Update on FSRA’s activities and Ontario pension related news

Since June 8, 2019, the Financial Services Regulatory Authority of Ontario (FSRA) assumes regulatory duties previously assumed by the Financial Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO).

In October, FSRA released draft principles to guide its oversight of the pension sector. Risk-based governance, reasonableness, awareness, adaptability, facilitation, effectiveness and efficiency, collaboration, and transparency are the seven principles FSRA wishes to follow as a regulator. FSRA continues to expect that:

• plan administrators know and comply with the legal and regulatory framework;
• pension plans be well governed, with sound and appropriate risk management practices and controls;
• plan sponsors and administrators communicate clearly and transparently to plan beneficiaries in easily understood language, enabling well-informed decisions;
• plan beneficiaries obtain advice when needed, be responsible for their own decision-making and stay in contact with the plans holding their benefits; and
• service providers adhere to applicable professional and statutory standards.

FSRA has also released a draft consultation document on its priorities and a budget for 2020-2021, with heightened focus on burden reduction and regulatory effectiveness. FSRA aims to reduce the quantity of guidance by 40% while maintaining important guidance and improving its content.

Additionally, FSRA has identified its priorities for the pension sector:

• Support plan flexibility;
• Develop and consult prudential framework; and
• Focus on burden reduction.

FSRA will work to facilitate asset transfers, consolidation, plan flexibility and other sector evolution to support the pension sector and retirement options for current and future plan members. By the end of 2019-2020, FSRA expects it will have notably created a new organizational structure to better support larger plans, jointly sponsored plans and complex transactions. It will also review and consult inherited guidance from FSCO and develop a plan to update, remove or merge guidance.

FSRA will develop a plan to enhance its oversight of prudential matters to ensure appropriate assessment of risks under its supervision. By the end of 2019-2020, FSRA intends notably to:

• Undertake a financial and risk assessment of the Pension Benefits Guarantee Fund (PBGF) to enable its long-term financial sustainability;
• Review investment risk governance of large complex plans as well as collaborate with other supervisory authorities in Canada on environmental, social and governance (ESG) issues;
• Initiate reviews of multi-employer pension plans to identify and share best practices.

FSRA intends to focus on high-value regulatory activities and reducing unnecessary regulatory burdens and low-return activities by updating its guidance framework, improving processes and modernizing information management and technology. Key areas on which FSRA will focus include asset transfers, missing members and Family Law matters.

Unlike FSCO, which issued assessment invoices at the end of its fiscal year, FSRA will issue assessment invoices at the beginning of its fiscal year to cover expenses and expenditures incurred by FSRA. Consequently, transitional invoices have been issued on November 29, 2019 for the period from June 8, 2019 to March 31, 2020 (including also an adjustment to FSCO’s costs for the 2019 assessment period going from April 1, 2018 to June 7, 2019). Payment is due within 30 days of the date on the assessment invoice. Therefore, due to this transitional process, pension plans will have received two invoices in 2019 to cover FSRA/FSCO’s activities.

According to this new process, upcoming invoices are expected to be issued in early 2020 for the assessment period from April 1, 2020 to March 31, 2021.

Since the release of the new funding rules, FSRA has been examining numerous issues related to pension plan funding. One of these issues pertains to the treatment of contributions remitted in accordance with the minimum contribution requirement set out in the latest filed funding valuation report in excess of the minimum contribution requirements following the filing of a new funding valuation report (“excess contributions”).

FSRA’s current position with respect to excess contributions is as follows:

• They can be considered as additional contributions made to the pension plan;
• They can be used to establish or increase a Prior Year Credit Balance (PYCB) in the next required actuarial filings;
  • Between May 1, 2018 and May 28, 2019, a PYCB could only be used to reduce contributions for special payments;
  • Since May 29, 2019, the use of a PYCB to also reduce contributions for the normal cost has been reinstated and reduction of contributions relative to the provision for adverse deviations in respect of normal cost is also allowed;
• They can be used to reduce any contributions required during the remaining months within the same fiscal year.

These “excess contributions” are not considered eligible for application for a refund of an overpayment pursuant to section 62.1 of the Pension Benefits Act (“PBA”) as it is FSRA’s position that they were not actually “excess” at the time they were made. As a result, they are not considered an “overpayment” by the FRSA.

Section 43.1 of the PBA allows a statutory discharge for administrators of single employer defined benefits (“DB”) pension plans of the responsibility to provide pension or ancillary benefits by purchasing buy-out annuities in respect of members and former members. As of October 15, 2019, this statutory discharge has been extended in respect of surviving spouses as set out in Bill 57 amending the PBA.

FSRA has also published a document entitled Approach to Requirements After Certain Annuity Purchases for Defined Benefit Plans that concerns annuities for which no statutory discharge is allowed. This guidance seeks to inform pension plan administrators of FSRA’s supervisory approach regarding certain requirements aimed at reducing administrative burdens from certain PBA filing requirements. FSRA will assess on a case-by-case basis the ongoing requirements to submit the following statutory filings:

• Actuarial valuation reports and Actuarial Information Summary (AIS);
• PBGF Assessment Certificates; and
• The Investment Information Summary.

For example, the approach could apply in the cases of active members contributing in the defined contribution component of a plan where the DB component is frozen and closed to new entrants, and for whom annuities have been purchased in respect of all such benefits under the D component, as PBA does not provide a discharge under Section 43.1 with respect to these active members.

FSRA will finalise its priorities and budget in its proposed Annual Business Plan (ABP) which will be submitted by the end of 2019 to Ontario’s Ministry of Finance. Once approved the ABP will serve as the basis for FSRA’s activities in 2020-21.

The Normandin Beaudry consultants will continue to monitor developments with FSRA’s activities and will keep you informed. Feel free to contact us if you have any questions.