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CONSULTATION PAPER

A PROPOSED RISK-BASED INVESTMENT MONITORING MODELFOR SUPERVISING DEFINED BENEFIT PENSION PLANS

Financial Services Commission of Ontario

July 2004

TABLE OF CONTENTS

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. REGULATORY OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3. PROPOSED INVESTMENT MONITORING MODEL . . . . . . . . . . . . . . . . . . . . . . . 9

4. ISSUES TO BE ADDRESSED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

APPENDIX A - FEDERAL INVESTMENT REGULATIONS . . . . . . . . . . . . . . . . . . . . . . 15

APPENDIX B - PROPOSED INVESTMENT INFORMATION SUMMARY . . . . . . . . . 18

APPENDIX C - PROPOSED CRITERIA FOR DETERMINING FIRST STAGEPRELIMINARY PENSION PLAN RISK ASSESSMENT SCORES . . . 25

EXECUTIVE SUMMARY

The Financial Services Commission of Ontario (FSCO) is committed to adopting a risk-based approach to the supervision of pension plans in order to enable FSCO to focus its regulatory resources on those pension plans where members’ benefits may be at risk. Having recently successfully implemented a risk-based monitoring program for the funding of defined benefit pension plans, in November 2002 FSCO formed a project team with a mandate to develop a risk-based pension investment monitoring program focussing, for the time being, on defined benefit plans. In its work, the project team has drawn upon the expertise of members of FSCO’s Pension Investment Advisory Committee and Pension Accounting and Assurance Advisory Committee.

In light of the current legislation governing pension fund investments, the project team has identified the following regulatory objectives:

1. To provide a framework conducive to encouraging appropriate investment conduct and processes;

2. To promote good fund governance;

3. To enable appropriate pension fund investments; and

4. To embody the standard of care required of a fiduciary acting in the best interests of plan members and beneficiaries.

The investment monitoring model proposed in this paper emulates the 3-stage selective review process that has already been implemented by FSCO for monitoring the funding of defined benefit pension plans. It has been designed with the above stated regulatory objectives in mind and contains the following key features:

• It would target FSCO’s investment monitoring on the highest risk plans, identified through the use of predefined risk assessment criteria.

• In order to enable FSCO to efficiently identify the highest risk plans, pension plans would be required to file a standard form containing information currently found in the plan or fund financial statements, as well as additional plan investment information.

• Emphasis would be placed on the use of information technology to facilitate the identification of the highest risk plans, including the development and implementation of an electronic database and risk assessment system.

• To a significant degree, risk assessment would be based on certifications from the plan administrator (and the plan auditor, for plans with over $3 million in assets that are required to file audited financial statements with FSCO) with respect to compliance with

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prescribed investment rules and matters related to the plan’s statement of investment policies and procedures.

• FSCO’s investment review of the identified plans would focus on the process by which investment decisions are made and how investment risks are effectively managed through diversification.

FSCO expects to implement a pension fund investment monitoring program for filings made in respect of 2004 plan year ends and is seeking input from pension stakeholders on the investment monitoring model set out in this paper, particularly the issues described in Section 4 of the paper.

In order to help refine the proposed Investment Information Summary (IIS) form and preliminary risk assessment criteria found, respectively, in Appendixes B and C of this paper, FSCO also invites pension plans to fill out and submit sample IIS forms to FSCO (which can be done on an anonymous basis if the plan so desires).

Please send your comments and completed sample IIS forms by August 30, 2004 to:

Mr. Mathew OuSenior Policy Consultant, Pension DivisionFinancial Services Commission of Ontario5160 Yonge Street, Box 85North York ON M2N 6L9

Phone: 416-226-7772Fax: 416-226-7787Email: [email protected]

Please note that all submissions received are subject to the access and privacy provisions of the Freedom of Information and Protection of Privacy Act. If for any reason you feel that your comments should not be shared with other parties, please indicate this in your submission.

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1. INTRODUCTION

Background

To improve the regulatory process and make the most effective use of its resources, FSCO is committed to adopting a risk-based approach for the supervision of pension plans. The goal is to reduce the risk that members of a pension plan will not receive the benefits promised. As an initial step, FSCO developed and implemented a risk-based monitoring program in 2000 that focussed on the funding of defined benefit pension plans (i.e., the adequacy of contributions made to such plans as required under the Ontario Pension Benefits Act (PBA) and actuarial standards).

The equity market downturn since mid-2000 and the decline in long term interest rates have raised concerns about the financial health of employment-based pension plans and the security of retirement savings in general. Besides pension plan contributions, pension fund investment returns can have a significant impact on the funded status of pension plans. Accordingly, FSCO believes it should extend its risk-based approach and complement its existing monitoring of pension plan funding with the monitoring of pension fund investment activity.

In Canada, pension fund investment monitoring also plays a part in the risk-based supervision of pension plans conducted by the Régie des rentes du Québec (Régie) and the federal Office of the Superintendent of Financial Institutions (OSFI) in respect of plans registered with those pension regulators.

Project Initiative

In November 2002, FSCO established a project team to develop a risk-based pension investment monitoring program. The primary objective of this program would be to promote strong governance with respect to pension fund investments so as to enhance the benefit security for pension plan members.

The project team’s mandate is to develop the requisite risk assessment criteria and tools to support the investment monitoring program. In its work, the project team has drawn upon the expertise of FSCO’s Pension Investment Advisory Committee and Pension Accounting and Assurance Advisory Committee.

FSCO expects to implement a pension fund investment monitoring program for filings made in respect of 2004 plan year ends.

Outline of the Paper

Section 2 of this paper describes the Ontario legislation that governs pension fund investments and states the principal regulatory objectives in this context.

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Section 3 outlines a proposed investment monitoring model and discusses several regulatory and constraint factors which affect the design of the proposed model.

Section 4 sets out a number of issues that FSCO would like the pension stakeholders to consider and comment upon.

Appendix A provides a summary of the federal investment regulations. Appendices B and C contain, respectively, a new form called the Investment Information Summary and the preliminary risk assessment criteria which form part of the first stage of the proposed investment monitoring model.

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2. REGULATORY OBJECTIVES

The current legislation governing pension fund investments in Ontario is a mixed regime of the prudent person rule (described in more detail below) and certain prescriptive rules (mainly quantitative, also described below). Prior to the introduction of the prudent person rule in 1987 for Ontario pension fund investments, a “legal list” approach applied which restricted Ontario pension fund investments to certain prescribed types of investments. Over time, the general trend in Canada and globally has been a reduced reliance on prescriptive investment requirements in favour of governance under the prudent person rule.

The transition from a legal list investment approach to a prudent investment approach signifies a shift towards reliance upon the decision-making process in judging investment prudence. This transition allows pension plan administrators more flexibility in making investments but also imposes additional responsibilities on them.

Some jurisdictions (such as Québec) have moved to more or less complete reliance upon the prudent person rule to govern the allowable investments for pension funds and have eliminated prescriptive requirements respecting such investments. Questions have been raised by some members of the pension investment community as to the necessity for Ontario and other jurisdictions to continue to apply prescriptive rules (in Ontario’s case, setting out restrictions on investment concentration, control of individual companies and conflicts of interest) while at the same time applying a general prudent person rule standard to pension fund investments.

This paper and consultation are not intended to delve into these questions. Instead, the investment monitoring model proposed in this paper reflects the continuing application of both the prudent person rule and Ontario’s prescriptive rules, the latter of which can be seen as specifically legislated minimum requirements for the appropriate investment of pension funds. Mere compliance1 with these prescriptive rules, however, would not generally be considered proof in itself of meeting the minimum standard of prudence. As discussed below, prudence is demonstrated through the application of appropriate decision making processes in the investment of a pension fund’s assets.

Prescriptive Rules

Certain prescriptive rules (mainly quantitative) for Ontario pension fund investments are contained in sections 6, 7, 7.1 and 7.2 and Schedule III to the federal Pension Benefits Standards

1 Section 62 of the PBA requires that every person engaged in selecting an investment to be made with the assets of a pension fund shall ensure that the investment is selected in accordance with the criteria set out in the PBA and prescribed by the regulations. Contravention of the prudent person rule or the prescriptive rules by either the plan administrator or an agent of the plan administrator constitutes an offence under section 109 of the PBA. Contravention of these rules may also constitute grounds for the Superintendent to issue a notice of proposal to make an order under subsection 87(1) of the PBA requiring the administrator or agent to take or to refrain from taking any action in respect of a pension plan or pension fund.

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Regulations, 1985 made under the Pension Benefits Standards Act, 1985 (Canada) as they read on December 31, 1999 (referred to in Ontario as the federal investment regulations or FIR). The federal investment regulations are incorporated by reference into the regulations made under the PBA. The prescriptive rules are designed to limit investment concentration and control of companies by the pension fund and prevent self-dealing (conflict of interest). The federal investment regulations also require that the administrator establish a written statement of investment policies and procedures (SIPP). Appendix A describes the prescriptive rules and SIPP requirements.

Prudent Person Rule

The prudent person rule for Ontario pension fund investments is codified in section 22 of the PBA, which includes the following provisions:

• The pension plan administrator “shall exercise the care, diligence and skill in the administration and investment of the pension fund that a person of ordinary prudence would exercise in dealing with the property of another person.” [s. 22(1)]

• The administrator “shall use in the administration of the pension plan and in the administration and investment of the pension fund all relevant knowledge and skill that the administrator possesses or, by reason of the administrator's profession, business or calling, ought to possess.” [s. 22(2)]

• The administrator “shall not knowingly permit the administrator’s interest to conflict with the administrator’s duties and powers in respect of the pension fund.” [s. 22(4)]

• The administrator may, “where it is reasonable and prudent in the circumstances to do so,...may employ one or more agents to carry out any act required to be done in the administration of the pension plan and in the administration and investment of the pension fund.” [s. 22(5)]

• “An administrator of a pension plan who employs an agent shall personally select the agent and be satisfied of the agent's suitability to perform the act for which the agent is employed, and the administrator shall carry out such supervision of the agent as is prudent and reasonable.” [s. 22(7)]

• “An employee or agent of an administrator is also subject to the standards that apply to the administrator under subsections (1), (2) and (4).” [s. 22(8)]

An often quoted description of prudence is the following:

“Prudence is a test of conduct not performance,...(a) paradigm of prudence is based above all on process. Neither the overall performance of the portfolio nor the performance of the individual investment should be viewed as central to the prudence issue. Prudence should be measured principally by the process through which investment strategies and tactics are developed, adopted, implemented, and monitored. Prudence is demonstrated by the process through which risk is managed rather than by labelling of specific investments as either per se prudent or imprudent. Investment products and techniques are essentially neutral; none should be classified as prudent or imprudent per se. It is the way in which they are used, and decisions as to their use are made, that should be examined to determine whether the prudence standard has been met... Prudence is not self-evident. Nor will it be enough to point to their use by other fiduciaries. What matters is not that others have used the product or technique (for whatever reasons), but the basis for its use by the fiduciary in question.”2

2 This quote is from Bevis Longstreth, a former U.S. Securities and Exchange Commissioner, in Modern Investment Management and the Prudent Man Rule (1986: Oxford University Press, New York).

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In general terms, the prudent person rule is a standard that measures a course of conduct and not an investment outcome. On this basis, the primary focus of the legislated prudent person standard is on internal controls and governance structures in which the supervisory authorities may have confidence, rather than on mere compliance with prescriptive rules. In placing this emphasis on process, the rule thus puts a premium on good fund governance with the objective that pension funds serve as a secure source of funds to provide for retirement benefits.

Case law on the matter of prudence and proper investment management is limited. However, what is emerging from case law is that proper investment management requires that the persons responsible for such activities satisfy a certain standard of care, diligence and education in making their decisions, and that investment activities reflect the best information available on how to manage the assets under their supervision. For example, diversification is now a very well-accepted principle of investment management. It has also become understood that the quality of investment management should not be judged based on the investment outcome, but on the process undertaken in making the investment management decisions that produced the outcome.

Objectives of Regulating Pension Fund Investments

The overall goal of pension legislation is to ensure that the pension plan promise is kept. The principal regulatory objectives supporting this goal in the context of pension fund investments can be stated as follows:

• To provide a framework conducive to encouraging appropriate investment conduct and processes, which may also help to facilitate dialogue and education within the pension industry.

• To promote good fund governance, which includes adoption of disciplined approaches for asset management as well as avoidance of systemic conflicts and excessive risk taking.

• To enable appropriate pension fund investments that are consistent with the nature of pension plan liabilities.

• To embody the standard of care required of a fiduciary acting in the best interests of plan members and beneficiaries.

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3. PROPOSED INVESTMENT MONITORING MODEL

In developing a pension fund investment monitoring model for plans registered with FSCO, the project team reviewed the risk-based pension plan monitoring programs currently operated in Canada by the Régie and OSFI. In these monitoring programs, pension fund investments form a part, but not the sole focus, of the risk assessment of plans. The project team has taken elements of these programs that would have useful application in FSCO’s circumstances and proposes a 3-stage selective review process for the monitoring of pension fund investments as outlined below.

Selective Review Process

The first stage, the risk assessment stage, would assess the relative risk potential of pension plans based on predefined investment risk factors, which would require that specific investment information be collected from all plans. The information would be captured from a standard form called the Investment Information Summary (IIS, a draft of which is set out in Appendix B). The IIS would contain financial data respecting the pension fund as well as a number of questions respecting fund assets, compliance with prescriptive rules and the plan’s SIPP. The IIS information would be entered into a risk assessment system, which would assign each plan a risk assessment score using the proposed risk criteria described in Appendix C. These risk criteria and assessment scores would not constitute any judgment as to the actual prudency of any particular plan’s pension fund investments, but would simply be used for initial screening purposes. Those plans with higher preliminary risk assessment scores would be selected for review in the second stage.

In the second stage, the investment review stage, FSCO would, with respect to those plans selected in the first stage, conduct desk reviews of pension fund-related information such as the asset allocation strategy. While not as yet fully developed, it is expected that the desk review would entail an examination of the pension fund’s operation to determine if there are any material concerns with the pension fund investments. The review would look for such things as non-compliance with prescribed investment rules, non-compliance with investment policies and imprudence in fund governance. It would also look at the interrelationship between plan assets and liabilities, and the funded position of the plan. Any material concerns with respect to regulatory compliance, fund governance and risk exposure would be identified during this review stage.

In the third stage, the follow-up stage, FSCO staff would raise and seek resolution of any material concerns identified through the investment review in the second stage. If warranted, more pension fund data and statistics (e.g., alpha coefficient, beta coefficient, standard deviation), as well as any relevant documentation (e.g., the SIPP) would be requested for further examination.

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Factors for Consideration

To implement the proposed selective review process for investment monitoring, it is necessary to take into account several factors as discussed below.

A. Investment Legislation

As previously mentioned, the Ontario investment legislation is a mixed regime of the prudent person rule and certain prescriptive rules (mainly quantitative) designed to limit investment concentration and control of companies and prevent self-dealing (conflict of interest).

Proposal

It is proposed that the investment review focus on the process by which investment decisions are made and on how investment risks are effectively managed through diversification.

B. Regulatory Workload

FSCO regulates over 6,200 pension plans (of which about 2,800 are defined benefit plans). This is about five times the number of plans regulated by OSFI and about three times the number of plans regulated by Québec. Compared to Québec (the second largest Canadian pension jurisdiction), FSCO’s workload is also greater in terms of its mandate. FSCO, for example, operates the Pension Benefits Guarantee Fund, Ontario’s legislation is more complex (e.g., grow-in rights, partial wind up issues, surplus issues) and many Superintendent decisions are made through a time-consuming notice of proposal process. Furthermore, many of the largest Canadian pension plans are registered in Ontario, some of which are multi-jurisdictional plans also subject to the pension legislation of other jurisdictions.

Proposal

Given FSCO’s relatively heavy regulatory workload, it is proposed that FSCO adopt an approach which targets the investment review on those defined benefit pension plans that indicate certain risk characteristics revealed from the collected plan investment information. Designated plans under the federal Income Tax Act and plans fully invested in insured contracts would be excluded outright from this approach, as they are considered to be low risk from a regulatory perspective. Furthermore, defined contribution plans would not be included as part of the proposed investment monitoring (at least initially), as a different monitoring approach would be required.

C. Collection of Information

The investment monitoring program will require the efficient collection of investment-related information for all of the subject pension plans. FSCO’s need to obtain information, meanwhile, has to be balanced with the administrative cost to pension plans of providing the information.

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Currently, FSCO requires that each plan file an annual information return (AIR) and financial statements each year. However, these documents do not contain sufficient data for the proposed investment monitoring, and the financial statements are not required to be filed in a standardized format, making secondary collection of data from such statements time consuming and resource intensive.

Proposal

It is proposed that the information required for investment monitoring be collected from the IIS form, which could be either a new stand-alone FSCO pension form or appended to an existing FSCO form, such as the AIR. The IIS would consist of a number of parts, some of which would contain information currently found in the financial statements required to be filed under section 76 of the regulations made under the PBA. Other parts would contain information related to plan investment data (such as the asset allocation and rate of return), as well as general questions on fund governance and SIPP requirements. All plans, including those excluded from the risk assessment process, would be required to complete the IIS.

D. Certification of Information

The PBA places primary responsibility on the plan administrator to ensure compliance with the pension benefits legislation. Where a pension plan is required to file audited financial statements with FSCO (i.e., plans with over $3 million in assets at market value), auditors also play a “whistle-blowing” role. If, in the course of exercising their duties, the auditors become aware of any significant contravention of the investment legislation, they are required to report it to FSCO.3

No investment monitoring will be able to function effectively unless the information upon which it is based is complete and accurate. As such, in addition to having the plan administrator certify the completeness and accuracy of the investment information provided through the IIS form, it would be useful to have a third party that is independent of the plan administrator also certify that information in most circumstances.

Third parties for this role could include such persons as the plan auditor or pension fund trustee, custodian or investment manager. Other possible third parties may be identified in the course of this consultation. In selecting the most appropriate party to certify a plan’s investment information, consideration would have to be given to whether the party can reasonably be expected to be aware of, or find out about, all of the investment information being certified, the confidence that the party’s certification will bring (e.g., due to professional standards that might apply to the party) and the cost to the plan in having the party certify the information.

3 Subsections 76(15) and (16) of the regulations provide a “whistle-blowing” function by requiring the auditor to report to the Superintendent any outstanding significant contravention of the prescriptive rules within 30 days after the auditor reported the matter to the administrator.

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Proposal

It is proposed that the plan administrator certify that the information provided in the IIS form is complete and accurate.

It is further proposed that for plans required to filed audited financial statements with FSCO (i.e., plans with $3 million or more in assets at market value), that the plan auditor also certify the information provided in the IIS form is complete and accurate. The plan auditor is in the best position to verify the investment information provided by the administrator, already carries out this duty in respect of the financial statements for the plan and is subject to the oversight of a professional standards body.

In general, reliance by FSCO on compliance certifications from the plan administrator and auditor would be preferable to actual monitoring by FSCO of every plan’s actual compliance with the investment legislation, which would be too costly and onerous for FSCO to undertake. Note that both Québec and OSFI require similar certifications from plan administrators and auditors with respect to plan investments.

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4. ISSUES TO BE ADDRESSED

FSCO would appreciate receiving comments from pension stakeholders on the following issues:

1. The proposed investment monitoring model:

(a) Is the proposed FSCO investment monitoring model described in Section 3 of this paper adequate and workable in relation to the regulatory objectives stated in Section 2?

(b) Are the proposed criteria for determining a pension plan’s investment risk profile described in Appendix C appropriate? Are there other criteria that should be examined in addition to those described in Appendix C?

(c) What guidelines can be used to determine whether a particular pension fund’s assets have been invested prudently or imprudently?

2. The proposed Investment Information Summary:

(a) Does the proposed Investment Information Summary (IIS) set out in Appendix B of this paper collect the appropriate information for risk assessment purposes?

(b) Should some or all of the information contained on the IIS be filed in electronic form? How should this be accomplished (keeping in mind the required certifications, signatures, etc.)?

3. Third party certification:

(a) Would it be worthwhile to have a third party certify the accuracy and completeness of the information provided on the IIS, or is certification of this information by only the plan administrator sufficient?

(b) If it would be worthwhile to have third party certification of the IIS information, what third party (e.g., plan auditor, fund custodian(s), investment manager(s), etc.) should be eligible and required to provide such certification?

4. Exemptions from monitoring requirements:

(a) Should defined contribution plans, designated plans under the federal Income Tax Act and/or plans fully invested in insured contracts be exempted from providing some or all of the information on the IIS?

(b) Should small plans be screened out of the risk assessment process or screened with fewer risk criteria, since these plans are often invested solely in pooled funds

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managed by financial institutions, and considering the possible cost of complying with the proposed investment monitoring model? Below what pension fund asset level (e.g., $3 million, $10 million) would a plan be considered a small plan?

(c) Should small plans be exempted from providing some of the information on the IIS?

(d) Should small plans be exempted from having third party certification of the information provided on the IIS?

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APPENDIX A - FEDERAL INVESTMENT REGULATIONS

Prescriptive Rules

Provision in FIR Schedule III Policy intent of the provision

Maximum 10% of plan assets (at book value) directly or indirectly invested in or loaned to any one person/associated persons/affiliated corporations (with some exceptions). [s. 9]

Restrictions on investment concentration.

Maximum 5% of plan assets (at book value at time investment is made) directly or indirectly invested in any one parcel of real property/Canadian resource property. [s. 10(1)(a)]


Maximum 15% of plan assets (at book value at time investment is made) directly or indirectly invested in Canadian resource properties in aggregate. [s. 10(1)(b)]


Maximum 25% of plan assets (at book value at time investment is made) directly or indirectly invested in real property and Canadian resource properties in aggregate. [s. 10(1)(c)]


No direct or indirect investment in the securities of a corporation to which are attached more than 30% of the voting shares required to elect directors. [s. 11(1)] Exceptions to this rule for real estate, resource and investment corporations, as defined in FIR. [s. 11(2)]

Restrictions on control of companies.

No direct or indirect investments in the securities of a real estate, resource or investment corporation to which are attached more than 30% of the voting shares required to elect directors unless the corporation provides certain undertakings to the regulator (e.g., additional information filings, access to corporate records, restrictions on business activities, etc.). [ss. 12, 13, 14]

Restrictions on control of companies. Control of real estate, resource or investment corporations (as defined by FIR) allowed if undertakings obtained, perhaps because these corporations are business subsidiaries of the plan which are restricted in their business activities and subject to more detailed regulatory oversight.

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Provision in FIR Schedule III Policy intent of the provision

A real estate, resource or investment corporation may directly or indirectly invest in securities providing ownership of more than 30% of the voting shares required to elect directors of a subsidiary real estate, resource or investment corporation (if the undertakings from the subsidiary corporation are obtained), but the subsidiary corporation may not invest in the securities of another subsidiary real estate, resource or investment corporation. [ss. 12, 13, 14]

Restrictions on control of companies.

No direct or indirect investments in the securities of, loans to or transactions with certain parties related to the plan (e.g., the administrator, participating employers, fund custodians, affiliated corporations, related officers and directors, etc.). [s. 16] Exception for related party transactions required for the operation or administration of the plan, if market terms apply to the transaction. [s. 17(1)] Exception for investments in the securities of a related party acquired at a prescribed public exchange. [s. 17(2)] Exception for related party transactions of nominal value or if immaterial to the plan. [s. 17(3)]

Restrictions on self-dealing.

SIPP Requirements

The plan administrator must establish a written statement of investment policies and procedures (SIPP) respecting the plan’s portfolio of investments and loans, including [s. 7.1]:

1. Categories of investments and loans, including derivatives, options and futures. 2. Diversification of the investment portfolio. 3. Asset mix and rate of return expectations. 4. Liquidity of investments. 5. Lending of cash or securities. 6. Retention or delegation of voting rights acquired through plan investments. 7. Method of, and basis for, the valuation of investments that are not regularly

traded at a public exchange.

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8. Related party transactions permitted under section 17 of Schedule III and the criteria to be used to establish whether a transaction is nominal or immaterial to the plan, having regard to all factors that may affect the funding and solvency of the plan and the ability of the plan to meet its financial obligations.

The SIPP must be reviewed and confirmed or amended by the administrator at least yearly. [s. 7.2]

There is no requirement to file the SIPP with the regulatory authority, however, for defined benefit plans, the administrator must submit the SIPP and amendments to the plan’s actuary.

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APPENDIX B - PROPOSED INVESTMENT INFORMATION SUMMARY

PART 1 - PENSION PLAN INFORMATION

1.1 - Registration Number 1.2 - Name of Pension Plan

1.3 - Fiscal Year of Pension Plan

From: To:

Year / Month / Day Year / Month / Day

PART 2 - CERTIFICATIONS

2.1 - By plan administrator

As the administrator of the pension plan or an agent or representative of the administrator authorized by the administrator to complete this Investment Information Return and give this certification, I certify that the information contained in this Investment Information Summary is true, accurate and complete to the best of my knowledge and belief.

Dated this ______________________ day of _______________________ , ______________ . (day) (month) (year)

_________________________________ ________________________________ Signature of administrator or Print or type name of administrator or administrator’s agent or representative administrator’s agent or representative

_________________________________ _(_______)______________________ Address of administrator or Telephone number administrator’s agent or representative

2.2 - By plan auditor (only if, at the fiscal year end of the pension plan, the plan has $3,000,000 or more in assets calculated at market value):

As the accountant that prepared the auditor’s report respecting the pension fund’s or pension plan’s financial statements described in section 76 of Regulation 909 for the period covered by this Investment Information Summary, I certify that the information contained in this Investment Information Summary is true, accurate and complete to the best of my knowledge and belief, except that my certification does not apply to the information related to questions 5.7 and 5.8 in Part 5 of this Investment Information Summary.

Dated this ______________________ day of _______________________ , ______________ . (day) (month) (year)

_________________________________ ________________________________Signature of accountant or Print or type name of accountant or

accounting firm representative accounting firm representative

_________________________________ _(_______)______________________ Name of firm Telephone number

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PART 3 - STATEMENT OF CHANGES IN NET ASSETS (in thousands of dollars - $’000s)

3.1 - Increase in Assets (Including Receivables) Investment income (interest, dividends, rents, etc.)Net gains (or losses) on investments

- Realized 111 - Unrealized 112

Total lines 111 and 112 Contributions - Member required contributions - Member additional voluntary contributions - Employer normal cost contributions - Amortized employer contribution amounts related to

unfunded liabilities and/or solvency deficiencies Total lines 131 to 135

Transfers from other pension plans

131 132 134 135

Other revenue items (specify) - ___________________________________________ - ___________________________________________ - ___________________________________________

Total lines 161 to 163 Total increase in assets Total lines 100, 120, 140, 150 and 170

161 162 163

3.2 - Decrease in Assets (Including Payables)Expenses related to investment management (including brokerage fees)Administration costs

- Audit fees - Administration fees - Professional fees (other than audit or administration fees) - Other costs

Total lines 211 to 214 Pension benefits paid Lump sum refunds Transfers to other pension plans

211 212 213 214

Other sources of decrease in assets (specify) - ___________________________________________ - ___________________________________________ - ___________________________________________

Total lines 261 to 263 Total decrease in assets Total lines 200, 220 to 250 and 270

261 262 263

Change in Net Assets Line 180 minus line 280

Market Value of Net Assets at Beginning of Fiscal Year Market Value of Net Assets at End of Fiscal Year Total lines 300 and 310

100

120

140 150

170 180

200

220 230 240 250

270 280

300

310 400

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PART 4 - STATEMENT OF NET ASSETS (in thousands of dollars - $’000s)

Note: All amounts must be reported at fair market value. If the market value is not available, an appraised value may be reported. If an appraised value is reported, an explanation of the basis of valuation and the date of the last valuation must be attached to the end of this Investment Information Summary.

4.1 - Assets 4.1.1 - Cash

Demand deposits and cash on hand Short term notes and treasury bills Term deposits and guaranteed investment certificates

Total lines 501 to 503 4.1.2 - Debt Securities

Canadian bonds and debentures U.S. bonds and debentures Other foreign bonds and debentures Real estate debentures Mortgage loans Bond and mortgage mutual or pooled funds or segregated funds

Total lines 521 to 526 4.1.3 - Equity Securities

Canadian stocks U.S. stocks Other foreign stocks Real estate Stock mutual or pooled funds or segregated funds

Total lines 541 to 545 4.1.4 - Diversified Securities and Other Investments

Balanced mutual or pooled funds or segregated funds Insured contracts Employer and/or affiliate issued securities Real estate corporations Resource corporations Investment corporations Resource properties Venture capital Private equity Other investments (specify) - ___________________________________________ - ___________________________________________ - ___________________________________________

Total lines 561 to 572

501 502 503

521 522 523 524 525 526

541 542 543 544 545

561 562 563 564 565 566 567 568 569

570 571 572

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510

530

550

580


4.1.5 - Accounts Receivable Contributions - Member required and voluntary contributions - Employer required contributions

Investment income receivable (interest, dividends, rents, etc.)Other amounts receivable (specify)- ___________________________________________

- ___________________________________________

- ___________________________________________ Total lines 591 to 596

Total Assets Total lines 510, 530, 550, 580 and 600

4.2 - Liabilities 4.2.1 - Accounts payable

Expenses related to investment managementAdministration costs

Pension benefits and lump sum refunds

Other amounts payable (specify)- ___________________________________________ - ___________________________________________ - ___________________________________________

Total lines 801 to 806 4.2.2 - Other liabilities

Other liabilities (specify) - ___________________________________________ - ___________________________________________ - ___________________________________________

Total lines 821 to 823

Total Liabilities Total lines 810 and 830

Net Assets Line 700 minus line 900

594 595 596

591 592 593

801 802 803

600

700

810

830

900

950

804 805 806

821 822 823

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PART 5 - QUESTIONS TO BE COMPLETED BY THE PLAN ADMINISTRATOR AND AUDITOR

This part must be completed and certified by the pension plan administrator (or the administrator’s agent or representative). If, at the end of the period covered by this Investment Information Summary, the pension plan has $3,000,000 or more in assets calculated at market value, this part must also be certified by the accountant that prepared the auditor’s report respecting the pension fund’s or pension plan’s financial statements described in section 76 of Regulation 909 made under the Ontario Pension Benefits Act, except that the accountant’s certification does not apply to the information provided in relation to questions 5.7 and 5.8 in this part.

Unless otherwise noted, all of the questions in this part should be answered as of the end of the period covered by this Investment Information Summary.

If a question is irrelevant or does not apply, the answer “No” or “Not Applicable” should be provided. If the answer to any question in this part is “No”, a written explanation respecting that question must be attached to the end of this Investment Information Summary.

Questions Respecting Asset Information

5.1 Is the information set out in Parts 1 and 2 of this Investment Information Summary � Yes � Noconsistent with the information set out in the pension plan or pension fundfinancial statements required under section 76 of Regulation 909?

5.2 What was the rate of return (time weighted) for the pension fund over the period ____ % per annumcovered by this Investment Information Summary?

5.3 Were all of the assets of the pension fund held by an external custodian of the � Yes � Nopension fund (such as a trust company or insurance company), with no assets ofthe pension fund being held directly by the plan administrator?

5.4 If any of the assets of the pension fund were invested in derivative investments, � Yes � Nowas a description of the purposes behind, and strategy for, making derivativeinvestments set out in the pension plan’s written Statement of Investment Policies � Not Applicable

and Procedures?

5.5 If any of the assets of the pension fund were invested in new derivative � Yes � Noinvestments during the period covered by this Investment Information Summary,were the new derivative investments invested in accordance with the purposes � Not Applicable

behind, and strategy for, making derivative investments set out in the pensionplan’s written Statement of Investment Policies and Procedures?

5.6 If any of the assets of the pension fund were invested in derivative investments, $ _______________ what was the notional value of any derivative investments held by the plan? � Not Applicable

5.7 What percentage of the pension fund investments made during the period coveredby this Investment Information Summary were selected:

- in-house by the administrator described in the text of the pension plan ____ %

- by a third party administrator (if any) ____ %

- by external investment managers ____ %

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5.8 List the name of each issuer in which more than 5% of the assets of the pension fund at market value were invested as of the end of the period covered by this Investment Information Summary and the market value of the total pension fund assets invested in each issuer listed (attach additional pages if necessary):

______________________________________________________________ $ _______________

______________________________________________________________ $ _______________

______________________________________________________________ $ _______________

______________________________________________________________ $ _______________

______________________________________________________________ $ _______________

Questions Respecting the Federal Investment Regulations (sections 6, 7, 7.1 and 7.2 and Schedule III to the Pension Benefits Standards Regulations, 1985 made under the Pension Benefits Standards Act, 1985 (Canada) as it read on December 31, 1999)

5.9 Were all of the assets of the pension fund invested in the name of, or on behalf of, � Yes � No the pension plan in accordance with clause 6(1)(b) of the Federal Investment Regulations throughout the period covered by this Investment Information Summary?

5.10 Did the administrator have records identifying all of the investments of the pension � Yes � No fund in accordance with section 7 of the Federal Investment Regulations?

5.11 Did the investments of the pension fund comply with the 10% rule described in � Yes � No section 9 of Schedule III of the Federal Investment Regulations?

5.12 Did the investments of the pension fund comply with the 5%, 15% and 25% rules � Yes � No described in section 10 of Schedule III of the Federal Investment Regulations?

5.13 Did the investments of the pension fund comply with the 30% rule described in � Yes � No section 11 of Schedule III of the Federal Investment Regulations?

5.14 Did the investments of the pension fund comply with the real estate corporation, � Yes � No resource corporation and investment corporation rules described in sections 12 to 14 of Schedule III of the Federal Investment Regulations?

5.15 Did the investments of the pension fund comply with the related party transaction � Yes � No rules described in sections 16 and 17 of Schedule III of the Federal Investment Regulations?

Questions Respecting the Statement of Investment Policies and Procedures (SIPP)

5.16 Did the plan have a SIPP meeting the requirements of section 7.1 of the Federal � Yes � No Investment Regulations?

5.17 On what date was the SIPP last amended, or if it has never been amended, first _____/_____/_____ adopted? (Enter the day/month/year.)

5.18 Was the SIPP reviewed and confirmed or amended by the plan administrator � Yes � No during the period covered by this Investment Information Summary?

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5.19 If the pension plan provides defined benefits, has a copy of the SIPP and every � Yes � No amendment to the SIPP been provided to the actuary to the plan? � Not Applicable

5.20 Were all of the investments of the pension fund invested in accordance with the � Yes � No SIPP?

5.21 As described in the SIPP, what percentage of the market value of the assets of thepension fund were intended to be invested in the following broad asset categories:

- Canadian equities � Not Applicable ____ % to ____ % Target ____ %

- U.S. equities � Not Applicable ____ % to ____ % Target ____ %

- Other foreign equities � Not Applicable ____ % to ____ % Target ____ %

- Canadian fixed income � Not Applicable ____ % to ____ % (including mortgages) Target ____ %

- U.S. fixed income � Not Applicable ____ % to ____ % (including mortgages) Target ____ %

- Other foreign fixed income � Not Applicable ____ % to ____ % (including mortgages) Target ____ %

- Real estate � Not Applicable ____ % to ____ % Target ____ %

Question Respecting Correction of Pension Fund Investment Status

5.22 Where the answer to any other question in this part of the Investment Information � Yes � No Summary above is “No”, has the situation described by the relevant question(s) been rectified such that the answer to the relevant question(s) is “Yes” as of the date this Investment Information Summary is prepared?

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APPENDIX C - PROPOSED CRITERIA FOR DETERMINING FIRST STAGE PRELIMINARY PENSION PLAN RISK ASSESSMENT SCORES

GENERAL DESCRIPTION

The first stage risk assessment is an initial screening process that comprises two levels of screening (and which does not in itself constitute any judgment as to the actual prudency of any particular pension fund’s investments):

- Level 1 screening would screen out certain plans from the risk assessment process altogether (i.e., all designated plans under the federal Income Tax Act, defined contribution (DC) plans and plans completely invested in insured contracts).

- Level 2 screening would then be conducted on the remaining plans using the Primary and Secondary Risk Criteria, as described below. - For each Primary Risk Factor identified in relation to a plan, the plan would be assigned 1 primary point, as described in Chart 2.1 below.

The Primary Risk Factors mainly involve clear contraventions of specific legislative requirements respecting pension fund investments. - For each Secondary Risk Factor identified in relation to a plan, the plan would be assigned a number of secondary points, as described in

Chart 2.2 below. The Secondary Risk Factors do not involve clear contraventions of specific legislative requirements respecting pension fund investments, but reflect circumstances (related to asset mix, rate of return, investment policies and procedures, etc.) which in FSCO’s view may indicate higher degrees of risk than the norm.

All plans screened through the Level 2 screening would then be ranked by the number of primary points assigned to each plan. For plans with an equal number of primary points, these plans would be ranked in relation to each other based on the number of secondary points assigned to each plan.

For example, if 7 plans were screened at Level 2, the following rankings might occur:

Plan Ranking # of Primary Points Assigned # of Secondary Points Assigned

1 6 26

2 6 20

3 4 31

4 4 15

5 2 19

6 0 26

7 0 3

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1. LEVEL 1 SCREENING OF ALL PLANS

Number Screening Criteria (for FSCO Internal Use)

Score Data Required/Source Rationale for Criteria

Plan Type/Size Criteria

1.0.1 The following plans would be screened out of the risk assessment process altogether (but would still be required to complete the Investment Information Summary (IIS)): - Designated plans under the federal

Income Tax Act. - Defined contribution plans (i.e., where

only DC benefits are provided). - Plans completely invested in insured

contracts only.

Not applicable.

Information from revised AIR identifying designated and DC plans (rather than in IIS). IIS asset information identifying investments in insured contracts.

Designated plans are largely for executives who we assume are sophisticated enough to monitor their plans to ensure security of benefits. DC plans require a different type of investment monitoring model because investment risk in such plans is with the members, who may have limited investment options and expertise. Insured contracts are underwritten by an insurance company which is subject to insurance legislation.

2. LEVEL 2 SCREENING OF REMAINING PLANS

Chart 2.1 - Primary Risk Criteria

Number Primary Risk Criteria (for FSCO Internal Use)


Prescriptive Rule Criteria (Federal Investment Regulations, Schedule III)

2.1.1 Where plan assets were not invested in accordance with Sched. III s. 9 (10% rule) as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor about 10% rule compliance and details of any contravention.

Breach of legislative requirements is a serious regulatory issue.

26



2.1.2 Where plan assets were not invested in accordance with Sched. III s. 10 (5/15/25% real estate/resource property rules) as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor about 5/15/25% rule compliance and details of any contraventions.


2.1.3 Where plan assets were not invested in accordance with Sched. III s. 11 (30% control rule) as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor about 30% control rule compliance and details of any contraventions.


2.1.4 Where plan assets were not invested in accordance with Sched. III ss. 12 to 14 (real estate/resource/investment corporation rules) as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor about real estate/resource/investment corporation rule compliance and details of any contraventions.


2.1.5 Where plan assets were not invested in accordance with Sched. III ss. 16 and 17 (related party transaction rules) as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor about related part transaction rule compliance and details of any contraventions.


27



SIPP Requirement Criteria (Federal Investment Regulations, ss. 7.1 to 7.2)

2.1.6 Where no SIPP exists meeting the requirements of s. 7.1 as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor respecting existence of SIPP and date adopted/last amended.

Lack of a SIPP indicates administrator has not addressed how to prudently invest the plan assets. Breach of legislative requirements is a serious regulatory issue.

Asset Management / Governance Criteria

2.1.7 Where any plan assets were not invested in the name of, or on behalf of, the plan as required by s. 6(1)(b) of the Federal Investment Regulations as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor about s. 6(1)(b) requirements, and details of any contraventions.

Investments not made in the name of, or on behalf of, the plan threaten the security of those assets to the plan. Breach of legislative requirements is a serious regulatory issue.

2.1.8 Where the administrator does not have records identifying all plan investments as required by s. 7 of the Federal Investment Regulations as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor about s. 7 requirements, and details of any contraventions.

Prudent management requires adequate record keeping. Breach of legislative requirements is a serious regulatory issue.

2.1.9 Where any plan assets were held directly by the administrator rather than by an external custodian (e.g., trust company or insurance company) as of the end of the period covered by the IIS.

1 primary point.

Certification from administrator and auditor respecting existence of any assets held directly by the administrator.

Standard industry practice is for plan assets to be held by external custodians.

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Chart 2.2 - Secondary Risk Criteria

Number Secondary Risk Criteria (for FSCO Internal Use)


Asset Mix Criteria

Where the market value of the plan assets as of the end of the period covered by the IIS are invested in:

IIS asset information breaking down plan assets by asset category.

2.2.1 - More than 65% in equities (equities defined as Canadian and foreign stocks, pooled equity funds, venture capital and direct and indirect real estate holdings).

1 secondary point for each 1% that equities are above 65%, to a maximum of 20 secondary points.

Stocks are residual claims on corporate cash flow, available to stockholders only after everyone else has been paid. Stocks are, therefore, by definition risky. The typical pension plan equity investment appears to be in the range of 35-65%, supported by: - Statistics on Canadian pension

plan total returns over 19602001 indicate a 40-45% equity, 55-60% fixed-income asset allocation.

- Academic studies typically refer to a 60% equity, 40% fixed-income asset mix.

- Experience and observation of FSCO staff is that the common range for equities is 35-65%.

2.2.2 - More than 5% in real estate holdings and real estate-backed debt obligations (mortgages, debentures, etc.).

2 secondary points for each 1% above 5%.

These investments may be highly illiquid, valuations may be uncertain and/or unreliable and can entail large valuation swings.

29



2.2.3 - More than 5% in resource properties. 2 secondary points for each 1% above 5%.

Valuations can become depressed for extended periods of time, and subject to substantial volatility.

2.2.4 - More than 5% in venture capital and private placements.

2 secondary points for each 1% above 5%.

These investments require special expertise to evaluate and undertake successfully. They require extensive research capability, and even though they can result in high investment returns, can also experience a high failure rate. They also require a long period of gestation before their success or failure as an investment can be easily determined. Significant exposure to these investments can therefore pose a high degree of concern, depending on the capability of the plan sponsor and the amount of the total portfolio invested in this category.

2.2.5 - More than 10% in real estate holdings, real estate-backed debt obligations (mortgages, debentures, etc.), resource properties, venture capital and private placements in aggregate.

10 secondary points.

See rationale for 2.2.2 to 2.2.4 above. These investments are illiquid and FSCO has experienced problems in the past with plans with a high proportion of illiquid assets.

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2.2.6 Any investment in a single issuer that represents more than 5% of plan assets (not including Canadian and US government securities) as of the end of the period covered by the IIS.

10 secondary points for each occurrence.

Information from administrator listing each investment in a single issuer that represents more than 5% of the plan’s assets at market value and the market value of each investment.

May indicate lack of prudent portfolio diversification.

2.2.7 Where the actual % invested in any of either Canadian, U.S. or other foreign equities or fixed income (including mortgages) as of the end of the period covered by the IIS is outside the intended % investment range described in the SIPP for these broad asset categories.


Certification from administrator and auditor listing the intended % investment range for each asset category described in the SIPP.

Not investing within intended % asset investment range indicates failure to implement stated investment policy.

31



Rate of Return Criteria

2.2.8 Where the total rate of return (net of investment expenses but gross of all other expenses) in each of the last two periods covered by the IIS has been 5 or more percentage points below or above the benchmark rate of return.

The benchmark is the pension plan asset median return as given in the Report on Canadian Economic Statistics, published by the Canadian Institute of Actuaries.


Certification from administrator and auditor respecting overall plan fund rate of return. (Also calculated by FSCO from financial statement information above breaking down plan assets by asset category.)

For any plan experiencing a rate of return outside of a certain range, say, 5 percentage points above or below the median return of pension funds, FSCO should at least identify the causes or seek an explanation for the deviations. (The applicable range will be adjusted to reflect the market volatility during the review periods.) A return below reasonable benchmarks may indicate a failed investment approach or lack of proper oversight (neglect). On the other hand, a very high return may indicate momentum or fad investing, and hence the possibility for a substantial giveback down the road.

SIPP Requirement Criteria (Federal Investment Regulations, ss. 7.1 to 7.2)

2.2.9 Where the SIPP was not reviewed and confirmed or amended within the period covered by the IIS as required by s. 7.2.


Certification from administrator and auditor respecting review and confirmation or amendment of SIPP within last year, and details of any contraventions.

Lack of a current SIPP indicates administrator has not addressed how to prudently invest the plan assets. Breach of legislative requirements is a serious regulatory issue.

32



2.2.10 Where the SIPP or any SIPP amendment was not submitted to the plan actuary as of the end of the period covered by the IIS as required by s. 7.1(3)(b).

5 secondary points.

Certification from administrator and auditor respecting submission of SIPP/SIPP amendment to plan actuary, and details of any contraventions.


2.2.11 Where any plan investments were not made in accordance with the SIPP as of the end of the period covered by the IIS.

5 secondary points.

Certification from administrator and auditor that all plan investments have been made in accordance with SIPP, and details of any contraventions.

Not investing in accordance with the SIPP indicates lack of proper control over investments.

33



Asset Management / Governance Criteria

2.2.12 Where a plan has any investment in derivatives as of the end of the period covered by the IIS.

5 secondary points.

Certification from administrator and auditor about any investment in derivatives and their notional value.

Derivatives are a very valuable tool for modifying asset mix since they are cost effective, efficient, and easy to use. However, concern arises when they are used to increase fund leverage, are not directly tied/ hedged to an asset class, and when investment activities are in large part concentrated under the control of the plan sponsor. Therefore it is important to evaluate derivative use, in light of the plan sponsor's capabilities and sophistication. The evaluation of the plan sponsor in this regard, is partly done in light of the answers to other questions, such as the size of the fund, the amount of the portfolio directed in-house, deviations from the SIPP, and violations of various regulatory guidelines.

2.2.13 If a plan has any investment in derivatives as of the end of the period covered by the IIS, where the plan’s derivatives investment strategy is not set out in the SIPP.


Certification from administrator and auditor about whether derivatives investment strategy is set out in the SIPP.

2.2.14 If a plan has made any new investments in derivatives during the period covered by the IIS, where any of the new derivatives investments have not been made in accordance with the plan’s derivatives investment strategy set out in the SIPP.


Certification from administrator and auditor about whether all derivatives investments have been made in accordance with the derivatives investment strategy set out in the SIPP.

34



2.2.15 Where investment expenses incurred during the period covered by the IIS are more than the following % of plan assets, by asset size as of the end of the period covered by the IIS: - 0.55% for plans less than $50 million - 0.45% for plans $50-100 million - 0.30% for plans $100-500 million - 0.20% for plans over $500 million

Investment expenses include investment management and brokerage fees but do not include consulting, record keeping, custodial, audit, legal or other fees.

5 secondary points.

IIS asset information about plan’s investment expenses.

Excessive expenses may indicate imprudent pension fund management. Fee percentages are those for the 75th percentile of plans in the described asset sizes, from the most recent (1997) published SEI Survey of Fees, rounded to the nearest 0.05%.

35



2.2.16 Where portfolio selection of 25% or more of plan investments made during the period covered by the IIS has been directly made in-house by plan administrator itself, as opposed to by external investment management professionals.

“In-house” investment management refers to circumstances where the administrator engages directly in the investment decisions, or hires professionals as employees to undertake such activity. The administrator has significant control over the investment process. Under external investment management, the investment firm or the professionals retained have considerable independence in their investment decisions. In this case, the administrator’s role is more that of corporate governance, rather than direct investment decision making.

1 secondary point for each 1% of plan assets above 25% that are directly managed inhouse by administrator, to a maximum of 20 secondary points.

No secondary points assigned if assets exceed $10 billion.

Information from administrator listing of % of plan asset investment directly managed in-house by administrator, third party administrator and other external investment managers.

If a substantial portion of the pension fund is managed in-house, FSCO should assess if the plan administrator has the requisite expertise and experience to make direct investment decisions.

For plans with a sizable fund (say, $10 billion or more), administrators generally have sophisticated in-house management structures and expertise.

2.2.17 Where the (value of a plan’s benefit liabilities in relation to retirees minus the value of the plan’s fixed income investments) as a percentage of the total plan benefit liabilities exceeds 10%.

1 secondary point for each 1% above 10%.

Plan benefit liability information from FSCO’s risk-based pension plan funding monitoring program. IIS asset information breaking down plan assets by asset category.

The liability for retirees can be immunized by investing a portion of the fund assets in bonds with either matching duration or cash flows. For matured plans, immunizing the liabilities in respect of the retirees and older members is generally a prudent course of action to take.

36



Plan Funded Status Criteria

2.2.18 Where the last actuarial funding valuation report filed in respect of a plan indicated solvency concerns as defined in s. 14(2) of Regulation 909 made under the PBA.


Plan funding information from FSCO’s risk-based pension plan funding monitoring program.

The weaker the funded status of a plan, the greater the danger imprudent investments pose to the security of plan benefits. Plans with solvency concerns will lead FSCO to investigate whether improper investment of the pension fund is a primary cause of the solvency concerns.

37

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