(a) Investment in Limited Partnerships
In a policy advisory issued in May 2014, the Office of the Superintendent of Financial Institutions (“OSFI”) addressed the question of whether a limited partnership established by a corporation could qualify as a “pooled fund” or “mutual fund” as defined under Subsection 2(1) of the Pension Benefits Standards Regulations (“PBSR”). OSFI confirmed that some limited partnerships could meet the definition of a “mutual fund” or “pooled fund” for purposes of section 9 of Schedule III of the PBSR, but this depends on the particulars of the fund. An example of when a limited partnership would meet the definition is where:
- the fund was established by a corporation, such as its general partner;
- two or more investors, all independent from the general partner, contributed capital to the fund and acquired limited partnership interests;
- the interests held by each investor are allocated proportionate to the interest in the assets of the fund;
- the limited partnership interests can be sold or redeemed in a timely manner; and othe primary purpose of the fund is to invest the moneys of the fund’s investors.
For more information, please visit the Office of the Superintendent of Financial Institutions website.
(b) Longevity Risk Hedging Contracts
In June, OSFI released a policy advisory regarding its expectations for plan administrators choosing to enter into “longevity risk hedging contracts.” OSFI confirmed that whether structured as a longevity swap or as longevity insurance (e.g., buy-in or buy-out annuities), a plan administrator that enters into a longevity risk hedging contract, as part of a risk mitigation strategy, retains “the ultimate responsibility for paying pension benefits” to plan beneficiaries. Accordingly, OSFI expects plan administrators to assess, inter alia, counterparty risk, legal risk, rollover risk as the contracts expire, and basis risk when using index-based longevity risk hedging contracts. Longevity risk hedging contracts are permissible provided that they are consistent with the terms of the pension plan, the plan’s Statement of Investment Policies and Procedures complies with Pension Benefits Standards Act (“PBSA”) and PBSR, and plan administrator exercises due diligence. For more information, please visit the Office of the Superintendent of Financial Institutions website.
(c) Long-Term Disability (LTD) Benefits
Effective July 1, 2014, federally-regulated employers that offer long-term disability (LTD) benefits to their employees must provide those benefits on an insured basis. In 2012, the federal government passed Bill C-38, the Jobs, Growth and Long-term Prosperity Act, which amended (among other things) the Canada Labour Code to require that LTD plans in the federally-regulated private sector be insured. Employers will only need to provide insured LTD benefits on a prospective basis; employers will not need to insure benefits for those who are already in receipt of LTD benefits on July 1, 2014 nor insure such benefits for those who have applied for LTD prior to July 1, 2014. The change is meant to provide stability and protection to workers from reduced or eliminated long-term disability benefits when corporate employers are bankrupt or insolvent.
(d) Update on the Regulatory Reporting System (RRS)
OSFI is in the process of creating a new regulatory filing solution known as the RRS. All federally regulated pension plans will be transitioning from the current “Automated Data Transfer” system to the new RRS solution. The RRS provides a more integrated approach to managing and administering all aspects of the regulatory return process, including more self-service options. Phase 2 of the RRS solution is planned to be active on April 28, 2014.
More information is available online.
(e) Solvency Information Return – OSFI 575
Defined benefit or combination-type pension plans registered under the Pension Benefits Standards Act, 1985 are required to file OSFI 575 on the later of 45 days after the plan year-end or February 15, 2014. The purpose of OSFI 575 is to gather information that OSFI uses in calculating the estimated solvency ratio for a pension plan.
The form can be found online.
(f) Update on Pooled Registered Pension Plans
The Pooled Registered Pension Plan Act came into force in December 2012. A pooled registered pension plan (PRPP) is a new type of defined contribution pension plan offered under federal jurisdiction to employers and to self-employed persons. The goal of the PRPP is to provide a “low cost” and accessible retirement savings vehicle for Canadians who do not currently participate in an employer sponsored pension plan. PRPPs are administered by financial institutions, rather than an employer, and all PRPP administrators must be licensed by the Superintendent of Financial Services.
The Pooled Registered Pension Plan Act establishes minimum standards that all PRPPs and PRPP administrators must adhere to. For more information and links to the legislation, visit the Office of the Superintendent of Financial institutions website.