The federal government has amended the pension fund investment rules under Schedule III to the Pension Benefits Standards Regulations, 1985. The change came into effect on July 1, 2010.
According to the Regulatory Impact Analysis Statement, modernization of the investment rules is part of the federal government's measures to strengthen and improve the legislative and regulatory framework for federally regulated private pension plans on a permanent basis. The change aims at providing more flexibility for plans to choose the investment options that best suit their investment needs and adopting flexibile, prudent and effective principles-based investment rules.
Removal of Quantitative Limits on Resource and Real Property Investments
Prior to the amendment, the investment of the pension fund of a federally regulated private pension plan in real property and Canadian resource properties was subject to 5%, 15% and 25% quantitative investment limits. These quantitative limits are now removed.
Commentary
The removal of these quantitative limits is a welcome change for the modernization of the pension fund investment rules. The impact statement indicates that there will be more changes to the investment rules but it is unlikely that all of the current quantitative investment limits (e.g., the prohibition on a pension fund holding more than 30% of the voting shares of a single entity) will be removed.
This change to the federal investment rules will not only affect federally regulated private pension plans; it will also affect pension plans governed by the provincial pension legislation which has adopted the federal investment rules, as amended from time to time. These jurisdictions are Alberta, British Columbia, Manitoba and Saskatchewan.
The changes will not affect pension plans governed by the New Brunswick and Quebec pension legislation (as they have different investment rules) or pension plans governed by the Ontario, Nova Scotia or Newfoundland and Labrador pension legislation, without conforming changes to their investment rules.
As a note of caution, even for pension plans in the jurisdictions affected by the change, the investment of pension funds may still be subject to the 5%/10%/25% limits if these limits are included in the pension plan's statement of investment policies and procedures and are not removed.
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