FSCO Provides Guidance on Commuted Value Transfers
Earlier this year, the Ontario government amended the regulations under the Ontario Pension Benefits Act to provide sponsors of defined benefit plans with temporary relief from current solvency funding pressures. Included in these amendments was a permanent change to section 19 of the regulations, which now requires a plan administrator to seek the prior approval of the Superintendent before transferring any funds out of the pension plan where the administrator knows or ought to know that the transfer ratio in the most recently filed valuation report has declined by 10% or more.
These changes sparked some confusion in the industry as to how it would apply in practice, the mechanics of the approval process and the kind of information that plan administrators would be expected to provide.
In response, the Financial Services Commission of Ontario (FSCO) published Policy T800-402 (PDF) to provide guidance on how to approach these limitations on commuted value transfers as well as a new request for approval form (PDF).
Most recently, FSCO posted additional questions and answers on commuted value transfers under the new regulations. In particular, these Qs & As consider issues relating to:
- multi-jurisdictional plans;
- commuted value transfers under the pre-retirement death benefit, marital breakdown and lump sum small benefit provisions;
- excess transfer values; and
- processing requests for approval.
Given the continued instability of the financial markets, transfer ratios may continue to decline and, as a result, many plan administrators will have to consider these new requirements before paying commuted values out of the plan.
