Vol. 147, No. 14 — July 3, 2013

Registration

SOR/2013-132 June 12, 2013

PENSION BENEFITS STANDARDS ACT, 1985

Aveos Pension Plan Regulations

P.C. 2013-798 June 12, 2013

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 39 (see footnote a) of the Pension Benefits Standards Act, 1985 (see footnote b), makes the annexed Aveos Pension Plan Regulations.

AVEOS PENSION PLAN REGULATIONS

INTERPRETATION

Definitions

1. (1) The following definitions apply in these Regulations.

• “Act”
  « Loi »
• “Act” means the Pension Benefits Standards Act, 1985.
• “assets of the plan”
  « éléments d’actif du régime »
• “assets of the plan” mean the assets of the plan that are attributable to a former member.
• “former member”
  « ancien participant »
• “former member” means a former member of the plan who is in receipt of an immediate pension benefit.
• “life income fund”
  « fonds de revenu viager »
• “life income fund” means a registered retirement income fund, as defined in subsection 146.3(1) of the Income Tax Act, that meets the requirements set out in paragraph 2(1)(b).
• “locked-in registered retirement savings plan”
  « régime enregistré d’épargneretraite immobilisée »
• “locked-in registered retirement savings plan” means a registered retirement savings plan, as defined in subsection 146(1) of the Income Tax Act, that meets the requirements set out in paragraph 2(1)(a).
• “plan”
  « régime »
• “plan” means the pension plan in respect of which certificate of registration number 57573 has been issued by the Superintendent under the Act.

Interpretation

(2) Except as otherwise provided in these Regulations, words and expressions used in these Regulations have the same meaning as in the Pension Benefits Standards Regulations, 1985.

Transfer options

2. (1) Despite sections 18 and 36 of the Act, the administrator of the plan must, on request of a former member and with the consent of the spouse or common-law partner of the former member, if any, or on request of the survivor of the former member, transfer the assets of the plan to

• (a) a locked-in registered retirement savings plan that
  • (i) provides that the funds may only be
    • (A) transferred to another locked-in registered retirement savings plan,
    • (B) transferred to a life income fund, or
    • (C) used to purchase an immediate life annuity or a deferred life annuity,
  • (ii) provides that, on the death of the holder of the locked-in registered retirement savings plan, the funds must be paid to the survivor of the holder by
    • (A) transferring the funds to another locked-in registered retirement savings plan,
    • (B) transferring the funds to a life income fund, or
    • (C) using the funds to purchase an immediate life annuity or a deferred life annuity,
  • (iii) provides that, subject to subsection 25(4) of the Act, the funds, and any interest or right in those funds, must not be transferred, charged, attached, anticipated or given as security and that any transaction appearing to do so is void or, in Quebec, null,
  • (iv) provides that, if the assets of the plan that were transferred into the locked-in registered retirement savings plan were not varied according to the sex of the plan member, an immediate life annuity or a deferred life annuity purchased with the funds accumulated in the locked-in registered retirement savings plan must not differentiate as to sex,
  • (v) contains a statement as to whether the assets of the plan that were transferred were varied according to the sex of the plan member, and
  • (vi) sets out the method of determining the value of the locked-in registered retirement savings plan, including the valuation method used to establish its value on the date of death of the holder of the locked-in registered retirement savings plan or on the date of transfer of assets from the locked-in registered retirement savings plan; or
• (b) a life income fund that
  • (i) provides that the funds may only be
    • (A) transferred to a locked-in registered retirement savings plan,
    • (B) transferred to another life income fund, or
    • (C) used to purchase an immediate life annuity or a deferred life annuity,
  • (ii) provides that, on the death of the holder of the life income fund, the funds must be paid to the survivor of the holder by
    • (A) transferring the funds to a locked-in registered retirement savings plan,
    • (B) transferring the funds to another life income fund, or
    • (C) using the funds to purchase an immediate life annuity or a deferred life annuity,
  • (iii) sets out the method of determining the value of the life income fund, including the valuation method used to establish its value on the date of death of the holder of the life income fund or on the date of transfer of assets from the life income fund,
  • (iv) provides that the holder of the life income fund must, at the beginning of each calendar year or at any other time agreed to by the financial institution with whom the contract or arrangement was entered into, decide the amount to be paid out of the life income fund in that year,
  • (v) provides that in the event that the holder of the life income fund does not decide the amount to be paid out of the life income fund in a calendar year, the minimum amount determined in accordance with the Income Tax Act must be paid out of the life income fund in that year,
  • (vi) provides that, for any calendar year before the calendar year in which the holder of the life income fund reaches 90 years of age, the amount of income paid out of the life income fund must not exceed the amount determined by the formula
  • C⁄F
  • where
  • C is the balance in the life income fund
    • (A) at the beginning of the calendar year, or
    • (B) if the amount determined under clause (A) is zero, at the date when the assets of the plan were transferred into the life income fund, and
  • F is the value, as at the beginning of the calendar year, of a pension benefit of which the annual payment is $1, payable on January 1 of each year between the beginning of that calendar year and December 31 of the year in which the holder reaches 90 years of age, established using an interest rate that
    • (A) for the first 15 years after January 1 of the year in which the life income fund is valued, is less than or equal to the monthly average yield on Government of Canada marketable bonds of maturity over 10 years, as published by the Bank of Canada, for the second month before the beginning of the calendar year, and
    • (B) for any subsequent year, is not more than 6%,
  • (vii) provides that, for the calendar year in which the holder of the life income fund reaches 90 years of age and for all subsequent calendar years, the amount of income paid out of the life income fund must not exceed the value of the funds held in the fund immediately before the date of the payment,
  • (viii) provides that, for the calendar year in which the contract or arrangement was entered into, the amount of income paid out of the life income fund, as referred to in subparagraph (vi) or (vii), as the case may be, must be multiplied by the number of months remaining in that year and then divided by 12, with any part of an incomplete month counting as one month,
  • (ix) provides that if, on the day on which the life income fund was established, part of the life income fund was composed of funds that had been held in another life income fund of the holder earlier in the calendar year in which the fund was established, the amount of income paid out of the life income fund, as referred to in subparagraph (vi) or (vii) as the case may be, is deemed to be zero in respect of that part of the life income fund for that calendar year,
  • (x) provides that, subject to subsection 25(4) of the Act, the funds, and any interest or right in those funds, must not be transferred, charged, attached, anticipated or given as security and that any transaction appearing to do so is void or, in Quebec, null,
  • (xi) contains a statement as to whether the assets of the plan that were transferred were varied according to the sex of the plan member, and
  • (xii) provides that, if the assets of the plan that were transferred into a life income fund were not varied according to the sex of the plan member, an immediate life annuity or a deferred life annuity purchased with the funds accumulated in the life income fund must not differentiate as to sex.

Form and time limit

(2) The request to transfer and the consent must be provided in Forms 1 and 2 respectively of the schedule within 90 days after receipt of the statement required under section 3.

Disclosure

3. The administrator of the plan must, together with the statement required under subsection 28(2.1) of the Act, provide a written statement to each former member and their spouse or common-law partner, if any, or to the survivor of the former member, that

• (a) indicates the transfer options set out in section 2;
• (b) describes the restrictions applicable to those transfer options;
• (c) informs the former member or survivor that, if they do no make a request under section 2, the administrator must purchase a life annuity on their behalf;
• (d) discloses the following risks associated with electing the transfer rather than having a life annuity purchased on their behalf by the administrator:
  • (i) that the amount of pension income could be significantly reduced if the future investment performance is lower than expected; and
  • (ii) that the income produced could be insufficient to provide the same retirement income that would otherwise have been received even if the future investment performance equals or exceeds the return that was expected; and
• (e) sets out the amount determined under section 4 and the amount that the former member or survivor would receive under a life annuity purchased on their behalf.

Assets attributable to a former member

4. The amount of the assets of the plan is determined by the formula

A − B + C

• where
• A is the commuted value of the former member’s pension as of the effective date of the termination of the plan determined in accordance with section 3500 of the Standards of Practice of the Actuarial Standards Board, published by the Canadian Institute of Actuaries, as amended from time to time,
• B is the sum of any pension payments made from the effective date of the termination of the plan until the day on which the transfer is made, and
• C is the amount of any accumulated interest, calculated at the rate that is used in the termination report to calculate the commuted value of pension benefits, from the effective date of the termination of the plan to the beginning of the month in which the transfer is made.

COMING INTO FORCE

Registration

5. These Regulations come into force on the day on which they are registered.

SCHEDULE
(Section 2)

FORM 1

TRANSFER REQUEST

Request to transfer

I,________________________,

(check (a) or (b))

• (a) ______ former member of the Aveos Fleet Performance Inc. pension plan, (certificate of registration number 57573 issued by the Superintendent of Financial Institutions and Canada Revenue Agency registration number 1198944), request to transfer the assets of the plan that are attributable to me,
• (check (i) or (ii))
  • (i) ______ to a locked-in registered retirement savings plan of the kind described in the Aveos Pension Plan Regulations,
  • (ii) ______ to a life income fund of the kind described in the Aveos Pension Plan Regulations;
• (b) ______ survivor of ________________________, former member of the Aveos Fleet Performance Inc. pension plan, (certificate of registration number 57573 issued by the Superintendent of Financial Institutions and Canada Revenue Agency registration number 1198944), request to transfer the assets of the plan that are attributable to the former member,
• (check (i) or (ii))
  • (i) ______ to a locked-in registered retirement savings plan of the kind described in the Aveos Pension Plan Regulations,
  • (ii) ______ to a life income fund of the kind described in the Aveos Pension Plan Regulations.

Acknowledgement

In choosing this transfer, I understand that if the future investment performance is lower than expected, the amount of pension income that I, or my spouse or common-law partner, if applicable, will receive could be significantly reduced.

I understand that even if the future investment performance equals or exceeds the return that was expected, it is possible that the income produced following the transfer of the assets of the plan will be insufficient to provide the same lifetime retirement income that I, or my spouse or common-law partner, if applicable, would otherwise have received if I had not elected to make the transfer.

Signatures

Signature of requester ________________________

Name of requester ________________________

Signature of witness ________________________

Name of witness ________________________

Address of witness ________________________

Signed at _____________________ on the ____________ day of _______________, 20__.

Confirmation of receipt of the request by the administrator of the plan

____________________ (name of the administrator of the plan) confirm receipt of the request of __________________ (name of requester) for the

(check (a) or (b))

• (a) ______ transfer of the assets of the plan that are attributable to the former member to a locked-in registered retirement savings plan of the kind described in the Aveos Pension Plan Regulations;
• (b) ______ transfer of the assets of the plan that are attributable to the former member to a life income fund of the kind described in the Aveos Pension Plan Regulations.

Signature

Signature of administrator of the plan ________________________

Name of administrator of the plan ________________________

Signed at _____________________ on the ____________ day of _______________, 20__.

FORM 2

CONSENT OF SPOUSE OR COMMON-LAW PARTNER

I, ________________________, certify that I am the spouse or common-law partner (as those terms are defined in the Pension Benefits Standards Act, 1985) of ________________________.

I understand that my spouse or common-law partner has elected to transfer the assets of the Aveos Fleet Performance Inc. pension plan, (certificate of registration number 57573 issued by the Superintendent of Financial Institutions and Canada Revenue Agency registration number 1198944), that are attributable to him or her, and that my written consent is required to enable my spouse or common-law partner to do so.

I understand that

• (a) the transferred funds may be used to purchase a life annuity at a later date;
• (b) if the transferred funds are used to purchase a life annuity, the life annuity must be in the joint and survivor form unless I waive my entitlements by signing a separate waiver form within 90 days before the start of the annuity;
• (c) a transfer of the assets of the plan into a life income fund under the Aveos Pension Plan Regulations will allow my spouse or common-law partner to withdraw some of the money each year, subject to minimum and maximum withdrawal limits as prescribed by the Pension Benefits Standards Act, 1985 and the Income Tax Act;
• (d) the amount of pension income or the amount available to me on the death of my spouse or common-law partner may be significantly reduced if
  • (i) my spouse or common-law partner elects to withdraw the maximum amount permitted each year, or
  • (ii) the investment performance is lower than expected; and
• (e) it is possible that the income produced following the transfer of the assets of the plan will be insufficient to provide the same lifetime retirement income I would otherwise have received had my spouse or common-law partner not elected to make the transfer.

Nevertheless, I consent to the transfer and certify that

• (a) I have read this form and understand it;
• (b) neither my spouse or common-law partner nor anyone else has put any pressure on me to sign this form;
• (c) my spouse or common-law partner is not present while I am signing this form; and
• (d) I realize that
  • (i) this form only gives a general description of the legal rights I have under the Pension Benefits Standards Act, 1985, the Pension Benefits Standards Regulations, 1985 and the Aveos Pension Plan Regulations,
  • (ii) if I wish to understand exactly what my legal rights are I must read the Pension Benefits Standards Act, 1985, the Pension Benefits Standards Regulations,1985 and the Aveos Pension Plan Regulations, or seek legal advice, or both, and
  • (iii) I am entitled to a copy of this consent form.

To consent to the transfer, I sign this consent form at _____________ on the ___________ day of ______, 20__.

Signature of spouse or common-law partner ________________________

Address of spouse or common-law partner ________________________

(home telephone number) ________________________

(work telephone number) ________________________

STATEMENT OF WITNESS

I certify that

• (a) My full name is ________________________
• (b) My address is ________________________
• (c) I witnessed the signing of this consent by _________________ in the absence of his/her spouse or common-law partner.

Signature of witness ________________________

(home telephone number) ________________________

(work telephone number) ________________________

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue

Retirees of the retirement plan for employees of Aveos, Office of the Superintendent of Financial Institutions (OSFI) registration number 57573, have requested an exemption from the Pension Benefits Standards Act, 1985 (PBSA) requirement that they purchase an immediate annuity following wind-up of the plan. Aveos pension plan retirees are concerned that this is not a good time to purchase an annuity considering the current economic climate and, in particular, the prevailing low interest rates.

Background

In 2007, Air Canada’s former aircraft, engine, and component maintenance and repair business, Air Canada Technical Services LP, sold its assets to Aveos Fleet Performance Inc. (Aveos). On January 31, 2011, Aveos was established as a distinct employer, bound by separate collective agreements. The retirement plan for employees of Aveos, OSFI registration number 57573 (“the Aveos pension plan”), was established later that year and became effective July 14, 2011. Two additional plans were also established: the retirement plan for unionized employees of Aveos and the Aveos defined contribution pension plan. The retirement plan for unionized employees of Aveos did not contain any retirees at the time of termination and, therefore, the Aveos Pension Plan Regulations (“the Regulations”) do not to apply to that plan. The Regulations also do not apply to the Aveos defined contribution pension plan as plan members do not remain within the plan following retirement under a defined contribution model and therefore there would be no retirees under the Aveos defined contribution plan.

On March 19, 2012, Aveos filed for creditor protection under the Companies’ Creditors Arrangement Act and issued termination of employment notices to the vast majority of its employees around this time. In May 2012, the Office of the Superintendent of Financial Institutions ordered the termination of the Aveos pension plan. Although the plan has been terminated by the Superintendent of Financial Institutions, it has not yet been wound-up and, therefore, the payout to members has not yet occurred. It is expected that upon wind-up, the members will receive a reduced payout.

The Aveos pension plan is a federally regulated pension plan and is thus subject to the PBSA and the Pension Benefits Standards Regulations, 1985 (PBSR). It is a defined benefit pension plan for the non-unionized employees of Aveos and it includes 47 retirees already receiving pension benefits.

In the event of plan termination, the PBSR provide members who have not yet retired, or have retired but have not yet received a pension benefit, with the option to transfer their pension benefit credits to another pension plan, or to a retirement savings plan, or use the pension benefit credits to purchase an immediate or deferred annuity. The prescribed options for retirement savings plans include a locked-in retirement savings plan, life income fund, a restricted life income fund, or a locked-in retirement income fund. However, under the PBSA, retirees already receiving pension benefits at the time of wind-up are required to have an immediate life annuity purchased on their behalf by the plan administrator.

The rationale for requiring the purchase of a life annuity is to ensure pensioners and their survivors continue to receive a lifetime of predictable and safe pension income. Allowing pensioners to transfer the assets of the plan which are attributable to them to another investment vehicle exposes those who elect this option to increased investment risk. This risk is seen as acceptable for non-retirees as they are still able to earn a steady stream of income as a working individual. However, during this low interest rate environment, requiring Aveos retirees to purchase an annuity may inadvertently compel them to accept a low return on top of the reduced payout they expect to receive upon termination of their plan.

Objectives

Provide Aveos pensioners the opportunity to have more flexibility in choosing an investment vehicle for the assets of the plan attributable to them.

Description

The Regulations will provide an Aveos pension plan member already receiving benefits at the time of wind-up with the option to transfer the assets of the plan attributable to that member into a life income fund or a locked-in retirement savings plan.

The Regulations will provide that the plan administrator be responsible for administering the transfer of funds to the chosen life income fund or locked-in retirement savings plan.

“One-for-One” Rule

The “One-for-One” Rule does not apply, as there is no change in administrative costs to business.

Small business lens

The small business lens does not apply, as there are no costs on small business.

Consultation

The Department of Finance has engaged extensively with the key parties. Specifically, retirees of Aveos advocated for the Regulations. An individual representing the views of 36 of the 47 retirees has also been consulted and has indicated strong support for the Regulations. The administrator for the Aveos pension plan is also supportive of the Regulations.

Rationale

The Regulations provide Aveos retirees currently receiving benefits with the same investment flexibility as is available to active members at the time of wind-up.

The characteristics of the Regulations are specifically focused on addressing the issue raised by the retirees of a need for greater investment flexibility. In this low interest rate environment where annuities can be costly, requiring Aveos retirees to purchase an annuity may inadvertently compel them to accept a low return on top of the significantly reduced payout they expect to receive upon termination of their plan. The Regulations do not extend beyond providing increased investment flexibility and will have no impact on anyone outside the group of 47 retirees.

The Regulations offer retirees an increased number of investment options while maintaining the default option of having an immediate life annuity purchased on their behalf, as is required under the PBSA. No costs are expected.

The restricted life income fund and locked-in retirement income fund are excluded as they offer unlocking options which allow for a one-time opportunity to unlock 50% of the funds held in the retirement savings at age 55 or thereafter. Moreover, unlocking provisions for life income funds and locked-in retirement savings plans that offer unlocking of funds for small balances, medical expenses and shortened life expectancy are also excluded from the Regulations. These unlocking provisions are excluded because the objective of the Regulations is to reflect the characteristics of the original pension plan, while offering more investment flexibility to retirees over what is offered through an annuity. The Aveos pension plan did not offer these unlocking provisions and, therefore, they are not included in the Regulations.

Implementation, enforcement and service standards

The Superintendent of Financial Institutions, under the direction of the Minister of Finance, is responsible for the control and supervision of the administration of the PBSA. As a result, the Superintendent is responsible for monitoring and enforcing the Regulations.

Contact

Leah Anderson
Director
Financial Sector Division
L’Esplanade Laurier, East Tower, 20th Floor
140 O’Connor Street
Ottawa, Ontario
K1A 0G5

• Footnote a
  S.C. 2012, c. 16, s. 89
• Footnote b
  R.S., c. 32 (2nd Supp.)