The Office of the Superintendent of Financial Institutions (OSFI) recently released the “Guide to Intervention for Federally Regulated Private Pension Plans” (the Guide), which outlines the varying degrees of scrutiny that federally regulated plan administrators can expect from OSFI and the circumstances under which intervention measures may be taken.
The degree of intervention by OSFI varies depending upon the “composite risk rating” that has been assigned to the plan based on OSFI’s “Risk Assessment Framework for Federally Regulated Pension Plans”. Under this framework, OSFI assigns a risk rating ranging from low to high. These ratings are based on a series of indicators that are included in regulatory filings such as: Annual Information Returns, certified financial statements and general interrogatories, actuarial reports and plan amendments.
The Guide describes the level of intervention associated with the varying risk levels as follows:
- Low Risk Rating: OSFI has determined that the plan is financially sound, and considers it to be at “Stage 0”. At this stage, the plan is subject to “normal” monitoring. Normal monitoring generally includes a review of required filings and actuarial reports, periodic on-site examinations, in-depth risk assessments and estimated solvency ratio exercises.
- Moderate to Above Average Risk Rating: OSFI has identified deficiencies in the plan’s financial position, policies or procedures that could evolve into more serious issues. The plan moves to “Stage 1”, which requires increased monitoring. For example, OSFI may obtain and review the plan’s Statement of Investment Policy & Procedures and list of assets, as well as information on the fund’s market returns. The regulator may also recommend that the plan administrator file a revised or early actuarial report and/or provide “appropriate” disclosure to plan members.
- Above Average to High Risk Rating: Where OSFI has identified problems that pose a threat to the security of members’ benefits, the plan moves to “Stage 2”. At this stage, specific interventions may be pursued. For example, OSFI may require the plan administrator to file a revised or early actuarial report, provide “appropriate” disclosure to plan members and/or hold a meeting with plan members or other relevant parties. Plans with this rating may eventually move to “Stage 3” if OSFI identifies “material and immediate threats to members’ benefits”. At Stage 3 OSFI escalates its interventions and plan termination is a strong possibility.
- Permanent Insolvency: At Stage 4 there is no possibility of the employer(s) fully funding the plan, and the plan is in the process of wind-up or has been wound up with a loss to members’ benefits.
By providing this Guide, OSFI has given federally regulated plan administrators some welcome insight into the steps that they may be required to take depending upon the funded status of their plans.