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Last month the Financial Services Regulatory Authority of Ontario (FSRA) issued their quarterly Pension eBlast and it’s filed with all sorts of interesting news.  Here’s what you need to know.

(Revised) Proposed Guidance for Pension Plan Amendments

Some of you may recall that last year FSRA issued Proposed Guidance on Pension Plan Amendments.  Apparently, they received a lot of feedback and they’ve revisited some of their thinking with respect to retroactive plan amendments.  The revised guidance is now open for a second consultation, and they are accepting more feedback until January 19, 2024.

The prior version of the proposed guidance was very clear that any plan amendment that was unfavourable to plan members (i.e. that reduced benefits, reduced employer contributions, or increased member contributions) could not be retroactive and must be filed with FSRA before it could be effective.  The good news is that the revised proposed guidance softens this stance and states that FSRA will exercise its discretion to permit some retroactive amendments if the impacts are non-material and/or the “impacts are offset by considerations of transparency, reasonableness and equity.”  Examples include changes negotiated through a collective bargaining process, or as a result of corporate reorganizations where the changes have been clearly communicated to plan members and the filing delay is reasonable.

There are still some grey areas here which will require FSRA’s discretion going forward, but that’s ok.  Helpfully, FSRA is encouraging plan administrators reach out prior to filing retroactive negative/adverse amendments to minimize any surprises.  FSRA has also said that going forward they will publish anonymous details of retroactive amendments that were deemed acceptable in order to assist plan administrators in understanding what permissible retroactive amendments look like.

In my view, these revised guidelines are much more reasonable than the prior black-and-white version.

Proposed Family Law Rules

FSRA has issued a consultation paper which considers changes relating to areas of family law and the potential of developing a “rule” under FSRA’s rule-making authority.

The consultation paper outlines the desired outcomes of a potential rule, which include:

• reducing uncertainty concerning certain administrative and technical matters
• improving efficiency in the valuation and division process
• providing appropriate flexibility to spouses and plan administrators
• ensuring fairness between different stakeholders

Many of the potential rules are very technical in nature, but most interesting to me is that FSRA is proposing a potential rule to increase the fees that may be charged to DB plan members who need a family law calculation.  The current maximum fees are $600 for a DB plan, $200 for a DC plan, and $800 for a combo DB+DC plan, and I note that these fees have been unchanged since the current regime was effective on January 1, 2012.  At the very least, these amounts should be increased with inflation, but more significantly FSRA notes that there’s an unfairness when the actual costs are higher than the reimbursement from the plan member (which is almost always the case for a DB calculation).  Should the other members in the plan subsidize the calculations for those going through a marriage breakdown?  Probably not. My view is that the $600 limit should double or triple to reduce these hidden subsidies.

Comments are due here by January 19, 2024.

Cyber Security Guidance

FSRA has released its final Information Technology (IT) Risk Management Guidance which will be effective on April 1, 2024.  The guidance applies to all FSRA-regulated sectors (including credit unions, mortgage brokers, insurance agencies, etc.) and includes specific requirements for pension plan administrators.

The guidance, which is consistent with the CAPSA Guideline on Cyber Risk for Pension Plans, includes:

• seven practices for effective IT risk management
• IT risk incident notification form and
• FSRA’s protocol for IT risk incidents

The biggest thing to be aware of is the requirement to notify FSRA using their IT risk incident notification form as soon as is reasonable (which normally falls within 72 hours) after determining that an IT risk incident is ‘material’.  Examples of material incidents include the inability to pay benefits or effectively administer the plan on a timely basis, and compromised confidential member data.

Report on Administrative Monetary Penalties

As we’ve reported previously, FSRA started imposing Administrative Monetary Penalties (AMPs) for the first time back in 2022.

For the curious like me, FSRA has released a report summarizing actions taken following an extensive engagement with DC plans that were late in their filings.  All the AMPs imposed were related to regulatory filings that were significantly overdue and FSRA had issued plenty of warnings and given second, third, etc. chances, so no one should be surprised:

1. Before the filing deadline, FSRA sends two automated reminders to the plan administrator via email.  (The plan administrator can take this opportunity to request an extension if needed.)
2. If a filing is delinquent, five calendar days after the (extended) deadline FSRA sends a “Letter of Warning” to the plan administrator.
3. If no action is taken, then 20 calendar days after the (extended) deadline a “Letter of Proposed Action” is sent.
4. If by 30 days after the (extended) deadline the filing is delinquent, FSRA will work to engage the plan administrator (including reaching out via phone and email and finding out who the new contact person is if necessary).
5. A “Written Notice”, will be sent prior to imposing an AMP, which gives the plan administrator a reasonable opportunity to make written submissions.
6. If the plan filings remain delinquent or FSRA is not satisfied with the explanation provided, an Order imposing a summary AMP will be sent to the plan administrator, and the Financial Services Tribunal will be given a copy.

So far, FSRA has imposed nine summary AMP Orders ranging from $25,000 to $100,000 ($100 to $200 dollars per day adds up fast!) for two DB pension plans, six DC pension plans, one combination DB/DC plan.  Apparently, four of the nine summary AMP Orders imposed have been appealed to the Financial Services Tribunal.  I’m super curious as to what the defendants’ arguments will be in front of the Tribunal to not pay their AMP!  Seems like it will be an open-and-shut case of ‘you’re late, we gave you lots of chances, and you still didn’t complete your required filings, pay up.’

Higher Interest Rates Mean Lower Commuted Values

It’s a fact that the rapid increase in interest rates over the past couple of years has decreased commuted value (CV) amounts that are provided to DB plan members who terminate from their pension plan.  Apparently FSRA has seen a spike in the number of member complaints about decreasing CVs, particularly where:

• administrators recalculated CVs (e.g., when the plan provisions give former members another opportunity to exercise their portability rights)
• when administrators provide members with estimated CVs for financial planning purposes and then, upon termination, the actual CV is lower

These complaints highlight the lack of knowledge about the significant impact that interest rates have on CVs. Helpfully, FSRA has developed a Member Guide about Commuted Values, which is a useful resource to aid in member education. It is written in a Q&A format to provide DB pension plan members with information about commuted values.

FSRA Needs Your Help

FSRA is seeking new members for their Standing Technical Advisory Committees. These committees advise FSRA on proposed pension regulatory guidance and identify issues arising out of existing pension legislation. There are separate committees for DB, DC, MEPP and Public-Sector pension plans.  I’m currently a member of the DB committee and I find it very worthwhile to collaborate with other actuaries, lawyers, investment professionals, administrators, custodians, unions, accountants, plan members, and FSRA representatives.  If you are an industry professional, feel free to call me to learn more about this volunteer (unpaid) position.