FSRA Releases Guidance on Commuted Value Transfers and Annuity Purchases for DB Plans

May 25, 2020

James Harnum

On May 22, 2020, FSRA released Guidance on its approach to reviewing applications for commuted value transfers and annuity purchases under sections 19(4) and 19(5) of the Pension Benefits Act’s Regulation 909. The newly released Guidance addresses what restrictions apply to a Plan Administrator when a defined benefit pension plan’s transfer ratio has declined by ten per cent or more and the resulting transfer ratio is below 0.9. The Guidance replaces FSCO’s Policy on Commuted Value Transfers.

As a general rule, under the PBA, full CV transfers and annuity purchases may proceed if the pension plan’s transfer ratio, as reported in the last filed valuation report, is greater than or equal to 1.0. Where the transfer ratio is below 1.0, transfers can only be made at the rate determined by multiplying the commuted value by that ratio.

However, under the Regulation, if the Plan Administrator “knows or ought to know” that, since the date of the most recently filed valuation report, events have taken place that result in a reduction in the transfer ratio to less than 0.9 when the TR was greater than 1.0, or of at least 10% when the TR was less than 1.0, then all CV transfers and annuity purchases under section 43, are automatically suspended. In these circumstances, administrators must apply to FSRA if it intends to make CV transfers or annuity purchases.

In its Guidance, FSRA notes that “[d]uring periods of market uncertainty, administrators should be ready to determine if section 19(4) or (5) of the Regulation apply at any time – administrators cannot rely solely on carrying out quarterly checks of the TR.”

FSRA’s Guidance also summarizes the principles that it will utilize when examining applications to make transfer despite a reduced transfer ratio:

• the potential for inequity that may arise if some beneficiaries receive full CV transfers and the remaining beneficiaries face a heightened possibility of receiving less than their full CVs in the future;
• the pension plan’s risks, ability to absorb further shocks, impact of the current funding and investment strategy, and projected funded status of the plan over the next five years;
• the sustainability of the pension plan in relation to the financial stability of participating employers; and
• the ability to reduce benefits retroactively under the pension plan.

FSRA says that it “will strive to be reasonable and risk-based, minimizing unnecessary disruption of CV transfers and annuity purchases, while appropriately protecting entitlements of plan beneficiaries.”

FSRA’s Guidance also discusses the application and review process for applying for approval and should be reviewed in its entirety by all Plan Administrators.

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