1) LEGISLATION
FEDERAL FALL ECONOMIC STATEMENT
Bill C-59, the Fall Economic Statement Implementation Act, 2023, was introduced on November 30, 2023, to implement certain provisions of the federal government’s 2023 Fall Economic Statement and 2023 Budget. Explanatory Notes (on tax changes) and a news release are also available. The Bill includes amendments to the:
- Income Tax Act and Income Tax Regulations to no longer consider fees paid for a letter of credit or a surety bond (used to provide security for supplemental retirement benefits) to be contributions to a retirement compensation arrangement (effective January 1, 2024) and make technical changes related to the first home savings account (effective April 1, 2023)
Items of interest from the 2023 Fall Economic Statement that were not included in Bill C-59 include:
- Requiring large federally regulated pension plans to disclose the distribution of their investments, by jurisdiction and asset-type per jurisdiction
- Helping all pension funds identify more domestic investment opportunities, and exploring whether to remove the rule that restricts Canadian pension funds from holding more than 30% of the voting shares of most corporations
ONTARIO JSPP AND SOMEPP DEVELOPMENTS
Effective January 1, 2024, Ontario has amended the consent requirements under O. Reg. 311/15 for a proposed conversion and transfer of assets under section 80.4 of the Pension Benefits Act (PBA) (single employer pension plans to jointly JSPPs) and a proposed merger under section 81.0.1 (single employer plans with existing broader public sector JSPPs). The deadline for filing a conversion and transfer report has also been extended.
Ontario has extended, until January 1, 2025, temporary funding rules under the PBA General Regulation for Specified Ontario Multi-employer Pension Plans and for Jointly Sponsored Pension Plans.
MINIMUM COMMENT PERIOD REDUCED FOR PROPOSED FSRA RULES
The Financial Services Regulatory Authority of Ontario Act, 2016 has been amended to reduce the minimum comment period for a proposed FSRA rule, from 90 days to 60.
ENCOURAGING AUTOMATIC SAVINGS FEATURES IN ONTARIO
The Association of Canadian Pension Management has reiterated its strong support for fully enabling automatic features for retirement savings plans in Ontario, and recommends that the government facilitate their adoption by repealing the current Employment Standards Act, 2000 requirement to obtain express consent from existing employees.
This is in line with similar calls for updating provincial pension and employment standards legislation to permit auto features from various other provincial pension authorities.
2) REGULATORY UPDATE
CAPSA COMMENTARY GUIDE FOR 2020 MJPPA
The Canadian Association of Pension Supervisory Authorities has released a Commentary Guide for the 2020 Agreement Respecting Multi-Jurisdictional Pension Plans (2020 MJPPA). It contains the text of each provision, followed by explanatory notes and examples where necessary, and reflects the addition of Manitoba and Newfoundland & Labrador as signatories earlier this year.
CAPSA GUIDELINE No.3 (CAP GUIDELINE) UPDATE
The Joint Forum of Financial Market Regulators, which includes Canadian Association of Pension Supervisory Authorities (CAPSA), held its annual meeting on November 20, 2023. The CAPSA Chair provided an update on draft Guideline No. 3 (CAP Guideline), whose consultation generated five submissions. As part of the final drafting process, the CAP Guideline Committee will provide insight into the insurance and securities sectors.
Joint Forum members also discussed how best to identify and assess the need for regulatory oversight for emerging financial products and services, and continue to support implementation of Total Cost Reporting (TCR) to increase investor and policyholder awareness of ongoing costs of owning investment funds and individual segregated fund contracts.
PENSION ACCOUNTING AND ACTUARIAL STANDARDS CHANGES
CPA Canada has adopted amendments, effective January 1, 2024 (with earlier application permitted), to Section 4600 Pension Plans in Part IV of the CPA Canada Handbook – Accounting, that will limit the disclosure requirements under Section 4600.32 to financial instruments measured at fair value (i.e., excluding buy-in annuity contracts).
The Actuarial Standards Board has approved final Standards of Practice – Practice-Specific Standards for Non-Pension Employee Future Benefit Plans (Part 6000) and Standards of Practice – practice-Specific Standards of Practice for Social Security Programs (Part 7000), both effective February 1, 2024 with early implementation permitted.
PROPOSED REVISIONS TO OSFI GUIDELINE E-23 – MODEL RISK MANAGEMENT (MRM)
The Office of the Superintendent of Financial Institutions (OSFI) is seeking stakeholder feedback on its proposal to revise E-23: Model Risk Management Guideline to cover various non-financial risks, and extend its application to pension plans, effective July 1, 2025. OSFI will take a principles-based approach to MRM, and consider all the steps for operating, governing and maintaining a model, from the time it is created until it is decommissioned. MRM should be risk-based and, for pension plans, applied to all contractual arrangements from which the pension plan is derived. The Guideline’s three expected outcomes are guided by seven model lifecycle principles. Appendix A sets out 14 items that, at a minimum, organizations should maintain for each risk model.
OSFI SUPERVISORY FRAMEWORK
The Office of the Superintendent of Financial Institutions will implement a new supervisory framework for federally regulated pension plans effective April 1, 2024. It is designed to:
- Better capture the impact of macro-centric risks
- Accommodate new business models and non-financial risks
- Further leverage data and advanced analytics in the supervision process
INVESTMENT MANAGEMENT CORPORATION OF ONTARIO TO MANAGE PBGF ASSETS
The Financial Services Regulatory Authority of Ontario has selected the Investment Management Corporation of Ontario (IMCO) to manage the Pension Benefits Guarantee Fund’s (PBGF) $1.2 billion in assets. IMCO was established in 2016 to provide investment management and advisory services to the Ontario government and broader public service entities. Earlier this year, the federal Income Tax Act and Regulations were amended to permit the PBGF to invest in tax exempt pension corporations.
FRSA CONSULTING ON PROPOSED FAMILY LAW RULE
The Financial Services Regulatory Authority of Ontario (FSRA) has released a consultation paper on whether it should consolidate the family law requirements over which it has rule-making authority in a new rule. Feedback is requested by January 19, 2024 on:
- Increasing the maximum fees for providing a statement of imputed value, with new authority for administrators to waive fees for low-income applicants
- Clarifying the rules for pension division and revaluation, as well as the rules respecting interest payments on lump sum transfers
- Providing flexibility with respect to the use of FSRA’s family law forms
- Extending the above requirements to defined contribution plans that allow variable benefits
FSRA CONSULTING AGAIN ON PLAN AMENDMENTS
The Financial Services Regulatory Authority of Ontario (FSRA) has released Proposed Guidance on Pension Plan Amendments. This is a revision of an earlier proposal, with a focus on retroactive adverse amendments. The comment deadline is January 19, 2024. FSRA will:
- Determine whether an amendment has an “adverse effect” by considering the totality of the nature and effect of the amendment on the rights and benefits of beneficiaries, as well as the relevant PBA provisions
- Consider exercising its discretion to determine that an amendment is not adverse and/or register an amendment with a retroactive negative impact
- Publish details of amendments it has determined do not meet the definition of a retroactive adverse amendment, but will not disclose the identity of the plan or administrator or any sensitive information
FINAL FSRA GUIDANCE ON IT RISK MANAGEMENT
The Financial Services Authority of Ontario (FSRA) has released its final Guidance on Information Technology (IT) risk management. It will take effect on April 1, 2024, and sets out best practices for managing risks relating to an organization’s IT systems, infrastructure and data. Risk indicators specific to the pensions sector are listed. The Guidance also now provides that notification to FSRA, via several possible methods, should normally occur within 72 hours or sooner of determining that an IT risk incident is material. While plan administrators can satisfy their requirements by following the Canadian Association of Pension Supervisory Authority’s cyber risk guideline, in areas of inconsistency the Guidance will apply.
FSRA STATEMENT OF PRIORITIES AND BUDGET
The Financial Services Regulatory Authority of Ontario (FSRA) has proposed its 2024-25 Statement of Priorities and Budget. Key priorities for the pensions sector include assessing systemic and high priority risks, and supporting the new target benefit framework for defined benefit multi-employer pension plans.
FSRA PENSION UPDATE AND SERVICE STANDARDS SCORECARD
The Financial Services Regulatory Authority of Ontario (FSRA) has released its latest Pension Update:
- As of September 30, 2023, the median solvency ratio of all defined benefit pension plans was 117% (up from 116% during the previous quarter), while 98% of plans had a solvency ratio at or above 85%
- FSRA will address delays by smaller defined contribution (DC) plans in filing Financial Statements or Annual Information Returns by creating new communications and educational videos, updating the Pension Services Portal, and imposing summary Administrative Monetary Penalties (AMPs)
- FSRA has imposed nine summary AMP Orders for late filings due before 2023 (six relating to DC plans) ranging from $25,000 to $100,000
- Beginning January 1, 2024, FSRA will ask for a copy of the Request for Proposal (RFP) or Request for Quotation (RFQ) provided to the insurer to ensure buy-out annuities provide the same benefits as under the plan; however, if the filed annuity contract sets out the required plan provisions, a separate copy of the RFP or RFQ need not be filed
- FRSA expects to fully implement its new plan examination process in 2024, which will focus on plan governance, risk management structures and procedures, and remote examinations
- FSRA expects plan administrators to educate members on how their commuted values are calculated, specifically with respect to the effect of the rise in bond yields)
FSRA has also released its Service Standards Scorecard for the second quarter of fiscal 2023-2024. In the Pensions sector, FSRA met its performance target in four of the five categories:
- 96.3% of inquiries responded to within 45 business days (96% during previous quarter)
- 90.9% of defined benefit (DB) wind-up applications finalized within 120 business days (92.3% during previous quarter)
- 100% of defined contribution plan (DC) wind-up applications finalized within 90 business days (unchanged)
- 66.7% of DB asset transfer applications finalized within 120 business days (85.7% during the previous quarter); as this was below its 80% target, FSRA will improve performance by allowing more time for section 80.4 transfers (to jointly sponsored pension plans)
- 83.3% of DC asset transfer applications finalized within 90 business days (94.4% during previous quarter)
3) CASELAW
PENSION VALUATION
In Chhom v. Green the value of the husband’s pension had crystalized as a capital asset before marriage, and he was already in receipt of that pension when the parties married. The Ontario Court of Appeal therefore held that any increases in amounts he received due to indexation did not affect the capitalized value of the pension as at the valuation date.
RETIRED MEMBER’S APPLICATION FOR RECONSIDERATION DISMISSED
In Errol McHayle v. Ontario Public Service Employees Union, the Ontario Labour Relations Board dismissed a former PSPP member’s application for reconsideration. The Board’s earlier decision had dismissed McHayle’s application under the Labour Relations Act, 1995 alleging that OPSEU violated its duty of fair representation by not supporting his attempt to have the PSPP provide a commuted value excess value payment on retirement (the Plan had been amended two year’s earlier to remove a retiring member’s entitlement to such a payment). The Board determined that the initial decision declining jurisdiction was correct because McHayle’s application was out of time and raised no important policy issues.
EMPLOYEE HAS ONUS TO PROVE ENTITLEMENT
In Monteiro v. CEO Financial Services Regulatory Authority, the Ontario Divisional Court confirmed an FST decision upholding a FSRA NOID rejecting the appellant’s request that he be granted credits from the Ontario Teachers’ Pension Plan for an extended period during which he taught part-time night school courses before he was formally qualified as a teacher. In reaching this conclusion the Court relied on its previous decision in Hunte v. Ontario, that the applicant’s onus to prove his pension entitlement “did not shift to the CEO”. Neither did the Ontario Teachers’ Pension Plan Board breach any duties to the appellant by not informing him of his pension status when he performed teaching services for various school boards before receiving his teaching qualification, especially when he failed to update his contact information with the Board and knew that participation in the Plan was accompanied by mandatory contributions, which he did not pay between 1980 and 2003. The Court also noted that “The PBA places a fiduciary duty on the OTPPB to each of the Plan’s members. That duty must be interpreted in light of the OTPPB’s duty of even-handedness to each class of beneficiaries under the Plan. That means, in part, that each class of beneficiaries receives exactly what the Plan’s terms call for, nothing more, nothing less. The OTPPB may not ‘give an advantage or impose a burden when that advantage or burden is not found in the terms of the plan documents. It would breach the OTPPB’s fiduciary duties to its members if it granted benefits to persons who were not legitimately entitled to those benefits.”
4) TAXATION
CRA ANNOUNCES LIMITS, YMPE AND YAMPE
The Canada Revenue Agency has announced the limits and Canada Pension Plan amounts for 2024 (unless otherwise indicated):
- Money Purchase limit: $32,490
- Defined Benefit limit: $3,610
- Registered Retirement Savings Plan limit (for 2025): $32,490
- Deferred Profit Sharing Plan limit: $16,245
- Year’s Maximum Pensionable Earnings: $68,500
- Year's Additional Maximum Pensionable Earnings: $73,200
- Tax Free Savings Account: $7,000
- Advanced Life Deferred Annuity: $170,000
DETERMINING PROVINCE OF EMPLOYMENT FOR PAYROLL DEDUCTIONS
Effective January 1, 2024, employers must apply a new CRA policy to determine which jurisdiction’s payroll deductions should apply to an employee who works fully remotely, pursuant to a “full-time remote work agreement”. The agreement can be temporary or permanent, and requires the employer to determine the location where the employee is “reasonably considered” to be “attached to an establishment of the employer”. This will generally be the location where the employee reported to work immediately before the agreement was entered into; however, certain secondary factors can be considered, such as the location where the employee (remotely) attends meetings or calls, or from where the employee is supervised. If more than one location could qualify, the employer will have to determine the location to which the employee is most closely attached.
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