Effective August 31, 2020, the Office of the Superintendent of Financial Institutions (OSFI) lifted its temporary portability freeze and restriction on buy-out annuity purchases that have been in place since March 27, 2020, subject to certain conditions. For more information on OSFI’s initial portability freeze and restriction on buy-out annuity purchases, see our May 2020 Blakes Bulletin: Alert: OSFI Updates FAQs for Federally Regulated Private Pension Plans. The Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 (Directives) that were originally revised to implement the portability freeze have now been further revised to once again allow for portability transfers and buy-out annuity purchases, subject to conditions similar to those that applied prior to March 27, 2020.

OSFI noted that it continues to monitor the impacts of COVID-19 on pension plans and is prepared to reintroduce a freeze or adjust the Directives if necessary.

OSFI conducted a technical briefing and issued revised FAQs, which include the following additional information:

  1. Plan administrators are to notify members that the portability freeze has been lifted and the expected time it will take to restart portability transfers in the ordinary course.
  2. Plan administrators must now make best efforts to give effect to elections members made during the freeze, without any further action being taken by the members.
  3. Plan administrators are to add interest to the commuted values to reflect the delayed transfers.
  4. The conditions applicable to portability transfer are now:

    In addition, the transfer deficiency is to include interest from the date the commuted value was calculated to the date of transfer, and at the same rate used to determine the commuted value.

    1. The amount of the initial transfer cannot exceed the “transfer value” (i.e., the commuted value of the pension benefit multiplied by the plan’s “transfer ratio”). The transfer ratio is the lesser of:
      1. The solvency ratio determined by the most recent actuarial report of the plan; and
      2. This same solvency ratio projected to a date no earlier than March 31, 2020.
    2. Where the plan’s transfer ratio is less than one, the full commuted value can be transferred if:
      1. The plan administrator remits to the fund the amount by which the commuted value exceeds the transfer value (i.e. the “transfer deficiency”); or
      2. The transfer deficiency for any individual transfer is less than 20 per cent of the Year’s Maximum Pensionable Earnings for that year, provided that the sum of all commuted values transferred on this basis does not exceed five per cent of the assets of the plan.
    3. Where the full amount of the commuted value is not initially transferred to an individual, the transfer deficiency shall be transferred on the earlier of:
      1. Five years from the date the commuted value of the pension benefit was calculated; and
      2. The date on which the solvency ratio of the plan is determined to be at least one, based on an actuarial report with a valuation date no earlier than March 31, 2020.
  5. In its technical briefing, OSFI indicated that plan administrators may use a tool to calculate the projected solvency ratio, provided that the tool has been approved by an actuary.
  6. OSFI has reintroduced the automatic consent for buy-out annuity purchases by a plan administrator. Where a plan administrator purchases an annuity other than for the purposes of section 26 of the Pension Benefits Standards Act, 1985 and the purchase does not settle all the liabilities of the plan, consent is given, subject to the following conditions:
    1. The solvency ratio following the purchase of the annuity is not less than 0.85; or
    2. An amount has been paid to the pension fund to maintain the solvency ratio following the purchase of the annuity at the lesser of 0.85 and the transfer ratio.

OSFI has noted that the “solvency ratio following the purchase of the annuity” is the transfer ratio as described above, adjusted to reflect the effect of the purchase of the annuity.