This page is intended to provide plan administrators with answers to general pension questions that arise in their day to day pension activities. A notation indicating the month and year of posting follows each answer. New questions and answers will be added as they arise.
The questions and answers are general in nature and may not apply to a specific pension plan or situation. Every effort has been made to provide clear and accurate responses; however, these answers may not be applicable to all situations.
The plan administrator is ultimately responsible for ensuring that the pension plan is administered in accordance with the PBA. Therefore, the plan administrator is encouraged to seek clarification of specific questions from its service providers or FSCO.
Questions related to a specific pension plan should be addressed to the Pension Officer responsible for that plan. This information is available through FSCO's Pension Plan Information Access. General questions not related to a specific pension plan may be directed to the Contact Centre.
General Questions from Pension Plan Administrators
Questions currently posted here relate to:
Application of CICA Handbook to Pension Plan/Fund Financial Statements
Asset Smoothing for Solvency Valuations
Phased Retirement
Q: Can a pension plan allow a member who has not reached normal retirement age to elect to begin payment of his or her pension while he or she continues employment?
A: No. A member who has not reached normal retirement age must terminate employment before payment of the pension begins. However, a plan can provide that a member who continues employment beyond normal retirement age may choose to begin pension payments. - 05/07
Pension Assessments
Q: I recently received a Pension Assessment invoice in the mail and have some questions. Where can I get more information on the Pension Assessment?
A: FSCO has created a Pension Assessment Frequently Asked Questions which answers some of the general questions related to the Pension Assessment. - 02/09
Asset Transfers
Q: Does FSCO intend to update its position on asset transfers developed following the decision of the Ontario Court of Appeal in Transamerica in light of subsequent court decisions?
A: Whenever there is a court decision that may affect FSCO’s publicly stated position, FSCO staff analyzes the decision and determines whether or not FSCO’s position should be updated.
The decision of the Ontario Court of Appeal in Aegon Canada Inc. et al. v. ING Canada Inc et al. [2003], 179 O.A.C. 196 (Transamerica) had an impact on the manner in which FSCO reviewed applications for transfer of assets from one pension plan to another. The decision confirmed that pension plans may be subject to trust provisions that restrict the capacity of an employer to transfer pension assets to another plan. In such cases an analysis of all relevant trust and plan documentation must be carried out to determine if this is an issue before the Superintendent may consent to an application under section 80 or 81 of the PBA.
FSCO recognizes that the jurisprudence in this area is complex and has been evolving. FSCO has taken particular note of the Supreme Court of Canada decision in Buschau v. Rogers Communications Inc., [2006] 1 S.C.R. 973, which did review the role of trust law in the context of the statutory regulation of pension plans. In FSCO’s view, the judgment did not dispense with the requirement to consider trust issues in relation to asset transfers (see in particular paragraph 52 of the judgment).
As a result, FSCO does not believe that the case law to date has overruled or sufficiently distinguished Transamerica such that the Superintendent would be free to dispense with the requirement for a detailed trust analysis prior to consenting to an application under section 80 or 81 of the PBA where the assets of the relevant trust(s) are held for the exclusive benefit of the beneficiaries.
FSCO’s “Trust Issues on Plan Transfer/Merger” Checklist provides guidance for applicants to demonstrate how pension plans that have exclusive benefit trust language may validly transfer assets to another plan despite such restrictive language. - 06/08
Overpayments and Plan Wind Up
Q: When a pension plan winds up and the employer has funded the wind up deficit, can the employer apply for a refund of an overpayment of contributions under Section 78(4) of the Pension Benefits Act (the PBA)?
A: When an employer funds a deficit on the wind up of the pension plan (either in whole or in part) and there are assets remaining after all of the benefits have been provided, there may have been an overpayment. If so, the employer may make an application under section 78(4) of the PBA for a refund of an overpayment of contributions.
Such an application should include documentation clearly indicating the contributions paid into the pension fund to fund the wind up deficit and the amount of the overpayment being requested as a refund.
Upon review of the application, the Superintendent may consent to a refund equal to the lesser of:
- The assets remaining in the pension fund (or, in the case of a partial wind up, the assets remaining in the wound up portion of the pension fund) after all pension benefits related to the wind up have been settled, and
- The sum of all special payments made to the pension fund by the employer to fund the deficit under section 75, plus investment earnings thereon, from the date that the contributions were made to the date that the refund is paid to the employer. - 8/08
Q: What steps should an employer take to ensure the time limit for making an application under section 78(4) of the PBA is complied with if the amount of the overpayment is unlikely to be determined until the fiscal year following the funding payment?
A: FSCO recognizes that wind ups take place over an extended period of time. If an employer reasonably believes that its funding of a wind up deficit could result in an overpayment of contributions that will not be determinable in the fiscal year that payment is made, the administrator should apply under section 105 of the PBA at the time the payment is made, for an extension of the one fiscal year time limit set out in section 78(4). The time limit extension application should include an explanation as to why the deadline in section 78(4) is not likely to be met. If the Superintendent is satisfied, he will extend the time limit for the application.
For example, the Superintendent will ordinarily approve an application for an extension where the benefits are not likely to settle until after the end of the fiscal year in which the funding payment was made. Any time extension will be subject to the discretion of the Superintendent, however, and applicants will be expected to ensure that they file the application for a refund of an overpayment of contributions immediately or without delay once the financial position of the pension fund can be determined following the settlement of benefits and the determination that an overpayment exists.
The Superintendent does not encourage the filing of an application for a refund of overcontributions prior to the settlement of benefits (i.e. prior to knowing whether or not there will be excess assets remaining in the pension fund). However, if an application is filed prior to the settlement of benefits, the Superintendent will advise the applicant that the application will be held in abeyance until the benefits are settled and the applicant files proof as to the existence and amount of the excess assets remaining in the pension fund. - 08/08
Applications to the Courts
Q: If I bring an application before a court for an order relating to a pension plan, or compliance with a provision of the Pension Benefits Act do I need to inform the Financial Services Commission of Ontario of the application?
A: Yes. FSCO should be informed of any application before a court that involves an interpretation or application of the Pension Benefits Act or Regulation 909. Such applications may include, but are not limited to, applications in respect of whether the pension plan provides for the payment of surplus to the employer on the wind up of the pension plan or an application involving an interpretation of a section of the PBA.
A copy of the court application and supporting documents should be provided to the Pension Officer assigned to the pension plan no later than the date that the application is filed with the court. Upon receipt of such documentation, FSCO will review the material and determine what action, if any, FSCO will take, given the circumstances and the facts provided. It is not necessary to name FSCO or the Superintendent of Financial Services as a party to the proceeding. If appropriate, FSCO will apply to the court to be added to the proceeding.
Any questions should be referred to the Pension Officer assigned to the pension plan. Up-to-date information on Pension Officer assignments is available through Pension Plan Information Access.
FSCO’s pension policies that deal with its involvement in court proceedings are currently under review and will be amended as needed to reflect the position noted here. - 10/08
Asset Smoothing for Solvency Valuations
Q: Ontario regulations permit the use of an asset smoothing method for the purpose of a solvency valuation. Does FSCO have a formal policy that imposes a limitation on the application of such method?
A: FSCO does not have a formal policy limiting the application of an averaging method that stabilizes short term fluctuations in market value of plan assets (asset smoothing method). However, in reviewing any asset smoothing method used in a solvency valuation, FSCO staff will consider the following principles:
- The method should be consistent with the current actuarial practice in Canada, i.e.,the guidelines on asset smoothing methods as set out in the Educational Note issued by the Canadian Institute of Actuaries;
- The method should have the effect of stabilizing the short-term fluctuations in the market value of the plan assets;
- The method should be appropriate for the circumstances of the plan;
- Once an asset smoothing method is adopted for a valuation, it must be applied consistently in future valuations unless otherwise justified by the circumstances of the plan (e.g.,where the plan is merged with another plan); and
- The report should describe the method in sufficient detail so as to enable another actuary to follow the development of the smoothed asset value.
FSCO does not intend to impose a limit on the deviation between the smoothed asset value and the market value. However, the actuary who prepares a report should apply his or her professional judgment as to whether it is appropriate to impose a limit in light of the circumstances of the plan. - 12/08
Commuted Value Transfers
O. Reg. 239/09 made under the Pension Benefits Act amended Section 19 of the Regulation effective June 19, 2009. These amendments included changes to the treatment of commuted values. The commuted value transfers Q&As have been updated and expanded.
Commuted Value Calculation Standard
On Friday, March 27, 2009, the Government announced a change to the regulations under the Pension Benefits Act to reflect the recent adoption by the Canadian Institute of Actuaries of a new standard for the calculation of the commuted values of pension benefits.
Q: How will this change affect members and administrators of pension plans registered in Ontario?
A: If a member’s membership in a pension plan is terminated prior to April 1, 2009, the administrator must calculate the minimum commuted value of the member’s pension benefit using the standard that was in effect prior to this change (the "old standard"). If membership is terminated on or after April 1, 2009, the minimum commuted value of the pension benefit must be calculated using the new standard. - 03/09
Q: When should the new commuted value basis be used?
A: The new standard must be used for the calculation of minimum commuted values:
- as a result of a plan wind up, in whole or in part, when the effective date of the wind up is on or after April 1, 2009;
- as a result of members’ termination of employment on or after April 1, 2009;
- in an actuarial report in support of an asset transfer with an effective date of transfer on or after April 1, 2009; and
- in an actuarial report in support of a plan conversion with an effective date of conversion on or after April 1, 2009. - 03/09
Q: What is the effect of the new standard on pensions currently being paid to retirees?
A: This change will not affect pensions currently being paid to retirees of a pension plan. - 03/09
Q: In preparing a funding valuation report, when can the new standard be used for the purpose of the solvency valuation?
A: The 2009 Ontario Budget included a statement that the new standard could be used for the purpose of solvency valuations with an effective date on or after December 12, 2008, if the legislature approves the necessary regulation-making authority and enacts the appropriate regulation. - 03/09
Application of CICA Handbook to pension plan/fund financial Statements
Q: Section 76 of Regulation 909 of the Pension Benefits Act requires that pension plan/fund financial statements be prepared in accordance with generally accepted accounting principles (GAAP). Is it sufficient to follow the requirements of Section 4100 of the CICA Handbook or do other sections of the Handbook, such as Section 3862, apply as well?
A: No, it is not sufficient to follow only the requirements of Section 4100 of the CICA Handbook. Section 76(7) of Regulation 909 requires that pension plan and pension fund financial statements shall be prepared in accordance with GAAP. FSCO has indicated in Policy F100-102 that it will accept financial statements that disclose only plan or fund asset information so long as the financial statements are prepared in all other respects in accordance with the CICA Handbook. Therefore complying only with Section 4100 is not sufficient.
The CICA Handbook, in section 3862 on Financial Instrument Disclosures identifies that pension plan audits for fiscal years beginning on or after October 1, 2007, are expected to include CICA 3862 disclosures. FSCO expects that pension plans required to produce audited financial statements with fiscal years ending September 30, 2008 or later must meet these requirements.
If you have any questions about the applicability of Section 3862 or any other sections of the CICA Handbook, please contact the Practice Advisory Services of the Institute of Chartered Accountants of Ontario at: 416-962-1841 X456 or 1-800-387-0735 X456 or email: practiceadvisory@icao.on.ca - 10/09
Financial Services Commission of Ontario