IN THE MATTER OF the Pension Benefits Act, R.S.O. 1990, c. P.8, as amended (the “PBA”);
AND IN THE MATTER OF a Proposal to Refuse to Register an Amendment dated December 21, 2006 relating to the Pension Plan for Salaried Employees of Cooper-Standard Automotive Canada Limited, Registration Number 0250548, pursuant to section 18(1)(d) of the PBA.
Cooper-Standard Automotive Canada Limited
703 Douro Street
Straftord ON N5A 6V7
Manager, Human Resource
NOTICE OF PROPOSAL
I PROPOSE TO REFUSE TO REGISTER AN AMENDMENT dated December 21, 2006 to the Pension Plan for Salaried Employees of Cooper-Standard Automotive Canada Limited, Registration Number 0250548 (the “Plan”), pursuant to section 18(1)(d) of the PBA.
REASONS FOR THE PROPOSED ORDER:
- The Plan is a hybrid plan with both defined benefit and money purchase components. Cooper-Standard Automotive Canada Limited (the “Company”) is the administrator of the Plan.
- The Company, by resolution of the Board of Directors dated December 21, 2006, amended the Plan to provide for “Partial Portability” by adding the following section 6.07 to the Plan (“Amendment Number 5”), thereby permitting transfers out of the pension plan provided they are to entities prescribed in section 42 of the PBA (in accordance with the referenced section 6.06 Plan provisions which list them):
6.07 Partial Portability
Where the Commuted Value of a Member’s Defined Benefit pension, including any portion derived from the Member’s contributions to the Money Purchase Account, exceeds the maximum transfer limit specified in the Income Tax Rules, the Member may elect either or a combination of the following:
(a) The Member may elect to transfer the Commuted Value of the portion of the lifetime pension payments payable after a specified date and to receive regular monthly payments from his retirement date to that specified date.
(b) The Member may elect to receive bridging benefit payments (if any) from the Plan and to transfer the Commuted Value of his lifetime pension payments.
The “specified date” cannot be a date after the Member’s 65th birthday. The transfers pursuant to this Section are limited to the options outlined in paragraphs (c), (d) and (e) of Section 6.06.
- Section 18(1)(d) of the PBA authorizes the Superintendent to refuse to register an amendment to a pension plan if the amendment is void or if the pension plan with the amendment would cease to comply with the PBA and the regulations made under it.
- Section 42(1) of the PBA states that an amount “equal to” the commuted value may be paid out of a pension plan to another pension plan, a prescribed retirement savings arrangement or for the purchase of a life annuity:
A former member of a pension plan who, on or after the 1st day of January, 1988, terminates employment or ceases to be a member of the pension plan and who is entitled to a deferred pension is entitled to require the administrator to pay an amount equal to the commuted value of the deferred pension,
(a) to the pension fund related to another pension plan, if the administrator of the other pension plan agrees to accept the payment;
(b) into a prescribed retirement savings arrangement; or
(c) for the purchase for the former member of a life annuity that will not commence before the earliest date on which the former member would have been entitled to receive payment of pension benefits under the pension plan.
- In the case of a payment made into a prescribed retirement savings arrangement, section 42(6.1) of the PBA requires the administrator to pay as a “lump sum” to the former member, the portion of the commuted value that exceeds a prescribed amount under the Income Tax Act (Canada):
If the amount of the commuted value of the deferred pension of the former member to be paid into a prescribed retirement savings arrangement under clause (1)(b) is greater than the amount prescribed under the Income Tax Act (Canada) for such a transfer, the administrator shall pay the portion that exceeds the prescribed amount as a lump sum to the former member.
- Section 1 of the PBA defines “deferred pension”, “pension benefit” and “commuted value”.
“deferred pension” means a pension benefit, payment of which is deferred until the person entitled to the pension benefit reaches the normal retirement date under the pension plan;
“pension benefit” means the aggregate monthly, annual or other periodic amounts payable to a member or former member during the lifetime of the member or former member, to which the member or former member will become entitled under the pension plan or to which any other person is entitled upon the death of a member or former member;
“commuted value” means the value calculated in the prescribed manner and as of a fixed date of a pension, a deferred pension, a pension benefit or an ancillary benefit;
- Sections 40(1)3 and 40(2) of the PBA require bridging benefits to be included in the calculation of a former member’s pension benefit (including in the calculation of the commuted value):
40. (1) A pension plan may provide for the following ancillary benefits:
3. Bridging benefits.
40. (2) An ancillary benefit for which a member has met all eligibility
equirements under the pension plan necessary to exercise the right to receive payment of the benefit shall be included in calculating the member’s pension benefit or the commuted value of the pension benefit.
- The effect of these PBA provisions, specifically the requirement to pay an amount “equal to” the commuted value in section 42(1) and the definition of “commuted value” which requires its calculation “as of a fixed date”, is to require an administrator to calculate and pay out of the pension fund the entire commuted value of a former member’s deferred pension (including any bridging benefits) at one time, if the former member elects to require such a payment in accordance with section 42(1). If the commuted value is in excess of Income Tax Act (Canada) limits, the excess must then be paid out of the pension plan, in a lump sum to the former member.
- There are no provisions in the PBA other than section 42 (with the exception of plan wind up related provisions which are not applicable in the circumstances contemplated by Amendment Number 5) under which the commuted value of a deferred pension can be transferred out of a pension plan.
- Amendment Number 5 provides that where the commuted value of a member’s pension exceeds the maximum transfer amount specified by the Income Tax Act (Canada), the member may elect to have the administrator pay only a portion of the commuted value out of the pension plan. This is accomplished by permitting the member to elect to receive pension payments for a period of time and to commute the remaining value of the pension benefit in the Plan at a later date, in order to avoid the requirement to make a lump sum payment in accordance with section 42(6.1) of the PBA at the time the member retires.
- Therefore, by authorizing a partial transfer of the commuted value of a deferred pension, Amendment Number 5 is in violation of the PBA and the Superintendent may refuse to register the amendment.
- Such further and other reasons as may come to my attention.
YOU ARE ENTITLED TO A HEARING by the Financial Services Tribunal (the “Tribunal”) pursuant to section 89(6) of the PBA. To request a hearing, you must deliver to the Tribunal a written notice that you require a hearing, within thirty (30) days after this Notice of Proposal is served on you.*
YOUR WRITTEN NOTICE must be delivered to:
Financial Services Tribunal
5160 Yonge Street
Attention: The Registrar
FOR FURTHER INFORMATION on a Form for the written notice, please see the Tribunal website at www.fstontario.ca or contact the Registrar of the Tribunal by phone at 416- 590-7294, toll free at 1-800-668-0128, ext. 7294, or by fax at 416-226-7750.
IF YOU FAIL TO REQUEST A HEARING WITHIN THIRTY (30) DAYS, I MAY CARRY OUT THE PROPOSAL AS DESCRIBED IN THIS NOTICE.
DATED at Toronto, Ontario, this 15th day of May, 2007.
K. David Gordon
Deputy Superintendent, Pensions
Cowan Benefits Consulting Limited
705 Fountain Street North
Cambridge ON N3H 4R7
Attention: Andrew Donelle
*NOTE - Pursuant to section 112 of the PBA any Notice, Order or other document is sufficiently given, served or delivered if delivered personally or sent by regular mail and any document sent by regular mail shall be deemed to be given, served or delivered on the seventh day after the date of mailing.