Canada: How To Review A SIPP

A Statement of Investment Policies and Procedures (SIPP) is a legal document that is required by law to be developed and adopted for each registered pension plan. This is so regardless of the nature and degree of complexity of the plan. The SIPP must contain the prescribed information, must be reviewed annually and must be amended when necessary; and for plans registered in Ontario, it will soon need to be filed with the Financial Services Commission of Ontario.1

Like any other legal document, the SIPP should be reviewed by a lawyer knowledgeable in the area.2 Such a review is recommended to ensure that the SIPP does, in fact, comply with the requirements of the applicable pension standards legislation and section 8514 of the Income Tax Regulations, and that it contains what it should, and that it is not inconsistent with anything else. Many Canadian jurisdictions, like Ontario, have adopted, by reference, the federal investment regulations consisting of section 6 and schedule III of the Pension Benefits Standards Regulations Act (Federal Investment Rules).3

The Matrix

The Federal Investment Rules provide that a SIPP must deal with the categories of investments and loans, including derivatives, options and futures, asset mix and rate of return expectations, investment liquidity, the lending of cash or securities, voting rights acquired through investments, the valuation of illiquid investments and related party transactions.

In order to properly review a SIPP, the reviewer should take into account any document describing investment parameters which is ancillary to the plan as well as any employer-specific document which may deal with investments generally and to which pension investments may be subject. This will help to avoid internal inconsistencies. The plan-specific documents include:

  • the prior version of the SIPP, 
  • the plan text, 
  • the current master trust agreement and participating trust agreement,
  • employee booklets, and
  • current collective bargaining agreements and letters of understanding.

The broader category of documents to be reviewed includes investment or other policies and/or by-laws dealing with asset management which are internal to the sponsoring employer and/or administrator.4 In some cases, it will be incumbent on the sponsoring employer and/or administrator to provide these to the reviewer without being prompted, since the reviewer will not know of their existence and therefore will not know to request them.

Master Trusts

Where the sponsoring employer has adopted a master trust structure, the reviewer will want to make sure that the wording of the SIPP allows each participating plan to comply with the requirement that it have its own SIPP.5 A Statement of Investment Policies and Procedures for the master trust alone will not comply with legislation.

Defined Contribution Plans

As discussed above and subject to legislation, even simple defined contribution (DC) plans need a SIPP.

Where the DC plan does not leave the investment of contributions made by and on behalf of members to the members, the SIPP will look very much like the SIPP for a defined benefit (DB) plan. However, where the DC plan does offer, as many do, a stable of investment options to the members, the SIPP will be primarily focused on the types of investment options to be provided, what is expected of the investment manager for each investment option and how the options are to be selected, and how their performance is to be gauged. A description of how the quantitative Federal Investment Rules6 are to be complied with in the context of DC investment options is an important consideration. The document describing an investment option's own investment parameters can be appended to the SIPP, although this is not necessary.7

A plan with both a DB and a DC component should have only one SIPP in which both components are dealt with. Although the SIPP may, in fact, deal with the DC component in an appendix to the SIPP, the elements that are common to both components should be dealt with only once so that there is no redundancy or inconsistency between the two components.

Less Is More

One thing that a pension lawyer will also advise on is the amount of information that should be added to a SIPP in addition to what is required by law. As discussed above, the SIPP is adopted primarily because the law requires it. It is not the length of a SIPP that is important.8 It is whether it covers what it needs to cover clearly and accurately.

A lawyer will typically advise against covering anything other than is required by law unless there is a compelling reason to do so. The reason is simple: the more that is said, the greater the risk of inconsistencies and non-compliance. Anything added to the SIPP that may be covered in another document increases the chance that this information will not be consistent among the various documents. Any unnecessary repetition of restrictions that are already found in the legislation and any extraneous statement in a SIPP which the employer and/or administrator fails to comply with will surely be brought into evidence should litigation arise. The employer and/or administrator should avoid creating a road map for potential litigants to argue that it has breached one of its (self-imposed) obligations.

When drafting a SIPP, it should be kept in mind that anything concerning pension investments emanating from a government, other than legislation itself, however helpful, is not law. Unlike the securities regulators, the pension regulators do not have the authority to make binding rules. For example, it should not be assumed that the PPPD Investment Policy Guideline, issued by the Office of the Superintendent of Financial Institutions in April 2000, should be followed in its entirety. A knowledgeable reviewer will know what, among such publications, has become standard and should appear in a SIPP, and what should be left unsaid.

The Limits of Review

It should be noted that although a legal review will be focused on consistency with the quantitative limits on investments and other investment rules, on identifying and dealing with inconsistencies, and on improving the drafting of the SIPP overall, it will not address the reasonableness of the investments and investment parameters set out in the SIPP (i.e., the qualitative aspect of investments).

Given how long many SIPPs have been around and, in Ontario, the impending filing requirements, it may be time to revisit existing SIPPs with a critical eye.


1 In its 2011 budget, the Ontario government announced its intention to "require plans to file Statements of Investment Policies and Procedures (SIPPs) with the regulator and disclose whether or not their SIPPs address environmental, social or governance factors."

2 Filing requirements vary among the various Canadian jurisdictions. Most jurisdictions do not require that a SIPP be filed with the regulator, but New Brunswick does, and Nova Scotia and Newfoundland and Labrador require that it be delivered to the actuary.

3 See section 78 of the General Regulation adopted under the Pension Benefits Act of Ontario.

4 For example, large public sector employers are often subject to investment policies with which a SIPP would be required to be consistent.

5 See the June 5, 2014, article "Do You Know Trusts?". It should be noted that, as a master trust is a private pooling vehicle structured to aggregate pension plan assets for investment purposes, the law does not require that it have a SIPP, much less that such a SIPP be filed. However, from a practical perspective, a SIPP should be adopted for a master trust.

6 For example, the 10% rule.

7 Certainly, such a document is not a proper substitution for the SIPP itself, since the plan sponsor will select the option based on the parameters it has established in the SIPP.

8 Some of the biggest plans have SIPPs that are no more than a dozen pages long.

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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