Risk-Based Supervision of Private Pension Plans

1
Risk-Based Supervision of Private Pension Plans
Office of the Superintendent of Financial
Institutions
Bureau du surintendant des institutions
financières

• Diana Nedvidek
• Contractual Savings Conference
• Washington D.C.
• April 29, 2002

2
Agenda

• Part I
• Background
• Part II
• Risk Assessment System to Supervision
• - Risk-Based Approach

3
OSFIs Mission Statement

• To safeguard policyholders, depositors, and
  pension plan members from undue loss by
  administering a regulatory framework that
  contributes to public confidence in a competitive
  financial system.

4
OSFI Act

• In pursuing these objectives, OSFI strives to
  protect rights and interests of plan members and
  recognizes that administrators are responsible
  for management of plans and that plans can
  experience difficulties leading to loss of
  benefits.

5
Federally Regulated Financial Institutions

• Banks and other Deposit-Taking Institutions
• Life Insurance Companies
• Property and Casualty Insurance Companies
• Pension Plans
• - Private Pension Plans Division (PPPD)

6
Overview of PPPD

• 1,200 plans (8 of all RPP in Canada)
• - 30 defined benefit
• - 64 defined contribution
• - 6 combination
• 600,000 members (11 RPP members)
• 93 billion in assets (20 RPP assets)

7
Federally Regulated Private Pension Plans

• Plan Sponsors include
• - Private companies
• - Crown corporations
• - Federations
• - Associations
• - First Nations

8
Federally Regulated Private Pension Plans

• Banks
• Telecommunication companies
• Shipping, navigation
• Interprovincial international transportation
• Undertakings in the North
• Undertakings for the general advantage of Canada
  such as uranium mining
• First Nations

9
Pension Legislation

• OSFI Act
• Pension Benefits Standards Act (PBSA)
• Pension Benefits Standards Regulations (PBSR)
• Guidelines
• Directives
• OSFI policies

10
Part II
Risk Assessment System
11
PPPDs Mandate

• Supervise federally regulated private pension
  plan.
• Rely on plan administrators and consultants for
  good governance and prudent management of their
  pension plan.
• Respect the voluntary nature of pension plans and
  the need for plan administrators to take
  reasonable risks.

12
PPPDs Mandate

• Determine if plans are in sound financial
  condition and that they comply with provisions of
  the federal legislation, OSFI policies and
  guidelines.
• Inform plan administrators of situations that
  require attention and ensure they take
  appropriate action.

13
Risk Assessment System

• Purpose
• Identify plans that exhibit prudential concerns
  or risks to member benefits.
• Put in place an action plan with the
  administrators to address specific risks and
  concerns.
• Allocate OSFI resources.

14
Risk-Based Approach
C Contributions A Assets M Management E
Employer R Regulatory A Actuarial
15
Each component of the CAMERA system is based on a
two level risk assessment Level I Early
Warning Tests (EWTs) - computer generated based
on - Annual Information Return - Annual
Financial Statements - Actuarial Valuation
Report Level II Subjective - In-Depth Review
of the Information Filed - Examination Findings
16
C Contributions

• Timely Remittance
• Contribution Holidays in Excess of Surplus
• Negotiated Contributions (NC)
• Sufficiency of Contributions for NC plans
• Adequacy of Reported Contributions
• Outstanding Contributions

17
C Contributions

• Level I
• ? sub-components
• Level II
• Assessment of computer generated information
• Results of the most recent examination findings
• --------------------------------------------------
  --------
• Rating for Contributions

18
A Assets

• Rate of Return
• - most recent return
• - three-year average
• Asset composition mix
• - equity
• - real estate
• - bonds
• - other assets

19
M Management

• Records/Data
• Qualified Financial Statements
• Lateness of Filing
• Cooperation with Regulator, member/retiree
  complaints, lack of disclosure, conflict of
  interest

20
E Employer

• Membership Level
• Membership Trend
• Variation in Normal Cost per Member
• Weak Sponsor or Industry
• Business Activity

21
R Regulatory Compliance

• Priorities on Terminations
• Outstanding Documents
• Outstanding Valuation Report
• Disclosure to Members, OSFI, or Administrator

22
A Actuarial

• Qualified Valuation Report
• Solvency Ratio lt 1
• Retirees Share of Liability
• Others Share of Liability
• Valuation Report Asset Ratio

23
Overall Rating

• (C A M E R A)
• (Solvency Ratio)²

24
Staging

• Stage 0 No problems/Normal activities
• Stage 1 Early Warning
• Stage 2 Risk to financial viability or
  solvency
• Stage 3 Future financial viability in serious
  doubt
• Stage 4 Non-viability/Insolvency Imminent

25
www.osfi-bsif.gc.ca
benpen_at_osfi-bsif.gc.ca