153, Number 5

Registration

SOR/2019-53 February 25, 2019

OFFICE OF THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS ACT

P.C. 2019-98 February 23, 2019

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 38 ^{footnote a} of the Office of the Superintendent of Financial Institutions Act ^{footnote b}, makes the annexed Regulations Amending the Assessment of Pension Plans Regulations.

Regulations Amending the Assessment of Pension Plans Regulations

Amendments

1 (1) The definitions cessation of membership, member, retire and survivor in subsection 1(1) of the Assessment of Pension Plans Regulations ^{footnote 1} are repealed.

(2) The definition beneficiary in subsection 1(1) of the Regulations is replaced by the following:

beneficiary means

• (a) in respect of a pension plan that has been registered under section 12 of the Pooled Registered Pension Plans Act, a person who is a member of the plan, as defined in subsection 2(1) of that Act, or a survivor, as defined in that subsection, who holds an account with the plan; and
• (b) in respect of a pension plan that has been registered or is filed for registration under section 10 of the Pension Benefits Standards Act, 1985, a person who is entitled to a pension benefit, but it does not include a person who has transferred all of their pension benefit credit or purchased an immediate or deferred life annuity under section 26 of that Act or for whom, after approval of the plan’s termination report under subsection 29(10) of that Act, an immediate or deferred life annuity is purchased by the plan administrator. (bénéficiaire)

2 (1) Subsection 2(2) of the Regulations is repealed.

(2) Paragraphs 2(3)(a) and (b) of the Regulations are replaced by the following:

• (a) in the case of a pension plan that has been registered under section 12 of the Pooled Registered Pension Plans Act, the plan is terminated and wound up no later than four months after the end of the pension plan year; and
• (b) in the case of a pension plan that has been registered or is filed for registration under section 10 of the Pension Benefits Standards Act, 1985,
  • (i) the plan is terminated and wound up no later than six months after the end of the pension plan year,
  • (ii) the plan has been terminated for five or more pension plan years, or
  • (iii) the plan is terminated with a solvency deficit, as defined in subsection 24.1(1) of the Pension Benefits Standards Regulations, 1985, and the plan is a negotiated contribution plan, as defined in subsection 2(1) of the Pension Benefits Standards Act, 1985, or the employer who is required to pay into the plan under subsection 9(1.1) of that Act is
    • (A) a bankrupt, as defined in section 2 of the Bankruptcy and Insolvency Act,
    • (B) an insolvent person in respect of whom a partial or complete stay of proceedings applies under subsection 69(1) or 69.1(1) of that Act, or
    • (C) a debtor company in respect of which an order under subsection 11.02(1) or (2) of the Companies’ Creditors Arrangements Act has been made and in respect of which any stay of proceedings under that order remains in effect.

3 Section 6 of the Regulations and the heading before it are replaced by the following:

Notice of Assessment

6 The Superintendent shall send each administrator of a pension plan notice in writing of the assessment against it.

Coming into Force

4 These Regulations come into force on April 1, 2019, but if they are registered after that day, they come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Office of the Superintendent of Financial Institutions (OSFI) supervises pension plans and has the authority to calculate and collect assessments (fees) from those pension plans in order to recover its expenses. This authority is found in the Assessment of Pension Plan Regulations (APPR) issued pursuant to the Office of the Superintendent of Financial Institutions Act (OSFI Act). Over the years, a number of issues have arisen through the operationalization of the APPR. These issues are as follows:

1. Assessment errors

Because of the interaction of the deadlines for required annual filings in the Pension Benefits Standards Act, 1985 (PBSA) and the Pooled Registered Pensions Plans Act (PRPP Act) and the due dates for submitting the assessments in the APPR, administrators of OSFI’s approximately 1 200 pension plans currently calculate their own annual assessment. This frequently results in errors requiring manual interventions by OSFI, such as recalculations, additional invoices and reimbursements to correct these errors.

2. Continued annual assessments for certain terminated plans

The APPR currently require that all terminated plans continue to file annual assessments until the plan is wound-up (i.e. when all assets of a terminated plan are disbursed). In cases where a terminated plan’s wind-up extends beyond several years, the amount of effort OSFI puts into collecting annual assessments is often significantly disproportionate to the amount of money owed. In cases where a plan terminates and is being wound-up underfunded (i.e. with a resulting reduction of benefits for beneficiaries either because full funding on plan termination does not apply to that type of pension plan or because of the bankruptcy of the employer), continuing to pay annual assessments may further reduce plan assets available to pay benefits.

3. Definition of “beneficiary”

The definition of “beneficiary” in the APPR is based on the definition of “former member” from the PBSA. The definition may inadvertently include, for terminated plans, persons whose benefits are no longer payable under the plan at the date of the assessment because they have transferred their benefits to a locked-in savings plan or an annuity was purchased for them as part of the plan wind-up.

Background

OSFI is the agency that supervises federally regulated financial institutions and private pension plans, including pooled registered pension plans (PRPPs). These pension plans are provided to employees in federally regulated areas of employment, such as banking, telecommunications and interprovincial transportation. OSFI supervises approximately 1 200 private pension plans and 5 PRPPs.

The authority for OSFI to recover costs to administer the PBSA and the PRPP Act through the annual assessment of pension plans is contained in the OSFI Act. The APPR prescribe the formula used to determine the annual assessment and its due date for pension plans. A plan’s annual assessment will depend, in part, on how many beneficiaries are in the pension plan subject to the current minimum assessment amount of $400 (50 beneficiaries or less) and the maximum amount of $160,000 (26 334 beneficiaries or more).

A plan’s assessment is calculated by multiplying the basic rate for that year (currently equal to $8) by the assessment base. The assessment base is equal to the number of beneficiaries (up to 1 000) plus 0.75 times the number of beneficiaries in excess of 1 000. For example, the assessment base of a plan with 5 000 beneficiaries would be 4 000 (i.e. 1 000 + [0.75 × 4 000]) and the assessment would be $32,000 (i.e. $8 × 4 000).

A plan beneficiary includes active and inactive members, deferred vested members, ^{footnote 2} retirees, survivors, and any other person entitled to pension benefits payable under the pension plan. A plan beneficiary in an ongoing plan also includes any person whose benefits are being provided through an annuity, as OSFI considers that their benefits remain an obligation of the plan in the event of the bankruptcy of the issuer of the annuity.

The APPR provide that plan administrators (including terminated plans that have not yet wound-up) must pay an assessment no later than

• the day on which a plan is filed for registration under the PBSA if a new plan is established; and
• six months after the end of each plan year for plans registered under the PBSA and three months after the end of each plan year for PRPPs.

The number of plan beneficiaries upon which the assessment is based is taken from the plan’s Annual Information Return (AIR) or the plan’s application for registration. However, the APPR currently require that the annual assessment be paid on or before the filing due date of the AIR. As a result, OSFI does not have the beneficiary data needed to generate an invoice for the assessment before the deadline for paying that assessment. Therefore, plan administrators must determine the annual assessment themselves and submit the payment along with the Pension Plan Assessment Remittance Form (Assessment Form) to OSFI.

Terminated pension plans are required to continue to pay assessments until the plan is wound-up. A wind-up may extend over several years if the plan administrator cannot locate all plan beneficiaries to disburse the plan assets. Locating plan beneficiaries can be very difficult and time consuming. Additionally, the PBSA requires a defined benefit pension plan (other than a negotiated contribution plan) to fund any deficit on plan termination over a period not exceeding five years. In such cases, the plan wind-up will also extend over several years as the deficit is being paid off, during which time they must file annual actuarial reports and other required filings.

It is appropriate for a plan to continue to pay assessments if they are funding this deficit or if they are locating beneficiaries after plan termination for a period of up to five years. However, continuing to expect assessments for a terminated plan beyond five years may be unreasonable and can often result in unpaid assessments for plans with few remaining beneficiaries and assets. Under the OSFI Act, the Superintendent may remit all or part of any assessment. The Superintendent may also write off from OSFI’s accounts all or part of any debt if it has been determined to be uncollectable or for which further administrative expense or other costs of collecting the debt are not justifiable in relation to the amount of the debt or the probability of collection.

Uncollectable plan assessments that meet these requirements can be recommended for write-off because they are considered “bad debt.” Before a recommendation for remission or write-off can be made to the Superintendent, a number of steps to collect the assessment must have been made or considered, including referring the account to a private collection agency, if applicable. Both the remission and write-off processes involve significant time and resources for OSFI. The OSFI Act does not authorize the Superintendent to simply waive the assessment of pension plans in the circumstances described herein.

Objectives

The amendments have the following objectives:

1. Simplify the assessment process for plan administrators and OSFI to improve the efficiency and accuracy of pension plan assessments;
2. Eliminate assessments for certain terminated plans to reduce the amount of uncollectable debt and to avoid further reduction of benefits for beneficiaries of underfunded plans; and
3. Correct the definition of “beneficiary” to ensure that assessments for terminated plans are calculated based on the number of persons with benefits remaining in the terminated plan at the date of the assessment.

Description

The APPR are amended as follows:

• 1. The amendments repeal the assessment due dates to enable the Superintendent of Financial Institutions to determine the assessment against a pension plan or a PRPP after a plan has filed for registration or after the filing due date of a plan’s AIR. The amendments also specify that the Superintendent of Financial Institutions will notify the administrator of the plans in writing once the assessment has been determined. OSFI expects to follow current invoicing practice and send the assessment invoice as soon as practical after determining the assessment.
• This will result in lower administrative costs and efforts for plan administrators because they will no longer have to complete a form and calculate the assessment. The amendments also eliminate the need for corrective interventions taken by OSFI to correct assessments submitted using an incorrect number of beneficiaries or without a plan identification.
• 2. The amendments specify that the assessment to be paid is zero in the following two scenarios:
  • In the sixth year after the plan year in which a plan was terminated and thereafter; and
  • Where a pension plan is underfunded on the termination date and is either a negotiated contribution plan (a multi-employer plan with employer contributions limited to an amount determined by an agreement) or the employer for the plan is bankrupt.
• The amendment to eliminate assessments for plans that are still winding-up five years after plan termination will reduce some of the plan’s ongoing costs during an extended wind-up, and reduce OSFI’s administrative burden associated with its write-off process for bad debt. The five-year threshold allows OSFI to continue assessing terminated plans that are funding a termination deficit over a five-year period. As 90% of OSFI registered plans wind-up within five years of their termination date, the amendment will have no material impact on OSFI’s ability to fully recover its costs. The impact is considered immaterial because the total assessments from the plans that are impacted by this amendment represent approximately 0.14% of OSFI’s revenue collected from pension plans in 2017.
• The amendment to eliminate assessments for plans that are underfunded on the termination date (where the plan is a negotiated contribution plan or where the employer for the plan is bankrupt) will also have no material impact on OSFI’s ability to fully recover its costs since it is expected to impact a very small number of plans. In 2017, the total assessments from plans in these categories represented approximately 0.43% of OSFI’s revenue collected from pension plans. The amendment will help reduce the depletion of plan assets available to pay benefits since these assessments are usually paid from the plan’s funds.
• 3. The amendments to the definition of “beneficiary” clarify that members, survivors or any other persons who chose to transfer their pension benefit out of the plan before or after plan termination are not included as beneficiaries. OSFI does not consider it appropriate to continue to include these individuals in the assessment calculation. In addition, the amendments also clarify that any person for whom the plan administrator has purchased an annuity as part of the wind-up of a terminated plan is not considered a beneficiary for the purpose of the assessment calculation so that the assessment base is reflective of those benefits still to be settled from the terminated plan.

“One-for-One” Rule

The “One-for-One” Rule does not apply because the amendments would not increase or decrease regulatory administrative burden on businesses.

Small business lens

The amendments impact all 1 200 plan administrators, most of which are businesses, and may include some small businesses. The amendments are relieving in nature and would result in a minor reduction in administrative burden. Accordingly, all plan administrators, including those that are considered small businesses would benefit from these changes.

Consultation

On July 30, 2018, OSFI contacted all plan administrators by email to notify them of the proposed changes, provide a description of the amendments and seek their feedback/comments on the changes by September 21, 2018. OSFI also posted the same information on its website. OSFI received minor clarification questions from one plan administrator regarding the new process for paying assessments (i.e. what the differences are between the current process and the proposed changes to it). OSFI received no other comments or questions regarding the proposed amendments.

Rationale

The amendments simplify the assessment process and eliminate assessments for certain terminated pension plans. The amendments also correct the definition of “beneficiary” to ensure that the appropriate number of individuals are included in a pension plan’s annual assessment.

As a result of these amendments, OSFI would forego collection of less than 1% of cost-recovered fees from pension plans, based on 2017 data. No other costs for the Government of Canada are anticipated.

Repealing of the assessment due dates in the APPR will in turn render the need for plan administrators to fill out a Pension Plan Assessment Remittance Form obsolete. This form, which was a policy-based requirement (not a regulatory requirement under the APPR), had to be completed and submitted to OSFI. The elimination of this form and the calculation of the assessment due on an annual basis will result in a small decrease in administrative burden for plan administrators.

The estimated annualized administrative cost associated with the removal of this form is $5,606 and the average annualized administrative cost per pension plan is $5. In calculating this cost, OSFI assumed that, as the Assessment Form and calculation are straightforward, a junior-level employee could complete the Assessment Form in 15 minutes. Once an individual enters a plan’s total number of beneficiaries in the Assessment Form, the form automatically calculates the assessment amount owed. This means that the individual completing the form only fills out the number of beneficiaries along with the name of the pension plan, the plan’s registration numbers and contact information. This administrative cost is based on completing the form only. OSFI assumed that any required internal approvals following the completion of the form would be in addition to this.

Implementation, enforcement and service standards

OSFI is responsible for the supervision of the administration of the PBSA and the PRPP Act. As a result, the Superintendent is responsible for implementing and enforcing the amendments to the APPR.

It is proposed that the amended APPR come into force on March 31, 2019, which would allow OSFI to apply the new rules to assessments due in the 2019–2020 fiscal year.

Contact

Sylvia Bartlett
Manager
Policy
Private Pension Plans Division
Office of the Superintendent of Financial Institutions
255 Albert Street
Ottawa, Ontario
K1A 0H2
Telephone: 613‑990‑7856