FSRA releases approach to monitoring DB pension plans

The Financial Services Regulatory Authority of Ontario is seeking feedback on its approach to monitoring single-employer defined benefit pension plans with benefits that could be at risk.

The regulator said it will evaluate risks to pension benefits by their nature, size, complexity and potential impact on all plan stakeholders. It will focus its regulatory resources on pension plans it determines will have the greatest risk to benefit security or could pose a threat to the long-term stability of the pension benefits guarantee fund.

“Even with PBGF protection, pension promises may not be fully honoured where a sponsor becomes insolvent and, once drawn down, the PBGF will need to be replenished if it is to provide future protection to other plans,” the document said. “As such, FSRA views this approach as a prudent and necessary step towards ensuring the long-term viability and sustainability of the PBGF without imposing an undue burden on other continuing PBGF-eligible plans.”

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The FSRA also said it conduct quarterly assessments of all single-employer DB plans, including reviewing investment and funding risk, plan governance and whether a plan is satisfying its fiduciary duties. The FSRA will also look at specific sponsor and industry risks through publicly available information, including media reports, corporate transactions, dividend payments, significant financial losses and corporate earnings. “Underlying this analysis is the recognition that the health of the plan sponsor has a direct impact on the sustainability of the pension plan,” it said.

In addition, the regulator said it will actively monitor a small number of plans using this approach. It noted plans may not always remain under active management if their funded statuses change, they take remedial action or provide more information to the FSRA upon request. Plan sponsors will be notified if they’re being actively monitored, but the status will be kept confidential.

The FSRA also said it will actively engage with plan sponsors and administrators and, in some cases, with other stakeholders such as board members, unions, plan members and beneficiaries. Part of that engagement will be considering “the extent to which the plan administrator’s decisions with respect to its pension plan reflect appropriate consideration of its standard of care,” and requiring the plan administrator to prove it understands its fiduciary obligations.

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Jordan Fremont, a partner on the pension and benefits team at Bennett Jones LLP, says while the approach may not be significantly different from the Financial Services of Ontario’s previous work, the level of transparency is new.

“I think it is helpful to understand what it is they’re looking at and their own internal road map, which hasn’t been, to my knowledge, documented publicly. Plan sponsors and plan administrators will have a clear view on what they can expect.”

In October, the FSRA listed strengthening the “prudential supervision” of Ontario’s pension sector as one of its 2020-21 priorities.

“I would say this is the implementation of a process that was commenced a while back . . . and their move towards being a transparent, accountable regulator — not to say they weren’t before, but it’s an evolving process,” says Fremont.

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