March 2020
COVID-19 relief measures: OSFI suspends the payment of transfer values
On March 27, the Office of the Superintendent of Financial Institutions (OSFI) announced a series of temporary measures in response to the crisis caused by the COVID-19 pandemic. Among these measures, OSFI announced the full suspension of all transfer value payments until further notice.
The purpose of this measure is to protect the interests of pension plan members and beneficiaries under the jurisdiction of OSFI, which include the air, sea and rail transportation sectors, the banking sector, the communications sector, and the native communities. Retirees are not impacted by this measure and will continue to receive their monthly pension.
The payment of transfer values had been identified by some as a potential risk to the security of pension benefits given the current context. The reason is simple: transfer values are paid on the basis of a solvency ratio that does not reflect the recent sharp decrease of such ratio, which occurred in the span of a few weeks due to the fall in stock markets and lower interest rates.
OSFI’s decision also helps to protect plan liquidity in the short term, thereby sparing pension funds under its jurisdiction from having to sell depreciated assets to provide for transfer value payments.
In addition to the temporary suspension of transfer value payments, OSFI also announced that administrators will have to request the Superintendent’s consent to purchase annuities, until further notice.
OSFI also announced that it will extend by three months the filing deadlines for several reports, such as actuarial valuations, financial statements, annual information returns, and annual statements. Administrators for plans with a year end on December 31 will therefore have until September 30 to complete work normally required for June 30.
Finally, OSFI announced the suspension of several consultation initiatives currently under way, including the revision of the Instruction Guide for the Preparation of Actuarial Valuation Reports, which raised some concerns among stakeholders involved with federal pension plans.
OSFI will reconsider these measures in the coming months as the crisis evolves.
Even if the announced measures are positively received, other challenges remain. The pressure on plan sponsors’ liquidity is a growing concern and solvency deficit payments are an issue that should be examined by the legislative body.
Most sponsors are hoping for an announcement in the very near future of relief measures relating to solvency deficit payments. They would also like to see the legislative body take this opportunity to review funding rules for plans under federal jurisdiction, as Quebec and Ontario have done in recent years.
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