The Financial Services Regulatory Authority of Ontario’s revised proposed guidance on retroactive adverse amendments for pension plan administrators is inconsistent with existing case law, the wording of the Pension Benefits Act and the principles of statutory interpretation, said the Association of Canadian Pension Management, in an open letter.
The FSRA’s proposed guidelines aim to provide greater clarity as to the factors or circumstances under which it may still register retroactive adverse amendments. However, the ACPM said the regulator’s interpretation of the PBA “is unsupported by the statutory framework.”
While it acknowledged there were positive elements to the proposed guidance, the association noted the FSRA’s proposed discretionary power to determine whether an “. . . amendment does not truly have an ‘adverse effect'” creates a high degree of uncertainty for plan administrators, employers and other industry stakeholders. Indeed, it noted the regulator’s interpretation would likely lead to additional litigation, increasing the costs to administrators and employers who operate and/or sponsor pension plans.
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“ACPM advocates for a strong retirement system in Canada, and we continue to caution FSRA that this
guidance would likely be viewed as more reason for employers not to sponsor a pension plan,” read the letter.
The association said the FSRA’s guidance also “appears to be an attempt to expand FSRA’s regulatory powers beyond the boundaries of the PBA” and would create a new category of amendment, broadening the FSRA’s regulatory powers without the required statutory authority. For instance, the obligation for plan administrators to “demonstrate a reasonable and good faith belief the amendment is not a retroactive adverse amendment” is not supported by the PBA, it added.
The guidance also creates additional administrative burden for plan administrators in preparing applications for registering amendments, said the ACPM, adding it may impose an obligation for plan administrators to file additional documentation in relation to an amendment that may be a retroactive adverse amendment. In response to the proposed guidelines’ directive that plan administrators should “also be prepared to make submissions addressing the registrability of the amendment, including any applicable legal advice that supports registration of the amendment,” the association noted the FSRA doesn’t have the power to require a plan administrator or sponsor to waive its legal privilege over legal advice obtained in the course of developing an amendment.
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The ACPM noted a plan administrator isn’t responsible for plan design and amendments to pension plans aren’t subject to scrutiny through a fiduciary lens. “By suggesting that the act of merely filing an amendment adopted by the plan sponsor — a statutory obligation — is subject to fiduciary duties, FSRA is attempting to impose fiduciary duties where they do not exist. This is inappropriate and not supported at law.”
The same goes for the question of whether an amendment is “fair and equitable,” said the ACPM, noting, subject to certain limitations in the PBA, an employer or plan sponsor isn’t required to treat different groups “fairly” or “equitably” when amending a pension plan, meaning the guidance imports concepts and limitations on amendments that are inconsistent with the law. The FSRA’s position that an amendment to remove a variable indexation formula or replace that formula with a fixed-indexation rate for accrued benefits is generally void is also inconsistent with the PBA, it continued, adding the guidance may negatively impact a plan administrator’s ability to purchase annuities from insurers in the context of an orderly windup.
“By casting uncertainty over the ability to make such amendments, the revised proposed guidance would disrupt decades of practice in the industry with no discernable improvement to member outcomes.”
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In an emailed statement to Benefits Canada, the FSRA said it’s committed to open and transparent consultation on guidance and rules, noting there was significant technical consultation with the sector on this guidance prior to its release for broader review and the version released for consultation reflected a balanced approach based on the feedback received.
“Our primary objective is to ensure the effective regulation of pension plans in Ontario while upholding the principles outlined in the Pension Benefits Act and the FSRA Act. Our guidance is developed through a comprehensive analysis of existing case law, statutory language/interpretation informed by FSRA’s statutory objects and principles based regulation.”
The FSRA also said it remains committed to engaging with all stakeholders to better understand any concerns and to refine its guidance accordingly.
“We look forward to discussing this proposed guidance will all stakeholders, including the [ACPM]. Ultimately, our goal is to promote the good administration of pension plans and protect and safeguard the pension benefit sand rights of pension plan beneficiaries while minimizing the potential for disputes and litigation. We remain open to constructive dialogue and feedback as we work towards achieving these shared objectives.”