The Financial Services Commission of Ontario has announced reforms to its risk-based approach for the supervision of pension plans. FSCO says that the goal is to reduce the risk that members of a pension plan will not receive the benefits promised.

As an initial step, FSCO developed and implemented a risk-based monitoring program in 2000 that focused on the funding of defined benefit pension plans.

“The equity market downturn between 2000 and 2002 and the decline in long term interest rates have raised concerns about the financial health of employment-based pension plans and the security of retirement savings in general,” it notes. “Besides pension plan contributions, pension fund investment returns can have a significant impact on the funded status of pension plans. Accordingly, FSCO believes it should extend its risk-based approach and complement its existing monitoring of pension plan funding with the monitoring of pension fund investment activity.”

In November 2002, FSCO established a project team to develop a risk-based pension investment monitoring program. In July 2004, FSCO released a consultation paper for review and comment by pension stakeholders. FSCO reports that it received over 20 submissions from a broad range of pension industry stakeholders on the proposed monitoring model and Investment Information Summary (IIS) form set out in the consultation paper.

As a result of suggestions received during the consultation, FSCO will test a revised investment monitoring model using a random sampling of 300 defined benefit pension plans that have Dec. 31, 2004, fiscal year ends.

The administrators of the selected plans will be contacted by FSCO this Spring and asked to submit a revised IIS form with the financial statements that are required to be filed by those plans by June 30. No other pension plans registered with FSCO will be asked to file IIS forms for the time being.

The IIS form itself has been revised to make it shorter, easier to complete and more consistent with the information required to be filed, FSCO says.

Only the plan administrator will be required to certify the accuracy and completeness of the information. No certification from the plan auditor or any other third party will be required. Also, the point scoring system originally proposed for identifying plans which would be subject to review will be replaced with predefined risk indicators.

After testing the revised investment monitoring model and IIS form on the 300 randomly selected pension plans, FSCO intends to finalize the monitoring model and IIS form and fully implement the investment monitoring program by spring 2006.

http://www.fsco.gov.on.ca/FSCO_UW_MainEngine.nsf/docuniqueid/41127FB287B9D7B285256FCE004CBA69?opendocument