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On February 14, 2022, the Financial Services Regulatory Authority of Ontario (FSRA) published brand new guidance for the assessment calculations and deadlines related to the Pension Benefits Guarantee Fund (PBGF).

As a reminder, most private-sector single-employer defined benefit pension plans in Ontario are covered by the PBGF, which provides a form of insurance to the pension plan members should their employer face insolvency while their pension plan is less than 100% funded.  We’ve written about the PBGF many times before and generally we consider it a bad idea.

Contributions to the PBGF

Employers sponsoring DB pension plans covered by the PBGF must pay an annual assessment to the PBGF (this is sometimes called a PBGF ‘premium’).  The amount of the assessment is calculated using a formula primarily based on the total solvency liabilities and the solvency deficit reported for the pension plan in the actuarial valuation report.  The solvency deficit is the most significant driver of the assessment calculation, and those pension plans with big deficits end up paying hefty bills to the PBGF.

In accordance with Section 37 of the Regulations to the Pension Benefits Act, the assessment date is nine months after the last day of the pension plan’s fiscal year (this works out to September 30 for most plans since they have December 31 year ends).  The Regulations are very clear and say that the solvency figures “shall be as set out in the last report filed or submitted on or before the assessment date”.  Up until now, the valuation date of the report didn’t matter, everything hinged on when the report was filed with FSRA.

FSRA has indicated that some pension plans took an aggressive stance and would file new actuarial valuations with arbitrary valuation dates just before the assessment date for the primary reason of reducing the amount owing to the PBGF.  With this new guidance, FSRA is trying to stop this aggressive practice.  This seems very sensible to me as I don’t think that pension plans should be allowed to cherry-pick valuation dates to avoid paying their fair share to the PBGF. 

FSRA fully admits that this is a change from past FSRA (and before them FSCO) practices, and justifies it as follows:

December 31 ≠ January 1

While I’m definitely supportive of the position that all plans should pay their fair share to the PBGF, it does lead to a somewhat silly situation where a valuation performed as at December 31 is treated very differently from a valuation performed as at January 1.

I note that while the majority of pension plans perform their regular valuations as at their year-end date (often December 31), there are a number of plans that perform their regular valuations as at the beginning of the year (i.e. January 1) for various reasons (e.g. historical practice, actuary’s preference, valuation system programming, etc.).  While up until now this one-day difference was largely inconsequential, that will no longer be true for PBGF premiums.

This is a situation where I think that a ‘principles based’ regulator should take the view that December 31 and January 1 are the same date for the purpose of calculating PBGF premiums.

What about the Regulations?

Given that the Regulations are so clear and say that the solvency figures “shall be as set out in the last report filed or submitted on or before the assessment date”, it appears that FSRA is choosing to simply ignore the Regulations because they don’t like the answer.  I didn’t know they could do that – there are probably other bad Regulations worth ignoring – I’ll have to start writing a list…

But seriously, rather than issuing this new guidance which disregards the Regulations, I think a better answer would have been to work with the Ontario Ministry of Finance and the legislators to change the Regulations.  Plus, given the wording in the Regulations, it is possible that this FSRA guidance may be challenged.

Deadlines and Penalties

The submission of the PBGF Assessment Certificate electronically within the FSRA Pension Portal is due on the assessment date (i.e. September 30 for most plans).  This deadline to submit this form is not new.  What has been new for a couple years now is that the deadline to submit the payment for the PBGF assessment, which is also September 30 for most plans, has been strictly enforced.  Back in the FSCO days, you could submit your PBGF Assessment Certificate by September 30 and as long as you submitted your payment fairly soon after that you were in the clear.

To be fair, FSRA has been very clear lately about these simultaneous deadlines and the significant 20% plus interest penalty for late payment.  Their rationale is that the Regulations say that both the form and the payment are due on the same day – even though you don’t get a final PBGF Invoice until you submit the PBGF Assessment Certificate – and that they must charge the 20% penalty even if a day late.  Further, if FSRA grants an extension to file the PBGF Assessment Certificate, that extension doesn’t apply to the payment due date because, apparently, they don’t have that authority in the Regulations.  Too bad they don’t ignore these Regulations…

Are They Listening?

When FSRA published this new guidance on February 14, 2022, they appeared to be requesting comments.  However, I note that the guidance was published in final form, not draft, and has a stated effective date of February 14, 2022.

My guess is that they’re trying to discourage comments which they will likely ignore anyway…