SOR/2016-275: Regulations Amending the Assessment of Pension Plans Regulations
REGISTRATION OF FEDERAL REGULATION - VIA OIC DATABASE, PRIOR TO PART II OF THE GAZETTE
October 21, 2016
REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Issues The authority for the Office of the Superintendent of Financial Institutions (OSFI) to recover expenses related to the administration of the Pension Benefits Standards Act, 1985 (PBSA) and the Pooled Registered Pension Plans Act (PRPP Act) is contained in the Office of the Superintendent of Financial Inst... (Click for more)
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Published on October 21, 2016
SOR/2016-275: Regulations Amending the Assessment of Pension Plans Regulations
REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Issues The authority for the Office of the Superintendent of Financial Institutions (OSFI) to recover expenses related to the administration of the Pension Benefits Standards Act, 1985 (PBSA) and the Pooled Registered Pension Plans Act (PRPP Act) is contained in the Office of the Superintendent of Financial Institutions Act (OSFI Act). Section 23 of the OSFI Act provides the legislative authority to enact regulations to recover expenses through the annual assessment of federally registered private pension plans and pooled registered pension plans (PRPPs). The existing Assessment of Pension Plans Regulations (APPR), made pursuant to the OSFI Act, prescribe the formula used to determine the annual assessments for private pension plans registered under the PBSA but do not include provisions for recovering expenses from PRPPs, which are a new pension plan option for employers, employees and the self-employed subject to federal jurisdiction. Background OSFI is the agency that supervises federally registered financial institutions and private pension plans, which now include PRPPs. OSFI supervises over 1 200 private pension plans registered under the federal PBSA, or about 6% of all private pension plans in Canada. Currently, four PRPPs are registered under the PRPP Act. The expenses relating to the administration of the PBSA are fully recovered from pension plans. Details regarding the frequency of assessments and the manner in which they are determined are prescribed in the APPR. The APPR establish the basic rate ($9 for 2016–2017) based on OSFI’s estimated total expenses to supervise pension plans and the estimated total assessment base from which expenses are recovered. The APPR require that the Superintendent publish in the Canada Gazette, Part I, a notice setting out the basic rate that is in effect for each fiscal year, no later than 180 days before the beginning of that fiscal year. A plan’s assessment base is determined by a formula (see footnote 2) which includes the number of beneficiaries in the plan (active, retired and deferred vested members and those receiving a survivor’s pension). Each pension plan’s annual assessment is determined by multiplying the plan’s assessment base by the basic rate in effect for the year. There is a minimum assessment base of 50 beneficiaries and a maximum of 20 000 beneficiaries. As a result, the minimum annual assessment will be $450 and the maximum annual assessment will be $180,000 for 2016–2017. In accordance with the formula, a plan with 26 333 beneficiaries or more is capped at the maximum assessment. Based on the assessment formula and a basic rate of $9 as applicable in 2016–2017, a plan will pay $9 for each beneficiary up to 1 000 beneficiaries and $6.75 for each beneficiary in excess of 1 000. With the maximum assessment of $180,000, plans with beneficiaries in excess of 26 333 will pay a considerably lower per-beneficiary rate. To illustrate, one of the largest pension plans registered under the PBSA has over 88 000 beneficiaries, so it is capped at the maximum annual assessment and the per-beneficiary rate equates to just over $2. In accordance with the APPR, all pension plans registered under the PBSA (defined benefit and defined contribution plans) are assessed using the same basic rate. Members retiring from a defined contribution plan typically purchase a life annuity or transfer their benefits to a life income fund when they retire and therefore are no longer considered beneficiaries of the plan. As a result, the annual assessment of a defined benefit plan includes retirees and survivors in the assessment base while the annual assessment for a defined contribution plan does not. Objectives The main objective of the amendments to the APPR is to permit the annual assessment of PRPPs on an equivalent basis as private pension plans registered under the PBSA. Description The amendments to the APPR add references to PRPPs and the PRPP Act to the relevant sections which currently only refer to plans registered, or filed for registration, under the PBSA. The amendments to the APPR also include a shorter notice period for the publication of the basic rate as it applies to PRPPs for the first and second fiscal years after the amendments have been adopted. The annual basic rate is based on OSFI’s estimated total expenses to supervise pension plans and is adjusted for any accumulated differences between the actual expenses incurred by OSFI and the total assessments received over the period set out in the APPR. In accordance with accounting standards and policies, the amendments to section 4 of the APPR clarify that any accumulated differences between the actual expenses and the total assessments received are fully amortized over the period set out in the APPR and cannot result in an ongoing accumulated surplus or deficit that will never be fully amortized. “One-for-One” Rule The “One-for-One” Rule does not apply, as assessment-type fees are not considered to be a form of administrative or compliance cost. Small business lens The small business lens does not apply, as there are no costs being imposed on small business. Consultation The consultation process included the following: In November 2014, OSFI published an article in its electronic newsletter on pension issues inviting comments from subscribers (plan administrators, consultants, plan members, etc.) on the proposed annual assessment method. In October 2014, select stakeholders and stakeholder representatives were asked to provide comments on the proposed annual assessment method. This group included existing and potential federally licensed PRPP plan administrators. In August 2014, OSFI consulted provincial pension regulators on its intention to seek changes to the APPR to implement annual assessments for PRPPs. Stakeholders generally accepted that OSFI needs to recover the expenses it incurs in supervising PRPPs through assessments, but suggested that assessments should nevertheless be lower than proposed in order to keep the cost of operating PRPPs low. A PRPP administrator’s ability to keep the cost of operating a PRPP low should be influenced by the expectation that PRPPs will be large-scale national plans with contracts in place with many employers. PRPP administrators are also expected to already have in place the infrastructure to efficiently handle the marketing, recordkeeping, administration, governance and disclosure requirements to operate a PRPP. Furthermore, under the amendments to the APPR, and in line with the current assessment method for PBSA plans, the per-member assessment will reduce to $6.75 for each additional member over 1 000, while large plans with more than 26 333 members will pay the maximum assessment of $180,000. Large plans will therefore pay significantly lower average per-member assessments. For example, a plan with 40 000 members will pay an average of $4.50 per member. Projected membership in this range or higher is consistent with the five-year national membership targets of the PRPP administrators licensed to date. Some respondents suggested that supervising PRPPs would cost less than supervising other pension plans and that PRPPs should therefore pay lower assessments. In developing the assessment method for PRPPs, it was determined that supervisory costs for PRPPs are expected to be similar to the supervisory costs for defined contribution plans registered under the PBSA. Consideration was given to the fact that they will have similar annual filings as most defined contribution pension plans and will likely require similar resources from OSFI with respect to responsibilities such as responding to member enquiries and instances of employers not remitting required contributions on time. Some respondents shared the view that the effort required to supervise PRPPs would be similar to that for defined contribution plans and agreed that the assessments charged for PRPPs and defined contribution plans should be similar. It is intended that expenses incurred in relation to the administration of the PRPP Act will be tracked to determine if experience indicates that a revision to the assessment methodology for PRPPs should be considered. Some respondents commented that OSFI’s regulatory assessments should be deferred until it is determined how PRPPs will be regulated in other jurisdictions that may introduce PRPP legislation. In June 2016, the Governments of Canada, British Columbia, Saskatchewan, Quebec and Nova Scotia entered into the Multilateral Agreement Respecting Pooled Registered Pension Plans and Voluntary Retirement Savings Plans. Other provincial governments may sign the multilateral agreement in the future once they have PRPP legislation in place. The multilateral agreement is intended to streamline the supervision of PRPPs across Canada and delegates most supervisory responsibilities to OSFI. The multilateral agreement provides that OSFI will supervise PRPPs that are open to members subject to both federal jurisdiction and the jurisdiction of a province participating in the agreement. Quebec will supervise a similar plan, known as Voluntary Retirement Savings Plans, registered and operating in that province. The amendments to the APPR were prepublished in the Canada Gazette, Part I, on June 25, 2016; no comments were received. Rationale OSFI operates on a cost-recovery basis. The amendments to the APPR will put PRPPs on a level playing field with similar registered private pension plans that are subject to similar supervision by OSFI under the PBSA. The amendments will not change the existing assessment formula but rather will add PRPPs to the assessment base to allow OSFI to recoup the expenses related to the administration of the PRPP Act in a fair and equitable manner that mirrors the assessment of private pension plans registered under the PBSA. Using the same assessment formula for PRPPs as the one used for all private pension plans registered under the PBSA will not result in an incremental expense to business (the employers participating in a PRPP) or consumers (PRPP members) over what would have been assessed if the pension plan had been set up as a private pension plan registered under the PBSA. The annual per-member charge to be assessed against PRPP administrators, and which may be passed on to PRPP members through various fees that members pay, will not be significant or unreasonable on an individual member basis ($9 a year at current rates, but likely less based on a large plan membership) and will be the same as the rate charged to pension plans registered under the PBSA. The APPR set out a general notice period for the basic rate of no later than 180 days prior to the fiscal year for which that basic rate will be in effect. The basic rate in effect for the fiscal year beginning April 1, 2016, was published in the Canada Gazette, Part I, in September 2015 and the basic rate in effect for the fiscal year beginning April 1, 2017, was published in the Canada Gazette, Part I, in September 2016. The amendments to the APPR will result in the application of this basic rate to PRPPs for the first time. However, as publication of the basic rate, as it applies to PRPPs, cannot be made until the amendments described herein are adopted, the notice period in the first and second year of application will need to be reduced. The notification date of no later than January 31, 2017, will result in a notice period of at least 2 months before the first PRPP assessment is due to be paid on March 31, 2017, and 14 months before the second PRPP assessment is due to be paid on March 31, 2018. Additionally, PRPP administrators were part of the consultation group and were advised of the potential assessment rate, and the prepublication of the proposed amendments on June 25, 2016 served to advise all interested parties of the proposed application of the basic rate to PRPPs. OSFI also directly advised PRPP administrators of the potential assessment rate when the proposed amendments were prepublished in the Canada Gazette. A concurrent notice was posted on OSFI’s Web site. The technical amendment to section 4 of the APPR is needed to clarify that the formula to determine the basic rate is in accordance with accounting standards and policies. There is no cost impact related to the technical amendment and it will have no impact on key stakeholders. Implementation, enforcement and service standards OSFI is responsible for the control and supervision of the administration of the PBSA and the PRPP Act. As a result, the Superintendent will be responsible for implementing and enforcing the amendments to the APPR. Contact Sylvia Bartlett Manager Policy Private Pension Plans Division Office of the Superintendent of Financial Institutions 255 Albert Street Ottawa, Ontario K1A 0H2 Telephone: 613-990-7856 Email: [email protected] Footnote a S.C. 2001, c. 9, s. 477 Footnote b R.S., c. 18 (3rd Supp.) Footnote 1 SOR/2011-317 Footnote 2 The assessment base equals A + B + 50, where A is the lesser of (a) the number of beneficiaries in excess of 50, and (b) 950; and B is the lesser of (a) 75% of the number of beneficiaries in excess of 1 000, and (b) 19 000.
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