The Office of the Superintendent of Financial Institutions (OSFI or Superintendent) has updated its FAQs for Federally Regulated Private Pension Plans, which adds to its previous guidance discussed in our April 2020 Blakes Bulletins – FAQs: Canadian Pension Plans and COVID-19 and Update: Considerations for Pensions and Benefits During COVID-19.
OSFI has provided new or updated guidance on several issues, as follows:
The Department of Finance previously announced temporary relief for sponsors of federally regulated defined benefit pension plans in the form of a moratorium on solvency payment requirements through the remainder of 2020. OSFI has indicated that special regulations are required to implement this relief. Until these special regulations are in force, the normal solvency funding requirements under the Pension Benefits Standards Regulations, 1985 continue to apply.
OSFI has outlined its expectations with respect to whether plan administrators can decide not to seek the Superintendent’s consent for a transfer or an annuity purchase out of a plan on behalf of its members. OSFI indicated that plan administrators are ultimately responsible for the risk management of their pension plans. Given the freeze is expected to be temporary, a plan administrator may determine that it is not in the best interest of the plan and its members to seek consent to transfer on behalf of one or more members.OSFI would expect, particularly in situations of financial hardship, that a plan administrator would make such a request if they are satisfied that these transfers would not materially impair the solvency of the pension fund.
In its discussion of circumstances where the Superintendent would grant consent for a transfer or annuity purchase as an exception to the portability freeze, OSFI has further indicated that a plan administrator who is satisfied that a transfer out of the fund would not materially impair the solvency of the pension fund may request consent on behalf of a single member or a group of members. OSFI notes, for instance, that a plan administrator may request consent for all commuted value transfers to be paid out in the next month(s) or may request consent on behalf of members eligible to retire or who are experiencing financial hardship.
OSFI has updated the list of payments out of a pension fund that are not affected by the portability freeze implemented on March 27, 2020, to include non-locked-in pension benefits where a member has not been a member for a continuous period of at least two years, pursuant to paragraph 18(1)(c) of the Pension Benefits Standards Act, 1985.
In addition to its previous guidance on the issuance of termination and retirement statement option forms while the portability freeze is in effect, OSFI indicated that administrators must clearly communicate the period during which members can elect a transfer. OSFI encourages plan administrators to consider extending transfer election deadlines beyond the legislated minimum days after receiving the termination statement to allow members to reassess their options at the time the freeze is lifted, and they are permitted to transfer.
OSFI has explained that a member’s entitlement to elect a commuted value transfer at termination is based on the member's entitlement at the time of cessation of membership, not at the time the freeze is lifted. That is, the member will continue to be eligible to elect this option when the freeze is lifted, even though they may have reached a threshold age (such as eligibility for early retirement).
OSFI has indicated that the previously announced deadline extensions apply to filings where the information is shared with Canada Revenue Agency (i.e., the OSFI 49A Schedule A – Canada Revenue Agency Information Requirements).
In addition to OSFI’s previous discussion on reducing employer contributions to a defined contribution pension plan, OSFI has stated that if an employer is in a situation where any contributions at all to a defined contribution pension plan during the COVID-19 crisis are problematic, the employer should contact their OSFI Relationship Manager.
OSFI has confirmed that the portability freeze does not apply to pension benefits that are eligible for transfer in accordance with the Public Service Superannuation Act or other similar public service pension plans.
For further information, please reach out to a member of our Pensions, Benefits & Executive Compensation group or your usual Blakes contact.
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