To improve the regulatory process and make the most effective use of its resources, the Financial Services Commission of Ontario (FSCO) is committed to adopting a risk-based approach for the supervision of pension plans. The goal is to ensure that the interests of pension plan members are duly protected. As an extension of its existing monitoring of pension plan funding, FSCO is set to implement the risk-based monitoring of defined benefit pension fund investments in 2006.
The investment of pension assets has a significant impact on the pension solvency. In view of the growing needs and similar regulatory practices in other jurisdictions in Canada and abroad, FSCO developed a risk-based pension investment monitoring program that includes an Investment Information Summary (IIS) form. Following a consultation with pension stakeholders, FSCO tested the investment monitoring model and the IIS form on a random sample of defined benefit pension plans with the fiscal year ending on December 31, 2004. From this test, the investment monitoring model has proved to be a useful tool for identifying such irregularities as significant breaches of investment regulations, unusual investment under-performance and serious asset-liability mismatch. The test has also advanced FSCO’s experience in gauging the extent to which a particular issue should be reviewed further. As a result of the test, the methodology and criteria used in the monitoring model have been refined and the IIS form finalized. FSCO thanks those who participated in the test.
The IIS form is supplementary to the financial statements that are required to be filed under section 76 of Regulation 909 made under Ontario’s Pension Benefits Act (PBA), and has been approved for use under section 113.2 of the PBA by the Superintendent of Financial Services. The Investment Information Summary- Form 8 is required to be filed by all defined benefit pension plans registered with FSCO within six months after each fiscal year end of the plan occurring on or after December 31, 2005.
The information included in a pension plan’s IIS form will be used in conjunction with the information in the other filings made on behalf of the pension plan. The fact that a plan has been flagged by the automated assessment process is not a judgment on FSCO’s part as to how well the investments of the plan’s assets are being managed or whether they are being invested prudently. Rather, flagged plans will simply have been identified as warranting a further review, which may or may not result in any follow-up action being taken by FSCO. If any non-compliance with investment regulations and proper standards is identified through the risk-based monitoring, FSCO will follow up with the plan administrator in the same manner that would occur if FSCO became aware of the non-compliance through other means.
FSCO believes that the implementation of the risk-based investment monitoring program will progressively raise awareness about the effect of pension fund investments on pension plan solvency, bring investment management deficiencies to the attention of plan administrators and encourage adoption of prevailing industry best practices. As a result, the continuous improvement in pension investment management will help enhance the long term financial health of pension plans in Ontario.
Financial Services Commission of Ontario