Overview of Statements of Investment Policies and Procedures (SIPP) Requirements

Transcription

1 Financial Services Cmmissin f Ontari Cmmissin des services financiers de l Ontari SECTION: INDEX NO.: TITLE: APPROVED BY: PUBLISHED: Investment Guidance Ntes IGN-005 Overview f Statements f Investment Plicies and Prcedures (SIPP) Requirements Superintendent f Financial Services FSCO website (date t be determined) EFFECTIVE DATE: January 1, 2016 Nte: Where this guidance nte cnflicts with the Financial Services Cmmissin f Ontari Act, 1997, S.O. 1997, c. 28 (FSCO Act), Pensin Benefits Act, R.S.O. 1990, c. P.8 (PBA) r Regulatin 909, R.R.O (Regulatin), the FSCO Act, PBA r Regulatin gvern. Nte: The electrnic versin f this guidance nte, including direct access t all linked references, is available n FSCO s website at All pensin plicies and guidance ntes can be accessed frm the Pensins sectin f the website thrugh the Pensin Plicies link. 1.0 Purpse This guidance nte utlines the cntent, filing and disclsure requirements fr statements f investment plicies and prcedures (SIPP), as set ut in Regulatin 909 (Regulatin) under the Pensin Benefits Act (PBA). In additin, it utlines factrs that FSCO expects the pensin plan administratr (administratr) t cnsider in establishing and reviewing a SIPP in accrdance with its fiduciary duties and as a matter f gd gvernance. An administratr f a member-directed defined cntributin (DC) plan, r a cmbinatin r hybrid plan with a member-directed DC prvisin 1, shuld als refer t IGN-003: Statements f Investment Plicies and Prcedures (SIPPs) fr Member-Directed Defined Cntributin Plans (IGN-003). 1 A DC plan r prvisin is member-directed where members r beneficiaries are permitted t make sme r all investment chices fr their individual accunts. A member-directed DC plan r prvisin is distinguished in this plicy frm an administratr-directed DC plan r prvisin, where all investment chices pertaining t the individual accunts are made by the administratr.

2 Index N.: IGN-005 / Page 2 f Backgrund 2.1 Differences between Investment Plicy Statements and SIPPs An investment plicy statement is a generic term fr a dcument that sets ut the investment plicies and parameters f an investment prgram, such as investment bjectives, investment principles, asset allcatin mix, and risk tlerances. A SIPP is a dcument required by the Regulatin that must utline key investment plicies and prcedures fr the pensin fund and meet minimum requirements set ut in the Regulatin and described in sectin 3.3 f this guidance nte. The SIPP may serve as the plan s sle investment plicy statement, as is the case fr many pensin plans. In such instances, it may be apprpriate fr the SIPP t g beynd the prescribed minimum cntent requirements, and address a brader range f investment plicy matters. Alternatively, a plan may establish a SIPP which is intended t simply meet the prescribed cntent requirements, and establish a separate dcument that serves as the plan s mre detailed investment plicy statement. In sme cases, the SIPP and/r the investment plicy statement may be further supplemented by additinal investment plicies cvering a variety f tpics (such as manager selectin and prtfli rebalancing). 2.2 One SIPP per Plan Sme plans have bth defined benefit (DB) and DC prvisins. Fr instance, there are cmbinatin plans where members have t chse between a DB and DC ptin, r hybrid plans, which ffer a minimum guaranteed defined benefit, with upside ptential ffered thrugh a member-directed DC prvisin. Sectin 78(1) f the Regulatin requires a plan t have a single SIPP, including when the plan has bth a DB and member-directed DC prvisin. This means that the SIPP fr a cmbinatin r hybrid plan must address the assets that pertain t all prvisins cvered by the plan, althugh the SIPP wuld address the assets f each prvisin differently as there are fundamental differences in the investment f DB assets and member-directed DC assets. 2 The SIPP must be filed with FSCO thrugh the Pensin Services Prtal. 3 2 Under a DB prvisin, members assets are pled tgether and invested under a single cherent investment plicy r strategy (a similar apprach is taken with an administratr-directed DC plan). In cntrast, under a member-directed DC prvisin, each member prvides investment instructins fr the assets ntinally credited t the member s separate accunt within the investment parameters and ptins f the plan. Accrdingly, the cntent requirements fr the SIPP f a member-directed DC prvisin will differ frm that f a DB r administratr-directed DC prvisin. 3 A single SIPP may be made up f separate parts fr different prvisins (fr example, Part A relating t the investment f the DB prvisin and Part B relating t the investment f the DC prvisin). Hwever, smene reading the SIPP must be able t identify it as the cmplete SIPP fr the plan and, therefre, where the SIPP is divided int parts, there shuld be an indicatin in the dcument f the number f parts and the prvisin t which each part relates.

3 Index N.: IGN-005 / Page 3 f Similar SIPPs fr Multiple Plans In practice, an administratr f a plan may adpt a SIPP that cntains prvisins identical t thse in the SIPP fr ther plans. Fr example, plans with the same administratr, plans that invest in the same master trust, r plans that use the same investment cnsultant may be mdelled after the same SIPP. Hwever, the administratr f each plan must first determine, in accrdance with its fiduciary duties, that the investment plicies and prcedures set ut in the mdel SIPP are apprpriate fr its plan given all relevant factrs such as the plan type and demgraphics/ maturity. If the administratr cnsiders the mdel SIPP t be apprpriate fr its plan, the administratr must frmally adpt the SIPP and the apprval must be prperly dcumented. If needed, the administratr shuld mdify the SIPP t address any unique characteristics f the plan. The administratr f each plan is respnsible fr its wn SIPP; therefre, any amendments t the mdel SIPP must be cnsidered and adpted, rejected, r mdified by the administratr fr each plan. 3.0 Regulatry Requirements The fllwing is a summary f key statutry and regulatry requirements pertaining t the SIPP. Administratrs and their advisrs are directed t review the PBA and regulatins directly fr cmplete details. 3.1 Standard f Care Under sectin 22 f the PBA, an administratr is respnsible fr administering and investing the pensin fund in accrdance with the administratr s standard f care, in a prudent manner, and in the best interests f the pensin plan s beneficiaries. It is the respnsibility f the administratr t determine what prudence requires in the cntext f the plan and fund that it administers. The administratr must determine the investment plicies and prcedures t be set ut in the SIPP, implement a review and apprval prcess, and mnitr cmpliance with the SIPP, all in accrdance with the administratr s fiduciary duties. The administratr shuld dcument the ratinale fr key investment plicies and prcedures, althugh this des nt necessarily have t be dcumented in the SIPP itself. 3.2 Establishing a SIPP The requirement t establish a SIPP is set ut in sectin 78(1) f the Regulatin and applies t all pensin plans. 4 Specifically, sectin 78(1) requires the administratr t establish a SIPP fr the plan that meets the requirements f the federal investment regulatins (FIR), as mdified by sectins 47.8 and 79 f the Regulatin. The FIR are defined in sectin 66 f the Regulatin as sectins 6, 7, 7.1 and 7.2 and Schedule III t the federal Pensin Benefits Standards Regulatins, 1985 (PBSR) made under the Pensin 4 Individual pensin plans and designated pensin plans, as defined under the Incme Tax Act, are als required t establish a SIPP.

4 Index N.: IGN-005 / Page 4 f 12 Benefits Standards Act, 1985 (Canada) as they may be amended frm time t time. The FIR are incrprated by reference in sectins 78 and 79 f the Regulatin. 5 Under the PBA, the applicatin f the FIR is mdified by sectins 47.8 and 79 f the Regulatin. Sectin 47.8 permits plans t invest in certain derivative cntracts issued under the Ontari Municipal Emplyees Retirement System Act, subject t certain prescribed cnditins. Sectin 79 permits plans t invest in securities issued by the United States Gvernment. 3.3 Cntent Requirements fr the SIPP The cntent requirements fr SIPPs are set ut in the Regulatin and the FIR as incrprated therein. In additin, FSCO s investment guidance ntes (specifically IGN-003 and IGN-004: Envirnmental, Scial and Gvernance (ESG) Factrs (IGN-004)) prvide guidance n the regulatry requirements and best practices. Details are prvided belw. Sectin 7.1 f the PBSR Cntent requirements fr SIPPs f DB plans and administratr-directed DC plans are set ut in Sectin 7.1(1) f the PBSR, which specifies that the SIPP must address the fllwing plicies and prcedures: a) categries f investments and lans, including derivatives, ptins and futures, b) diversificatin f the investment prtfli, c) asset mix and rate f return expectatins, d) liquidity f investments, e) the lending f cash r securities, f) the retentin r delegatin f vting rights acquired thrugh plan investments, g) the methd f, and basis fr, the valuatin f investments that are nt regularly traded at a marketplace; and h) related party transactins permitted under sectin 17 f Schedule III and the criteria t be used t establish whether a transactin is nminal r immaterial t the plan. Typically, a SIPP wuld cntain a separate sectin describing each f these elements. Fr a descriptin f the abve listed plicies and prcedures, see OSFI s Guideline fr the Develpment f Investment Plicies and Prcedures fr Federally Regulated Pensin Plans. Sectin 7.1(1) f the PBSR als states that the SIPP must be prepared having regard t all factrs that may affect the funding and slvency f the plan and the ability f the plan t meet its financial bligatins (hereinafter referred t as funding and slvency factrs ). Stated anther way, the administratr must take int accunt varius funding and slvency factrs in preparing its SIPP. This requirement reflects the imprtance f a plan s liabilities and funded status in setting investment plicy. It is the respnsibility f the administratr t determine what factrs affect funding and slvency f the plan. Under sectin 7.1(2) f the PBSR, the SIPP must include a descriptin f its funding and slvency factrs, and the relatinship f thse factrs t the plicies and prcedures set ut in the SIPP. 5 The federal investment regulatins, r FIR fr shrt, is a defined term under the PBA, and refers cllectively t certain sectins f the PBSR as indicated abve. In this guidance nte, when referring t individual sectins under the FIR, hwever, reference will be made t the PBSR, nt the FIR.

5 Index N.: IGN-005 / Page 5 f 12 Member-Directed DC Plans r Prvisins The cntent requirements f sectin 7.1(1) f the PBSR d nt apply t member-directed DC plans r prvisins. Fr infrmatin cncerning the cntent requirements fr these types f plans, see IGN-003. Envirnmental, Scial, and Gvernance Factrs Under sectin 78(3) f the Regulatin, the SIPP must include infrmatin as t whether envirnmental, scial, and gvernance (ESG) factrs are incrprated int the plan s investment plicies and prcedures, and if s, hw thse factrs are incrprated. This requirement applies t all pensin plans. Fr further infrmatin n ESG factrs and n FSCO s expectatins cncerning ESG disclsures, refer t IGN-004. SIPP Cntent t be Cnsistent with Schedule III f the PBSR The terms and prvisins f the SIPP must be cnsistent with the requirements f the FIR as mdified in sectins 47.8 and 79 f the Regulatin, including Schedule III f the PBSR. 6 Schedule III includes investment regulatins that deal with permitted investments, cncentratin risk, and related party transactins. If there is a cnflict between the terms and prvisins f the SIPP and the FIR (including Schedule III) as mdified by the Regulatin, the FIR as mdified takes precedence. The administratr shuld amend its SIPP t remve any such cnflict. Optinal Cntent The SIPP may serve as the sle investment plicy dcument fr a plan, as nted previusly. Therefre, the dcument may g beynd the minimum prescribed requirements and include ther investment plicies r prcedures. Summary f SIPP Cntent Sample table f cntents fr DB and DC plans r prvisins have been prvided in Appendix A and Appendix B. A summary f cntent requirements fr SIPPs has been prvided in Appendix C. 3.4 Investing in Accrdance with the FIR and the SIPP Under sectin 79 f the Regulatin, the assets f the plan must be invested in accrdance with the SIPP and the FIR (as mdified by sectins 47.8 and 79 f the Regulatin). This has imprtant implicatins fr the administratr in preparing r updating a SIPP, including the fllwing: The administratr will need a mechanism t mnitr whether the plan is in cmpliance with the FIR and the SIPP. 6 As required by sectin 78(2) f the Regulatin.

6 Index N.: IGN-005 / Page 6 f 12 If key elements f a plan s investment prgram change, the administratr must ensure that any changes are cnsistent with the SIPP, r alternatively, the SIPP is amended t reflect the changes. If there is a cnflict between the FIR and the prvisins f the SIPP, the SIPP must be amended. Under sectin 79(1.1) f the Regulatin, the investment rules f the FIR (as mdified by the Regulatin) take precedence ver the SIPP (as well as ver the prvisins f the plan r an instrument gverning the plan). 7 Administratrs shuld be careful t draft the SIPP in such a way that it is clear hw t cmply with it. 3.5 Filing and Disclsure Requirements Filing the SIPP with FSCO Administratrs are required t file their SIPPs with FSCO thrugh the Pensin Services Prtal, subject t the fllwing deadlines: Fr plans registered befre January 1, 2016, the SIPP must be filed by March 1, Fr new plans registered n r after January 1, 2016, the SIPP must be filed within 60 days after plan registratin. An amendment t a SIPP must be filed within 60 days after the date the amendment is made. (Administratrs are encuraged t file the entire amended SIPP, rather than just the amendment.) The administratr must file the SIPP, and any SIPP amendments, with a SIPP Infrmatin Summary (Frm 14) 8. Administratr t make SIPP available Under sectin 29 f the PBA and sectin 45 f the Regulatin, the administratr is required t make the SIPP available fr inspectin upn written request f specified persns, and prvide cpies subject t a prescribed fee. The persns include, amng thers, a member, frmer member r retired member; the spuse f a member, frmer member r retired member; any ther persn entitled t pensin benefits under the pensin plan; a representative f a trade unin that represents members f the pensin plan; and an emplyer. (See sectin 29 f the PBA fr a cmplete list f specified persns.) The administratr is als required t prvide cpies f such dcuments by mail r , upn written request and payment f the applicable fee. The administratr is als required t prvide the SIPP t the plan s pensin advisry cmmittee 9, if any, and t the plan s actuary, in the case f DB plans Fr example, administratrs will need t take nte f changes t Schedule III f the FIR which cme int frce n July 1, 2016, and mdify their SIPP t ensure cnsistency with the revised regulatins. 8 Frm 14 has been apprved by the Superintendent in accrdance with sectin f the PBA. 9 The authrity fr this requirement is sectin 24 f the PBA, which requires the administratr t prvide such infrmatin as is under the cntrl f the administratr and is required by the advisry cmmittee r its representative fr the purpses f the cmmittee. It is FSCO s psitin that the SIPP is a dcument required by the pensin advisry cmmittee. 10 As required by sectin 7.1(3) and 7.2(2) f the PBSR.

7 Index N.: IGN-005 / Page 7 f 12 Superintendent t make SIPP available Under sectin 30 f the PBA and sectin 46 f the Regulatin, the Superintendent is required t make the SIPP available fr inspectin upn written request f the parties specified in sectin 29(1) f the PBA. The Superintendent is als required t prvide cpies f such dcuments by mail r , upn written request and payment f the applicable fee. SIPP Infrmatin in Member Statements Effective July 1, 2016, administratrs are required t include prescribed cntent abut SIPPs in annual statements t members, and biennial statements t frmer and retired members. The prescribed cntent includes general statements abut the requirement fr a plan t establish a SIPP, that the SIPP will cntain infrmatin abut the plan s ESG plicy, and hw members, frmer members, and retired members may view r btain a cpy f the SIPP (as described abve). Details are prescribed in sectins 40, 40.1, and 40.2 f the Regulatin. Summary f Filing and Disclsure Requirements Key filing and disclsure requirements under the PBA and the Regulatin are summarized in Appendix D. 3.6 Review f SIPP Under sectin 7.2 f the PBSR, an administratr must review and cnfirm, r amend the SIPP with respect t the assets f DB r administratr-directed DC plans r prvisins at least nce each plan year. SIPPs that pertain t member-directed DC plans r prvisins are nt subject t the annual review requirements f sectin 7.2 f the PBSR. Cnsistent with their fiduciary duties, hwever, administratrs must peridically review the SIPP. See IGN-003 fr further details. There are als instances where the SIPP will need t be amended prir t a regularly scheduled review. The assets f every pensin plan, including member-directed DC plans, must be invested in accrdance with the SIPP fr the plan at all times. 11 Therefre, if there is a prpsed change t the investment strategy, investment practices, r the investments themselves that wuld be cntrary t the SIPP, the SIPP must be amended befre any such change is implemented. As a matter f gd gvernance, the administratr shuld implement a review and apprval prcess fr the SIPP. If the administratr has adpted several amendments t the SIPP, the administratr shuld incrprate the amendments int a restated SIPP. 4.0 Develpment and Review Cnsideratins 4.1 External Assistance The SIPP is a plan dcument that addresses a wide range f technical tpics and must meet regulatry requirements. The preparatin, review, and revisin f the SIPP will require a high level 11 As required by sectin 79 f the Regulatin.

8 Index N.: IGN-005 / Page 8 f 12 f technical knwledge and expertise. If the administratr des nt feel it pssesses adequate knwledge and expertise, it has a fiduciary duty t seek external expert assistance in this regard. 4.2 Reference Materials In establishing r reviewing a SIPP, administratrs and their advisrs shuld review the fllwing materials fr additinal guidance and infrmatin: FSCO IGN-003: Statements f Investment Plicies and Prcedures (SIPPs) fr Member- Directed Defined Cntributin Plans. FSCO IGN-004: Envirnmental, Scial and Gvernance (ESG) Factrs. OSFI s Guideline fr the Develpment f Investment Plicies and Prcedures fr Federally Regulated Pensin Plans, April CAPSA s Guideline N. 6 Pensin Plan Prudent Investment Practices Guideline and Self-Assessment Questinnaire n Prudent Investment Practices, Nvember This guidance nte als cntains the fllwing appendices, fr reference purpses: Appendix A: Sample Table f Cntents fr SIPPs fr DB Plans and Administratr- Directed DC Plans Appendix B: Sample Table f Cntents fr SIPPs fr Member-Directed DC Plans Appendix C: Summary f Cntent Requirements fr SIPPs Appendix D: Summary f SIPP-Related Disclsure Requirements under the PBA

9 Index N.: IGN-005 / Page 9 f 12 Appendix A: Sample Table f Cntents fr SIPPs fr DB Plans r Administratr-Directed DC Plans A sample table f cntents fr the SIPP f a DB plan r an administratr-directed DC plan is prvided belw. This example is fr illustrative purpses nly. In develping the SIPP, administratrs must meet the standard f care required under sectin 22 f the PBA, as well as any specific regulatry requirements. This sample table f cntents includes the minimum cntent prescribed under sectin 7.1(1) f the PBSR and sectin 78(3) f the Regulatin. It als includes ther suggested cntent that may be apprpriate where the SIPP serves as the plan s sle r primary investment plicy statement. (The suggested items, as marked by asterisks, may be included at the discretin f the administratr.) 1. Intrductin Purpse and Scpe f the SIPP* 2. Overview f the Plan* 3. Gvernance and Administratin f the Pensin Fund* 4. Funding and Slvency Factrs 5. Envirnmental, Scial and Gvernance Factrs 6. Categries f Investments And Lans 7. Diversificatin f The Investment Prtfli 8. Asset Mix And Rate f Return Expectatins 9. Liquidity f Investments 10. Lending f Cash r Securities 11. Prxy Vting Rights 12. Valuatin f Investments 13. Related Party Transactins 14. Perfrmance Measurement Mnitring* 15. Selectin and Terminatin f Investment Managers* 16. Plicy Apprval and Review*

10 Index N.: IGN-005 / Page 10 f 12 Appendix B: Sample Table f Cntents fr SIPPs fr Member-Directed DC Plans A sample table f cntents fr the SIPP f a member-directed DC plan is prvided belw. This example is fr illustrative purpses nly. In develping the SIPP, administratrs must meet the standard f care required under sectin 22 f the PBA, as well as any specific regulatry requirements. This sample table f cntents includes the ESG disclsure requirement prescribed under sectin 78(3) f the Regulatin, and items suggested fr cnsideratin by administratrs in IGN- 003: Statements f Investment Plicies and Prcedures (SIPPs) fr Member-Directed Defined Cntributin Plans. The sample table f cntent als cntains ther suggested items that may be apprpriate where the SIPP serves as the plan s sle r primary investment plicy statement. 1. Intrductin Purpse and Scpe f the SIPP 2. Overview f the Plan 3. Gvernance and Administratin f the Pensin Fund 4. Envirnmental, Scial and Gvernance Factrs 5. General investment principles 6. Permitted asset classes frm which investment funds can be selected 7. The default investment ptin fr member accunts where n selectin is made 8. Selecting, mnitring, and terminating investment managers and funds 9. Plan expenses and investment fees related t the DC plan/prvisin 10. Related party transactins 11. Infrmatin guidelines fr plan members n investment ptins 12. Plicy Apprval and Review

11 Index N.: IGN-005 / Page 11 f 12 Appendix C: Summary f Cntent Requirements fr SIPPs Plan type cvered by the SIPP Defined benefit plan(s) and/r Administratr-directed defined cntributin plan(s) Cntent Requirements Investment plicies and prcedures in respect f the plan s prtfli f assets and lans, including: Minimum cntent requirements as set ut in sectins 7.1(1) and (2) f the PBSR. ESG disclsures as prescribed in sectin 78(3) f the Regulatin. (See als IGN-004: Envirnmental, Scial and Gvernance (ESG) Factrs fr mre infrmatin). SIPP terms and prvisins must be cnsistent with Schedule III f the PBSR. Member-directed defined cntributin plan(s) Hybrid r cmbinatin benefit plan that includes the fllwing prvisins: Defined benefit prvisin and/r administratr directed DC prvisin and Member-directed DC prvisin Investment plicies and prcedures in respect f the plan s prtfli f assets and lans, including: ESG disclsures as prescribed in sectin 78(3) f the Regulatin. (See als IGN-004: Envirnmental, Scial and Gvernance (ESG) Factrs fr mre infrmatin). Suggested cntent as set ut in sectin 4 f IGN-003: SIPPs fr Member-Directed Defined Cntributin Plans. SIPP terms and prvisins must be cnsistent with Schedule III f the PBSR. Investment plicies and prcedures in respect f the plan s prtfli f assets and lans, including: With respect t a DB prvisin r administratr directed DC prvisin, minimum cntent requirements as set ut in sectins 7.1(1) and (2) f the PBSR. With respect t a member-directed DC prvisin, suggested cntent as set ut in sectin 4 f IGN-003: SIPPs fr Member-Directed Defined Cntributin Plans. With respect t all prvisins, ESG disclsures as prescribed in sectin 78(3) f the Regulatin. (See als IGN-004: Envirnmental, Scial and Gvernance (ESG) Factrs fr mre infrmatin). SIPP terms and prvisins must be cnsistent with Schedule III f the PBSR.

12 Index N.: IGN-005 / Page 12 f 12 Appendix D: Summary f SIPP-Related Disclsure Requirements under the PBA Disclsure Requirement Timing (where applicable) Citatin Upn written request, the administratr is required t make available fr inspectin a plan s SIPP t persns specified in sectin 29(1) f the PBA, and/r prvide a cpy by mail r . Upn written request, the Superintendent is required t make available fr inspectin a plan s SIPP t persns specified in sectin 29(1) f the PBA, and/r prvide a cpy by mail r . s. 29 f the PBA s. 45 f the Regulatin s. 30 f the PBA s. 46 f the Regulatin Administratr must file the plan s SIPP with FSCO subject t the fllwing deadlines: Fr plans existing n January 1, T be filed by March 1, 2016 SIPPs fr new pensin plans established after January 1, T be filed within 60 days f the establishment f the plan s. 78(4), (5) & (6) f the Regulatin Any amendments t a SIPP. In the case f defined benefit plans, the SIPP and any amendment must be prvided t the plan actuary. The SIPP must be prvided t the plan advisry cmmittee, if any, where the SIPP is required by the advisry cmmittee fr the purpses f the cmmittee. Prescribed infrmatin cncerning the SIPP must be included in annual member statements. Prescribed infrmatin cncerning the SIPP must be included in frmer and retired member biennial statements. T be filed within 60 days f the amendment T be prvided, as applicable, n r befre the later f: (i) 60 days f the establishment f the SIPP r its amendment, as applicable, (ii) n the appintment f the actuary. Required fr member statements issued n r after July 1, Fr plans registered n January 1, 2015, the first such statement must be issued n later than July 1, 2017 (and within 6 mnths after the plan s fiscal year end), and then every tw years thereafter. s. 7.1(3) and s. 7.2(2) f the PBSR s. 24(7) f the PBA s. 27(1) f the PBA s. 40 f the Regulatins s. 27(2) f the PBA ss and 40.2 f the Regulatins