Office of the Superintendent Bureau du surintendant
of Financial Institutions
des institutions financières
Risk-Based Supervision of
Private Pension Plans
Diana Nedvidek
Contractual Savings Conference
Washington D.C.
April 29, 2002
Agenda
Part I
 Background
Part II
 Risk Assessment System to Supervision
- Risk-Based Approach
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OSFI’s
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.
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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.
4
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)
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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)
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Federally Regulated Private
Pension Plans

Plan Sponsors include:
- Private companies
- Crown corporations
- Federations
- Associations
- First Nations
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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
8
Pension Legislation

OSFI Act
 Pension Benefits Standards Act (PBSA)
 Pension Benefits Standards Regulations
(PBSR)
 Guidelines
 Directives
 OSFI policies
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Part II
Risk Assessment
System
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PPPD’s 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.
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PPPD’s 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.
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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.
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Risk-Based Approach
C = Contributions
A = Assets
M = Management
E = Employer
R = Regulatory
A = Actuarial
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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
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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
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C = Contributions
Level I
  sub-components
Level II
 Assessment of computer generated information
 Results of the most recent examination findings
---------------------------------------------------------= Rating for Contributions
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A = Assets

•
Rate of Return
- most recent return
- three-year average
Asset composition mix
- % equity
- % real estate
- % bonds
- % other assets
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M = Management

Records/Data
 Qualified Financial Statements
 Lateness of Filing
 Cooperation with Regulator, member/retiree
complaints, lack of disclosure, conflict of
interest
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E = Employer

Membership Level
 Membership Trend
 Variation in Normal Cost per Member
 Weak Sponsor or Industry
 Business Activity
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R = Regulatory Compliance

Priorities on Terminations
 Outstanding Documents
 Outstanding Valuation Report
 Disclosure to Members, OSFI, or
Administrator
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A = Actuarial

Qualified Valuation Report
 Solvency Ratio < 1
 Retirees’ Share of Liability
 Others Share of Liability
 Valuation Report Asset Ratio
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Overall Rating
(C + A + M + E + R + A)
(Solvency Ratio)²
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Staging
Stage 0
Stage 1
Stage 2
Stage 3
Stage 4
No problems/Normal activities
Early Warning
Risk to financial viability or
solvency
Future financial viability in serious
doubt
Non-viability/Insolvency
Imminent
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www.osfi-bsif.gc.ca
benpen@osfi-bsif.gc.ca
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