Staying flexible: Guidelines for reducing pension benefits should allow for discretion

  • October 28, 2019

When a company asks the Office of the Superintendent of Financial Institutions for permission to reduce the benefits offered by its defined-benefit pension plan, there’s a good chance it’s already under a certain amount of stress.

In its comments on a draft guide which lays out the OSFI’s requirements for companies making that request, the CBA’s Pensions and Benefits Section suggests ways the agency can protect plan members without adding to the company’s administrative burden.

The draft instruction guide, Authorization of Amendments Reducing Benefits in Defined-Benefit Pension Plans, outlines factors and specific requirements the agency generally considers when reviewing applications for authorization to reduce benefits.

Throughout its submission, the Section reiterates the need to allow both the Superintendent and the company concerned room to manoeuvre depending on each application’s specific circumstances.

For instance, the Section recommends removing new wording that sets out requirements for indexing in order to “allow the Superintendent the flexibility to determine whether an alternative form of indexing is acceptable (i.e., does not reduce accrued pension benefits) in the circumstances.”

OSFI should also consider amending section 3.1 of the guide “to allow it greater discretion to determine the level of member consent required for a reducing amendment,” as the draft guide expects a written agreement from “anyone” whose benefit would be reduced by that amendment. The Section points out that sometimes it’s impossible to contact all of the plan members; some plan members may lack the capacity to agree; and sometimes plan members will refuse to consent as a way of obtaining leverage.

“With our suggested changes to the draft guide the Superintendent would retain the power to authorize the proposed reducing amendment in these situations while having the flexibility to consider all relevant circumstances in determining the appropriate level of member consent.”

The draft guide’s filing requirement adds unnecessary rigidity to a process that had previously been more flexible, the Section says. Having to file all relevant historical documents would make it exceedingly difficult for administrators to comply, particularly if the plan’s history has any complexity – if it has been divided, or the company has changed hands, or if there are collective bargaining agreements involved.

Instead of asking for all documentation up-front, the OSFI could ask the company to submit all available, relevant documents if the OSFI determines this is necessary after reviewing the application. It could also allow plan administrators to attest that they’ve taken all reasonable steps to find others.

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