The Federal Department of Finance has released draft regulations
that if adopted would, among other proposed changes, amend the
pension investment restriction rules contained in Schedule III to
the Pension Benefits Standards Regulations, 1985
The changes, long awaited from the Minister of Finance's
October 2009 announcement that the pension investment rules would
be modernized, apply not only to federally regulated pension plans
but also to those plans whose governing provincial legislation
incorporates Schedule III.
Currently, Schedule III prohibits the administrator of a pension
plan from directly or indirectly investing or lending more than 10%
of the book value of the plan's assets in or to any one person,
two or more associated persons, or two or more affiliated
corporations. The proposed changes would limit investments to 10%
of the market value of the pension plan's assets. This is a
welcome change as market value is much easier to determine.
One of the exceptions to the 10% book value limit is for
investment in a fund that replicates the composition of a widely
recognized index of a broad class of securities traded at a
"public exchange". The term "public exchange"
is outdated and excludes many important exchanges – for
example the Nikkei – while including some exchanges that no
Under the proposed changes "public exchange" would be
replaced with "marketplace" to reflect that plan
investments may be bought not only on public exchanges but also
through quotation and trade-reporting systems and other platforms
through which buyers and sellers of securities and derivatives are
The proposed changes would also address related party
transactions. Schedule III currently prohibits the plan
administrator from directly or indirectly lending moneys of the
pension fund to a "related party", investing moneys of
the pension fund in the securities of a related party, or entering
into a "transaction" with a related party on behalf of
the pension fund. The proposed changes would remove certain
exemptions, such as the nominal or immaterial transaction
exemptions, and permit other exemptions, such as permitting the
holding of an investment in the securities of a related party where
the investment is made in an investment fund.
While the changes will prohibit the administrator from investing
plan assets directly or indirectly in securities of the employer,
the amendments now clarify that the administrator may engage the
services of a related party for the administration of the plan,
such as the hiring of a related party broker-dealer.
The proposed amendments will be released for public comment with
official publication in the Canada Gazette on September 27, 2014.
Plan administrators and investment managers who manage pension
assets for Canadian registered plans should be reviewing their
investment mandates including agreements and compliance monitoring
systems to ensure that they are ready to implement these
The British Columbia Court of Appeal has recently considered whether the doctrine of unconscionability can be invoked to set aside a contractual clause providing for the payment by one party to the other...
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