The Regulations Amending Certain Regulations Relating to Pensions (the "Amending Regulation") were published on March 25, 2015. The Amending Regulation introduced legislative changes affecting the administration of federally regulated private pension plans and the investment of their pension funds. Some of these changes also affect provincially regulated pension plans in respect of which their governing provincial standards legislation has adopted the federal investment rules. The Amending Regulation also includes technical amendments to the federal pooled registered pension plan legislation. The legislative changes will come into force in 2 stages: on April 1, 2015 and on July 1, 2016 respectively.
We circulated a Pension Alert on March 20, 2015 focusing on changes to the federal investment rules. This Pension Alert highlights other key changes to the Pension Benefits Standards Regulations, 1985 (Canada) and steps to be taken by plan administrators for compliance.
Key Amendments Effective April 1, 2015
- Statement of Investment Policies and Procedures ("SIPP"). The administrator of a pension plan is no longer required to establish a SIPP relating to a "member choice account", i.e., a defined contribution account or an account for additional voluntary contributions in respect of which the member, the former member or the spouse is permitted to make investment choices. This change also applies to those provincially regulated pension plans in respect of which their governing provincial pension standards legislation has adopted the federal investment rules.
- Variable Benefit. The Pension Benefits Standards Act, 1985 (Canada) ("PBSA") was amended in 2010 to permit a defined contribution pension plan to offer an option to members who have reached the retirement age under the pension plan, to receive variable benefit (like benefits paid from a life income fund) directly from the plan. The Amending Regulation sets out the formula for determining the maximum annual payment for individuals between age 55 and age 90. The minimum amount is determined by the Income Tax Act (Canada). The Amending Regulation also prescribes the form of required spousal consent if a member wants to exercise the option.
- Electronic Communications. The PBSA was amended in 2010 to permit certain information (e.g., an annual statement) to be provided to members in electronic form. The Amending Regulation sets out the requirements regarding an addressee's consent to receive information electronically and the administrator's duty to notify addressees of the availability and location of information if an electronic document is provided on a generally accessible information system such as a website.
- Prescribed Forms. The Amending Regulation prescribes various forms (by replacing existing forms and adding new forms) including forms for electing portability options and related spousal consent, annual statements for retired members and termination statements.
Key Amendments Effective July 1, 2016
Most of the changes introduced by the Amending Regulation that come into force on July 1, 2016 relate to the investment of a pension fund. Such changes will affect not only federally regulated private pension plans. They also apply to those pension plans in respect of which their governing provincial pension standards legislation has adopted the federal investment rules. Please refer to our Pension Alert? of March 20, 2015 for information on the changes to the 10% concentration rule and the rules pertaining to related party transactions.
The Amending Regulation includes changes that require enhanced disclosure. Although a SIPP is not required for a member choice account, the Amending Regulation requires a plan administrator to provide annual statements containing certain prescribed investment option information in respect of member choice accounts. The Amending Regulation also prescribes additional information to be included in the annual statements for active members and their spouses and requires a plan administrator to provide former members and their spouses with annual statements similar to those for active members. A description of the funding arrangement will be required to be included in the annual statements for active and former members of a negotiated contribution plan and in the employee book for employees eligible for such plan. The Amending Regulation also includes changes relating to an administrator's duty to provide statements on plan termination.
What's Next — Steps to be Taken to Ensure Compliance
The following is a list of recommended steps to be taken by a plan administrator to ensure that the pension plan and its pension fund will be in compliance with the Amending Regulation.
- Review and revise plan administration manual and committee mandates to incorporate changes required to comply with the Amending Regulation.
- Provide training to in-house human resources and pension administration staff to ensure that they are ready for the changes. If plan administration has been out-sourced, check with the service providers on their action plans and readiness for compliance with the legislative changes.
- Review the SIPP of the pension plan to consider whether any changes are required. The Amending Regulation contains minimum statutory standards which must be met. If the SIPP contains provisions which do not meet the new legislative requirements, the SIPP must be amended. On the other hand, if the SIPP contains more stringent requirements than those under the Amending Regulation, the investment needs to comply with the more stringent requirements under the SIPP unless the SIPP is amended.
- Review the investment portfolio of the pension fund with the investment managers to determine whether their investment mandates and the investment portfolio need to be changed to comply with the Amending Regulation and, if required, arrive at a plan for divesting the investment of the pension fund for compliance.