The Office of the Superintendent of Financial Institutions (OSFI) is lifting the temporary freeze it placed on the portability transfers of federally regulated defined benefit pension plans, the regulator announced today.
OSFI imposed a freeze on transfers or annuity purchases from DB plans in late March at the height of the market crash caused by the Covid-19 pandemic.
“Now that markets have steadied and the overall solvency of pension plans is sufficiently stable, OSFI is removing these restrictions,” the regulator indicated in a release. “Additional conditions and safeguards have been put in place to protect the rights and interests of pension plan members and beneficiaries.”
A key new condition is that the initial transfer cannot exceed the “transfer value,” which is the commuted value of the pension benefit multiplied by a plan’s “transfer ratio.” The transfer ratio is the lesser of the most recent solvency ratio of the plan and the same ratio projected to a date no earlier than March 31, 2020.
If a plan’s transfer ratio is less than one, the commuted value can be transferred if the plan administrator remits to the fund the amount by which the commuted value exceeds the transfer value.
OSFI also reintroduced automatic consent for buy-out annuity purchases by a plan administrator, as long as the solvency ratio following the purchase of the annuity is not less than 0.85.
With the portability freeze lifted, OSFI says that plan administrators must process transfers delayed because of the freeze. If a plan member had already elected portability on their option form, the member is not required to take further action, OSFI says.
“OSFI expects plan administrators to make best efforts to give effect to member elections as soon as possible,” the regulator indicated. “However, we acknowledge that it may take time for plan administrators to adjust their administrative practices to reflect [new transfer conditions]. As such, the timing of when a member will receive their funds will depend on the particular circumstances.”
Plan administrators should notify members that the portability freeze has been lifted and the expected amount of time it will take to restart transfers, OSFI adds.
The commuted value of delayed transfers should be calculated as at the member’s termination date, OSFI says. A re-calculation is only permitted if the re-calculated amount is greater than that commuted value, plus interest. A plan administrator must add interest on the commuted value to take into account the delayed transfer.
A member’s entitlement to a commuted value transfer at termination is based on the member’s entitlement at the time their membership in the plan ended, not at the time the freeze was lifted, OSFI indicated. Thus, a member continues to be eligible to elect a transfer, even though a transfer may no longer be available if the member has reached eligibility for early retirement when the freeze is lifted.
A plan administrator must process a transfer election if a plan member is eligible for portability, the regulator indicated.
OSFI says it could reintroduce a freeze on transfers if “further deterioration in the financial and economic environment” put pension solvency at risk once again. “For example, in the event of renewed market volatility, [OSFI] has the flexibility to require plan administrators to use a more recent projected solvency ratio as the basis for such transfers, if appropriate,” the regulator indicated.
OSFI also announced today it is phasing out the special capital treatment of loan and insurance premium payment deferrals that was provided to banks and insurers at the start of the pandemic.