The Minister of State (Finance) Kevin Sorenson today proposed new regulations which will amend the Pension
Benefits Standards Regulations, 1985 (the Regulations). Among other
things the proposed regulations include amendments to the pension
investment rules in Schedule III to the Regulations. The proposed
amendments have been released for public comment, with a 30 day
consultation period commencing on September 27, 2014.
The first significant change is to the test under the
10% rule. The 10% rule is a diversification requirement
which limits the amount that can be invested in any one entity or
group of entities to 10%. Under the current rules, the test is
based on the book value of the pension fund. Under the
proposed amendments, the test will be based on the market
value of the fund.
The second significant change is to the exceptions to
the "related party rules". The related party
rules prohibit a plan administrator from investing in or lending
money to or entering into transactions with "related
parties" as defined in Schedule III, subject to certain
exceptions. Under the proposed amendments, the existing exceptions
to the related party rules are being repealed and replaced with a
new set of exceptions. In particular, a widely relied on exception
– an exception for transactions which are nominal or
immaterial to the plan – has been eliminated.
Other changes to the related party exceptions are as
A plan administrator may engage the services of any related
party for the operation or administration of the plan by means of a
transaction under market terms and conditions.
A plan may invest in investments which involve the purchase of
a contract or agreement in respect of which the return is based on
the performance of a widely recognized index of a broad class of
securities traded at a marketplace.
There are also exceptions for:
Investments in "investment funds" in which investors
other than the plan administrator and its affiliates may invest,
and are invested, and that comply with the requirements applicable
to a plan as set out in Schedule III;
An unallocated general fund of a life insurance company;
Securities issued or fully guaranteed by a government in
A fund composed of mortgaged back securities that are fully
guaranteed by a government in Canada.
In addition, the proposed amendments would make the following
consequential and/or housekeeping changes:
the definitions of "mutual fund" and "pooled
fund" are repealed and replaced with the term,
the definition of "public exchange" in Schedule III
is repealed and replaced with a new defined term –
the undertaking requirements have been amended to remove the
requirement that the undertaking be filed before the investment is
Plan administrators have five years from the date the changes
come into force to comply with the new rules.
In addition to federally regulated pension plans, the proposed
amendments to the pension investment rules will apply
to most Canadian jurisdictions, as Ontario, British
Columbia, Alberta, Saskatchewan and Manitoba have adopted
Schedule III "as amended from time to time".
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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