In its newest guidance, the Financial Services Regulatory Authority of Ontario is barring pension plan administrators from registering retroactive adverse amendments that could have a negative impact on plan members or beneficiaries, such as changes in contribution rates, subject to limited exceptions.
“What we found coming out of the [coronavirus] pandemic, . . . there was an uptick in some amendments that were coming in, that were retroactive and adverse,” says David Bartucci, head of pension plan operations and regulatory effectiveness at the FSRA.
He says the new guidance was designed to single out amendments that have a negative impact on the rights or entitlements of plan members or have an effect on a date that takes place before it was filed with the regulator.
The FSRA’s new guidance targets retroactive amendments, including those to correct drafting errors, those replacing a variable indexation formula with a fixed rate for already accrued benefits and notice requirements for certain adverse amendments, including a technical amendment.
The updated guidance also provides clarity to stakeholders on how the regulator will interpret and administer provisions in the Pension Benefits Act related to retroactive plan amendments.
According to the guidance, a pension plan amendment may be deemed to have an adverse effect, in which case the change might have a retroactive impact on rights and benefits but not be considered a retroactive adverse amendment. Plan administrators can apply for the registration of an amendment that has retroactive negative impacts and the FSRA will determine an adverse effect amendment only after considering the plan administrator’s unique circumstances and reviewing it in relation to the PBA’s statutory objectives.
Bartucci says the increased cases of pension plan administrators looking to register these types of amendments has forced the regulator to make case-by-case decisions.
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“Some of the impacts that we see in these retroactive adverse amendments tend to be those where [plan] members’ . . . contributions, their rights to join a plan . . . membership basically is negatively impacted by the amendment because it takes place retroactively.”
According to the guidance, plan administrators must demonstrate a reasonable and good faith belief that the amendment doesn’t have a retroactive adverse effect. A plan administrator will have to identify the negative impact of its amendment but then also outline why it doesn’t believe the change qualifies as a retroactive adverse amendment.
“We encourage those administrators or their advisors to reach out to us and help us understand why the amendment is retroactive, what it purports to do [and] what are the expected impacts [to] members. If they have any legal advice . . . they’re comfortable sharing, . . . we’ll review that as well,” says Bartucci.
The FSRA is planning to host an upcoming webinar next month to discuss its process around the new guidelines.
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