Section 9 of Schedule III prohibits a plan administrator from
directly or indirectly lending moneys of the plan equal to more
than 10% of the total book value of the plan's assets to, or
investing moneys equal to more than 10% of the total book value of
the plan's assets in any one person, two or more associated
persons or two or more affiliated persons. This rule is known as
the "10% rule". The purpose of the 10% rule is to prevent
a pension plan from investing too much of the plan's assets in
any one enterprise.
There are a number of exceptions to the 10% rule. One exception
is for investments in "a segregated or mutual or pooled fund
that complies with the requirements applicable to a plan that are
set out in this Schedule".
The Guideline addresses the question of whether a limited
partnership could meet the definition of a "mutual fund"
or "pooled fund" for purposes of the exception to the 10%
The terms "pooled fund" and "mutual fund"
are defined in Section 2(1) of the Pension Benefits Standards
Regulations. The definition is as follows:
"mutual fund" or "pooled fund" mean a fund
established by a corporation that is duly authorized to operate a
fund in which moneys from two or more depositors are accepted for
investment and where shares allocated to each depositor serve to
establish the proportionate interest at any time of each depositor
in the assets of the fund.
Notably, when Ontario adopted Schedule III and certain related
provisions of the Pension Benefits Standards Regulations in 2000,
it did not specifically incorporate by reference these definitions
into the Ontario Pension Benefits Regulations. However, it is
reasonable to assume that the definitions prescribed in the Pension
Benefits Standards Regulations would be used in interpreting
Schedule III for Ontario-registered plans even though they
weren't officially incorporated into the Ontario
According to the Guideline, whether a partnership meets the
definitions of a "mutual fund" or "pooled fund"
depends on the specific features of the partnership. The Guideline
does, however, give an example of partnership structure that would,
in OSFI's view, meet the definition. The requirements are as
the fund is a limited partnership that was established by a
corporation, such as its general partner;
more than two investors, all of whom are independent from the
general partner, have contributed capital to the fund and have
acquired units of, or other limited partnership interests in the
the units or other limited partnership interests held by an
investor in the fund are allocated to each investor and serve to
establish the proportionate interest at any time of each investor
in the assets of the fund;
the units or other limited partnership interests of the fund
can be sold or redeemed in a timely manner; and
the primary purpose of the fund is to invest the moneys of the
In our experience, the most common forms of limited partnership
structures would meet these requirements. However, it is clear that
these requirements are not intended to be exhaustive and there
could be other structures which would meet the definitions.
While it is helpful that OSFI has clarified the question of
whether limited partnerships qualify as pooled or mutual funds,
plan administrators cannot forget the second part of the exception
– only pooled or mutual funds which comply "with the
requirements applicable to a plan that are set out in this
Schedule" (i.e., all of the applicable requirements in
Schedule III) would qualify. The second part of the test is not
straightforward and may be more difficult to meet. If a plan
administrator is considering investing more than 10% of its assets
in a limited partnership, it should seek legal advice as to the
requirements which the manager of the limited partnership would
need to meet in order to satisfy the second part of the test.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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