Consultation on Proposed FSCO Risk-based Pension Investment Monitoring Model

Dear pension stakeholder:

On behalf of the Financial Services Commission of Ontario (FSCO), I am pleased to announce the release of a consultation paper entitled "A Proposed Risk-Based Investment Monitoring Model For Supervising Defined Benefit Pension Plans" for review and comment by pension stakeholders.

To improve the regulatory process and make the most effective use of its resources, FSCO is committed to adopting a risk-based approach for the supervision of pension plans. The goal is to reduce the risk that members of a pension plan will not receive the benefits promised. As an initial step, FSCO developed and implemented a risk-based monitoring program in 2000 that focussed on the funding of defined benefit pension plans.

The equity market downturn since mid-2000 and the decline in long term interest rates have raised concerns about the financial health of employment-based pension plans and the security of retirement savings in general. Besides pension plan contributions, pension fund investment returns can have a significant impact on the funded status of pension plans. Accordingly, FSCO believes it should extend its risk-based approach and complement its existing monitoring of pension plan funding with the monitoring of pension fund investment activity.

In November 2002, FSCO established a project team to develop a risk-based pension investment monitoring program. The primary objective of this program would be to promote strong governance with respect to pension fund investments so as to enhance the benefit security for pension plan members. Based on its research and study, the team has proposed an investment monitoring model that emulates the 3-stage selective review process that has already been implemented by FSCO for monitoring the funding of defined benefit pension plans.

The consultation paper presents the key features of the proposed investment monitoring model. FSCO expects to implement a pension fund investment monitoring program for filings made in respect of 2004 plan year ends.

FSCO welcomes the comments, suggestions and ideas of pension stakeholders regarding the investment monitoring model proposed in the consultation paper. In order to help refine the proposed Investment Information Summary (IIS) form and preliminary risk assessment criteria found, respectively, in Appendixes B and C of the paper, FSCO also invites pension plans to fill out and submit sample IIS forms to FSCO (which can be done on an anonymous basis if the plan so desires).

The paper can also be found on FSCO's website at Written submissions and completed sample IIS forms should be forwarded by August 30, 2004 to:

Mr. Mathew Ou
Senior Policy Consultant, Pension Division
Financial Services Commission of Ontario
5160 Yonge Street, Suite 1600
Toronto ON M2N 6L9

Phone: 416-226-7772
Fax: 416-226-7787

Please note that all submissions received are subject to the access and privacy provisions of the Freedom of Information and Protection of Privacy Act. If for any reason you feel that your comments should not be shared with other parties, please indicate this in your submission.

We look forward to receiving your submissions. If, in the meantime, you wish to obtain more information about this project, please contact Mr. Ou at the numbers listed above.


K. David Gordon
Deputy Superintendent, Pensions

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