Ontario Issues New Guidance to Pension Plan Administrators and Sponsors Amidst the COVID-19 Pandemic

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On May 22, the Financial Services Regulatory Authority of Ontario (FSRA) provided additional COVID-19 pandemic related guidance for administrators and sponsors of Ontario registered pension plans as an update to the previously issued guidance on March 18 (see What Pension Plan Administrators Need to Know Amidst the COVID-19 Pandemic).

In this update we review significant guidance of interest to pension plan administrators and sponsors of Ontario-registered pension plans, including new guidance on the approval process for commuted value transfers.

Transactions

All pending transactions filed with FSRA, such as pension asset transfers or wind up applications, will continue to be reviewed, although some delay is expected due to the current disruptions. However, any transaction that requires a notice of intended decision to be issued under the Pension Benefits Act (Ontario) (PBA) will generally not proceed until the emergency regulation made under the Emergency Management and Civil Protection Act (Ontario) expires or otherwise ceases to have effect. This is because the emergency regulation has suspended the timeframe to request a hearing before the Financial Services Tribunal. Submission of new applications or additional documents should be done electronically via email or through the FSRA portal, where available.

Actuarial Valuation Report and a Subsequent Event

FSRA has advised that it considers the market shock to be a subsequent event that provides additional information about the pension plan, because the shock impacts the outlook for the funded status of the plan for a significant period following this event. The actuary should exercise professional judgement to establish the best estimate assumptions for the valuation in accordance with the Canadian Institute of Actuaries (CIA) Pension Standards.

In addition, the CIA Standards require the actuary to select and make disclosures based on plausible adverse scenarios (PAS). FSRA expects the following disclosures to be included in the valuation report based on any PAS that have been identified to the extent the information is available in performing the valuation or from other work created in connection with the risk of the funded status of the plan to risks outlined in a PAS, namely:

  1. impact on the funded status, including going concern, solvency, and wind-up bases as well as the solvency and transfer ratios; and
  2. impact on the required contributions to the pension plan in respect of the normal cost, going-concern and solvency special payments.

Witness to Sign Required Forms

In certain situations where individuals cannot get a witness to sign required forms in the physical presence of a relevant person, FSRA has stated that it will not object to institutions and administrators proceeding without a witness for these forms while businesses are operating under COVID-19 pandemic conditions, as long as there is no evidence on record that the person(s) signing the forms does not understand what they are signing.

However, FSRA is not able to comment on what a court or tribunal might decide if an owner, member or other affected person claims that his or her rights were not appropriately protected because of proceeding in this manner, and has indicated that plan administrators  (and financial institutions) may wish to consider using supplementary processes (e.g., follow-up correspondence; virtual witnessing using electronic means) where obtaining physical “wet ink” witnesses is not practicable during the disruption. FSRA suggests that plan administrators and financial institutions obtain appropriate legal advice in this regard.

Communication by Electronic Means

Plan administrators and their advisors are expected to understand the requirements of the PBA as it relates to electronic communications as well as the Electronic Commerce Act (Ontario). FSRA has no discretion over these requirements.

Filing the "certified copy" of a document, such as a plan amendment, can be made through the FSRA portal and via email to the Pension Officer for the plan. The submission or email must indicate that the certified copy of the document being submitted electronically is a true and complete copy of the original document. In order for a document to be a certified copy, the person certifying the document must have a copy of the original document or be otherwise able to certify that it is a true and complete copy of the original document.

Reduction/Suspension of Contributions for a Defined Contribution (DC) Pension Plan

To the extent member contributions are optional, members can choose to reduce or eliminate those optional contributions in accordance with plan rules—and any matching employer contributions will then be reduced accordingly.

Plan sponsors will need to determine if contributions must continue when an employee is on a form of leave or layoff where there are reduced earnings or no actual earnings being paid. The determination of the requirement to continue contributions (or not) will depend in part on employment law considerations, the specific fact situations involved and the terms of the plan text. Plan sponsors and administrators should obtain appropriate employment and pension law advice in this regard.

Employers cannot simply stop making required contributions to DC pension plans that they participate in. Any change to employer or member-required contributions can only be on a go-forward basis and must be supported by an amendment to the plan text. Amending the provisions of a pension plan text requires careful consideration and analysis of a number of factors, including the plan specific amending provision and any collective agreements that govern the plan, as well as potential employment law implications and member notice requirements.

Until further notice, and subject always to FSRA's ability to act upon the facts of any particular case, FSRA will not order a plan to be wound up solely because the plan has, as a result of the COVID-19 disruption, been amended to temporarily suspend contributions for a portion of the 2020 calendar year.

Filings Extensions for Off-Cycle Valuation Reports

Although in normal circumstances FSRA does not provide filing extensions for off-cycle valuation reports, while businesses are operating under COVID-19 emergency conditions, extensions will be granted. However, FSRA has advised that pension sponsors should request for such extension at least two weeks in advance of the filing deadline. The normal filing extension that would be granted is for up to 60 days. If a longer extension is required, a request for an additional extension can be made by email describing the reason why an additional extension is required. Such requests will be considered on a case-by-case basis. This approach will be taken for off-cycle valuation reports with an original due date in the 2020 calendar year.

Finally, regardless of whether a plan sponsor selects an on- or off-cycle valuation report, we note that FSRA has the power to order an administrator to prepare a new valuation report if the assumptions or methods used in the preparation of a report required under the PBA or Regulation regarding the pension plan are inappropriate or are not consistent with accepted actuarial practice. FSRA may also specify the assumptions and methods to be used.

Filing Certificate of Assessment for the Pension Benefits Guarantee Fund (PBGF)

Operational disruptions may cause an inability to file a PBGF certificate of assessment. Section 105 of the PBA permits FSRA, upon application, to extend the time limit for filing documents under the PBA and its regulations for 60 days or, if satisfied that extraordinary grounds exist and that no person will be prejudiced, for additional time. FSRA will use its discretion if pension plan sponsors are unable to file the PBGF assessment certificate due to the COVID-19 disruption.

Note that while FSRA does not have authority to delay a PBGF assessment or to waive interest or penalties related to a late payment, Regulation 187/20 has amended Regulation 909 to remove the 20-percent penalty that would otherwise be payable on the late payment of PBGF assessments that are due on or after April 30, 2020, if the PBGF assessment amount, plus interest, is paid on or before December 31, 2020. Interest will accrue on the outstanding amount, at the chartered banks’ rate on prime business loans as of the date the amount is due, plus 3 percent. FSRA should be notified where the PBGF assessment payment will not be made within the usual nine-month timeframe.

Commuted Value Transfers and Annuity Purchases

FSRA's Guidance No. PE0202APP outlines FSRA's revised approach to reviewing applications to transfer commuted values (CVs) or to purchase annuities pursuant to the regulations under the PBA. This revised guidance has been developed to address scenarios where the administrator knows or ought to know that a defined benefit pension plan’s transfer ratio (TR) has declined by 10 percent  or more since the date of the most recently filed actuarial valuation and the resulting TR is below 0.9. The new guidance replaces existing FSCO Policy T800-402, Commuted Value Transfers.

Transfers of CVs

After obtaining legal and actuarial advice, plan administrators may decide not to seek FSRA’s approval and must cease to transfer CVs when they know or ought to know that the pension plan’s TR has declined as described above. The plan administrator should explain the reasons for taking this approach and the factors that were considered (for example, infrequent terminations, liquidity considerations, balancing the interests of all plan beneficiaries, financial conditions of participating employers, etc.). In addition, the administrator should indicate:

  1. how long the cessation of CV transfers is expected to continue;
  2. what communication is being made to plan beneficiaries; and
  3. what steps are being taken to return to a situation where CV transfers can be made.

If, however, the administrator decides to request FSRA’s approval for a continuation of CV transfers (i.e., where the employers do not fully fund deficiencies with respect to all CV transfers), then it must submit a Form 10 with the necessary supporting documents and information to make this request. FSRA may then proceed with either an expedited or an in-depth review process depending on the surrounding circumstances. FSRA also has the authority to attach terms and conditions to any approval it grants under the expedited process or the in-depth process, and may either deny approval or provide approval to transfer 100 percent of the CV or something less (which approval will generally remain in effect until the earlier of next filed actuarial valuation or the date the TR drops by 5 percent or more from the level identified in the Form 10 application). The administrator must consider its fiduciary obligations when deciding when and what to report to beneficiaries, once the conditions of the regulations have been met. Generally, administrators should inform persons entitled to a CV transfer of the restrictions that apply and should continue to provide terminated or retired members with option statements containing the prescribed information and informing them if all or a portion of their CV must remain in the plan, as well as the timeframe within which the remainder is expected to be transferred out.

Annuity Purchases

For administrators who wish to purchase annuities pursuant to section 43 of the PBA, if certain provision of the regulations apply, a Form 10 must be filed and FSRA’s approval must be obtained. FSRA will generally require employer(s) to contribute the full amount of any deficiency (based on the updated TR) before the annuity purchase can be made.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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