The PBGF’s Request for Information – More is Not Always Better
The Ontario government has recently released proposed amendments to the Pension Benefits Act requiring pension plan administrators to provide information relating to their Plan’s exposure for future claims against the Pension Benefits Guarantee Fund (“PBGF”). While I applaud the government’s initiative to gather more data to assess the PBGF’s exposure to potential future claims, the information being requested is not that easily attainable.
Specifically, the proposed amendments require valuation reports for all PBGF-eligible pension plans to include the following information:
- The number of Ontario plan beneficiaries;
- The number of Ontario plan beneficiaries whose accrued pension is $1,500 per month or less;
- The amount of the solvency liabilities of a pension plan that relate to Ontario plan beneficiaries in respect of pensions accrued up to $1,500 per month (i.e. the “modified PBGF liability”);
- The 10th, 20th, 30th, 40th, 50th, 60th, 70th, 80th and 90th percentiles of amounts payable under the pension plan to Ontario plan beneficiaries determined by reference to all accrued pensions;
- For each percentile above, the amount of solvency liabilities of the pension plan that relates to all pensions that have accrued under the pension plan that are less than the percentile (i.e. the amount of solvency liabilities that relate to the smallest 10% of all pensions and accrued benefits, etc.); and
- The amount of the largest pension that has accrued under the plan to an Ontario plan beneficiary.
In its analysis of this proposed amendment, the government has stated that they expect this to result in minimal administrative costs to plan sponsors. Their initial estimates are that these disclosures could add up to 5% to the cost of preparing a valuation report the first time the calculation is made, but that the cost of performing these calculations in subsequent valuation reports would be significantly lower.
Our Concerns with this Request
First off, for small and medium sized pension plans, the cost to perform this work would be well more than 5% of the cost of a valuation. More importantly, the risk posed to the PBGF by small and medium sized plans is relatively small and may reasonably be estimated with the existing disclosures that are already included in a valuation report, such as the funded status, PBGF Liabilities, asset mix, and plausible adverse scenario analysis. As a result, we would recommend that the government consider a threshold at which this information would be required in a valuation – for instance, only for pension plans with more than $100M in Solvency Liabilities for Ontario members.
Secondly, with the general trend for companies to transition away from offering defined benefit pension plans, there are many DB plans that are closed or frozen, reasonably well-funded, and have also adopted de-risked investment strategies. These plans also pose minimal risk to the PBGF. Again, the government could use the disclosures that currently exist in valuation reports to assess the PBGF exposure risk for these plans. As such, the government could consider establishing another threshold for the enhanced PBGF disclosures based on these characteristics.
Finally, instead of requesting this information as part of the regular ongoing valuations for all pension plans, the government should adopt a more targeted approach, and request this information for only the pension plans that it deems relevant for its purposes. It is interesting to note that the Ontario pension regulator has a history of taking a more targeted approach with their Targeted Reviews of Form 7s and Member Option Statements, as well as taking a risk-based approach to actively monitor ‘at risk plans’. Furthermore, in its 2010 Report on the review of the PBGF, there were 52 ‘main plans’ that collectively represented 70% of the claims exposure to the PBGF, which were more thoroughly modeled in that analysis.
Instead of requesting the same information from all Ontario pension plans, I would urge the Ontario government to consider a more targeted, risk-based approach to seek the information it needs to assess the risks posed to the PBGF.