I. LEGISLATION
FEDERAL DRAFT PBSR AMENDMENTS: PLAN INVESTMENT INFORMATION
On November 2, 2024, the federal government released draft regulations setting out pension plan investment information that the Office of the Superintendent of Financial Institutions (OSFI) must publish. Administrators will be required to request additional information from the plan’s actuaries and/or investment managers, and submit it through new fields in OSFI’s existing data collection process, or on a separate form. OSFI would then report investment information on plans whose assets have a market value of $500 million or more, starting with the 2022, 2023 and 2024 plan years.
Information must include the market value of assets invested in eight specified asset classes, set out in dollars and as a percentage of total assets, for seven specified geographic locations. It would be presented by DB plan assets and DC plan assets, for all plans in aggregate, as well as by employer name for single employer pension plans or by plan name for multi-employer pension plans.
OSFI has been sending letters to administrators of Federal plans with a market value of $500 million or more requesting the disclosure of information by January 31, 2025 with the understanding that they will not publicly disclose any information until the regulations are in force.
ONTARIO CONSULTATION ON VARIABLE LIFE BENEFITS
On November 12, 2024, Ontario released a regulatory proposal on amendments the Pension Benefits Act and the Pooled Registered Pension Plans Act to allow certain plans to include variable life benefits (VLBs) as a benefit option. For tax purposes, VLBs are already allowed, as variable payment life annuities, under federal the Income Tax Act. Ontario’s proposed framework would allow members to purchase a VLB through a separate fund in the plan. It would be a monthly retirement benefit, which could vary based on the fund’s earnings and the mortality rate of members and beneficiaries. Issues addressed include:
- Responsibilities and obligations of plan sponsors and administrators
- How benefits could be determined and adjusted, and whether adjustments should be set out in a certified actuarial report
- Whether a mortality table should be prescribed
- Whether a partial return of capital should be required or permitted when a member dies, and options for the surviving spouse
- How VLB fees and costs related to investments and administration should be regulated
- Required disclosures
- How to calculate VLB commuted values and portability options on plan wind up
Feedback on consultation questions may be made by January 10, 2025.
ONTARIO TARGET BENEFIT FRAMEWORK EFFECTIVE JANUARY 1, 2025
Amendments to the Pension Benefits Act first, introduced in the 2017 Budget Bill, and the following regulations setting out Ontario’s target benefit framework will take effect on January 1, 2025:
The Financial Services Regulatory Authority of Ontario (FSRA) has updated its Form 1 – Application for Registration of a Pension Plan, also effective January 1, 2025, mainly to add references to target benefits, and has provided additional information on how it will implement the new target benefit framework:
- Except for those transferred to FSRA from another designated Canadian jurisdiction, eligible multi-employer pension plans (MEPPs) have a five-year window (until December 31, 2029) to apply to convert their plan’s defined benefits to target benefits
- Pension plans established on or after January 1, 2025, whose benefits are target benefits at the time of registration, will not have to convert benefits to target benefits
- New MEPPs established on or after January 1, 2030 can register as a target benefit MEPP
- The plan administrator must apply for consent, with a copy of the proposed conversion amendment(s), via the Pension Services Portal (PSP)
- Certification must be provided by someone with signing authority on behalf of the administrator
- FSRA will notify the administrator via the PSP if it consents to the conversion
- Amendment(s) must take effect no later than 12 months after the date that FSRA consents, and be filed within 60 days of the conversion’s effective date
- FSRA will review and provide feedback on draft amendments
ONTARIO JSPP AMENDMENTS EFFECTIVE JANUARY 1, 2025
As of January 1, 2025, the General Regulation under the Pension Benefits Act will be amended to exempt 10 jointly sponsored pension plans (JSPPs) listed in section 1.0.1(3) (generally, large public sector plans) from having to file yearly actuarial valuation reports when a plan has solvency concerns. However, beginning with reports with a valuation date after December 31, 2025, these plans will have to submit yearly valuation reports if the current report indicates that their going concern ratio is less than 0.9.
Also effective January 1, 2025, the annual and biennial statements sent to listed JSPP members (active, retired and former) will no longer have to include information relating to the plans’ transfer ratio.
NEW LEAVES OF ABSENCE UNDER THE ESA
Ontario Bill 229 received third reading on December 12, 2024 and will amend the Employment Standards Act, 2000 to introduce two new unpaid leaves of absence—for adoption and surrogacy (16 weeks) and for serious illness (27 weeks).
DRAFT CPP AND OAS REGULATION AMENDMENTS: PROVIDING EVIDENCE ELECTRONICALLY
Proposed amendments to the Canada Pension Plan Regulations (CPP) and Old Age Security Regulations (OAS) would allow the federal government to accept electronic copies of documents as evidence of entitlement, instead of original or certified copies. This will enable applicants to upload documents through their My Service Canada Account. Currently, electronic copies are being accepted as a temporary pandemic measure.
Applicants could still submit evidence in person or by mail. Random audits, compliance reviews and investigations would continue, to ensure eligibility criteria are met. The Minister would also reserve the right to request original or certified copies of documents where wrongdoing is suspected.
PENSION INVESTMENT IN CANADA
As part of its 2024 Fall Economic Statement, the federal government has announced that it will moving forward with the following measures to facilitate increased pension fund investment in Canada:
II. REGULATORY UPDATE
OSFI BASIC RATE INCREASE EFFECTIVE APRIL 1, 2025
The Office of the Superintendent of Financial Institutions has set the Basic Rate, for the April 1, 2025 to March 31, 2026 fiscal year, at $12.00 per member (up from $11.00). The annual assessment for federally regulated pension plans and pooled registered pension plans is calculated by multiplying the Basic Rate by the number of plan beneficiaries (within a minimum and maximum range).
OSFI GUIDELINE E-23 UPDATE: MODEL RISK MANAGEMENT
The Office of the Superintendent of Financial Institutions (OSFI) has provided an update on proposed revisions to Guideline E-23 - Model Risk Management. In addition to other requirements, it will set out OSFI’s expectations around artificial intelligence (AI) models. Also, release of the final Guideline is now expected in the summer of 2025, instead of July 1, 2024 with a July 1, 2025 effective date, as originally proposed. Currently, the Guideline only applies to federally regulated financial institutions, but last year OSFI proposed, among other changes, extending its application to federally regulated pension plans.
FSRA ANNUAL REPORT AND DRAFT STATEMENT OF PRIORITIES
The Financial Services Regulatory Authority of Ontario (FSRA) has released its Annual Report 2023-24. It includes an overview of key activities, performance measures and targets, and statistics of FSRA operations, including in the pensions sector and the financial planners and advisors sector.
FSRA has also released its Proposed Fiscal Year Statement of Priorities 2025-2026, which sets out priorities and action items in various sectors. FSRA is proposing a net total sector revenue increase of 2.2% or $2.5 million over the FY2024-25 budget, with the variable sectors fee assessment component increasing by 3.5%.
FSRA RELEASES LATEST ESTIMATED SOLVENCY STATUS AND SERVICE STANDARDS SCORECARD
The Financial Services Regulatory Authority of Ontario (FSRA) has released its latest quarterly update on the Estimated Solvency Status of Defined Benefit Pension Plans in Ontario. As of September 30, 2024:
- Median solvency ratio was 121% (down from 123% in the previous quarter)
- 90% of plans had a solvency ratio greater than 100% (unchanged)
- 8% of plans had a solvency ratio between 85% and 100% (unchanged)
- 2% of plans had a solvency ratio below 85% (unchanged)
FSRA attributes the slight deterioration over the quarter to increased pension liabilities caused by lower solvency discount rates, which largely offset the impact of asset gains.
FSRA has also released its Service Standards Scorecard for the second quarter 2024-2025. In the pensions sector:
- 93.3% of inquiries were responded to within 45 business days, above the 90% target (down from 97.8% during previous quarter)
- 100% of DB wind-up applications were finalized within 120 business days, above the 80% target (unchanged)
- 100% of DC wind-up applications were finalized within 90 business days, above the 90% target (unchanged)
- 100% of DB asset transfer applications were finalized within 120 business days, above the 80% target (unchanged)
- 100% of DC asset transfer applications were finalized within 90 business days, above the 80% target (unchanged)
FSRA EVENTS
The Financial Services Regulatory Authority of Ontario will host its third annual Pension Awareness Day on February 20, 2025, and will launch a Pension Awareness Toolkit providing resources to support administrators’ communications efforts.
The next FSRA Exchange will be held on March 3, 2025.
III. CASELAW
PENSION VALUATION ON MARRIAGE BREAKDOWN
In Iliuta v. Li, the actuary retained by the parties provided a report setting out two scenarios to value of the wife’s pension under the Public Service Superannuation Act. The first assumed she would continue accruing pensionable service while on leave without pay, and valued her pension at $76,923. In the second scenario, it was assumed that the service period of leave without pay would accrue over time as contribution deficiencies were paid, resulting in a lower valuation. The Court adopted the actuary’s first scenario, and valued the wife’s pension at $76,923, with notional tax payable at disposition of $13,692 (i.e., 17.8% regardless of which scenario applied).
DAMAGES ON WRONGFUL DISMISSAL
In Maximenco v. Zim, the Ontario Superior Court of Justice had to value the pension component of a former employee’s wrongful dismissal damages. At trial, she was awarded 24 months reasonable notice. Without evidence of a plan’s present and commuted values, the value of a pension contribution is a reasonable measure of damages on termination without cause. Although the employer had led evidence that its pension was fully funded and required no contributions in 2023, that did not mean its liabilities were frozen. The value of Zim’s recent pension contributions on behalf of Maximenko was therefore a reasonable measure of her pension damages, and she was awarded $34,800 for lost pension ($17,400 x 2).
IV. TAXATION
TECHNICAL ITR AMENDMENTS
The Canada Revenue Agency has released Regulations Amending the Income Tax Regulations (Technical Amendments). Effective dates are generally retroactive to the date of announcement, or to an earlier date to provide appropriate relief. Amendments, many of which accommodate recent legislative changes in various jurisdictions, address the following:
- Pension adjustments and past service pension adjustments
- Crediting full-time pensionable service during an “eligible period of reduced pay”
- Exemptions to the general rule that pension benefits must be equal and periodic
- Determining pensionable service during parental leave
- Periodic payments because of shortened life expectancy
- Pooled variable payment life annuity funds
- Recalculating the present value of unpaid survivor benefits
- Pooled registered pension plan administration
- Specified multi-employer plans
- Employee life and health trusts
- Economic development corporations and venture capital corporations
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