TABLE OF CONTENTS. 2 Letter to the Minister. 3 Corporate Information. 4 Chairman s Report. 6 Chief Executive Officer s Report

Transcription

1 The Pension Commission ANNUAL REPORT 2007

2 TABLE OF CONTENTS 2 Letter to the Minister 3 Corporate Information 4 Chairman s Report 6 Chief Executive Officer s Report 8 Review OF OPERATIONS 11 The Functions of the Pension Commission 13 Auditor s Report 14 Statement of Financial Position 15 Statement of Revenues, Expenses and Changes in Net Assets 16 Statement of Cash Flows 17 Notes to the Financial Statements

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4 The Hon. Paula A. Cox, JP, MP Minister of Finance Government Administration Building 30 Parliament Street Hamilton HM 12 Dear Minister Cox, In accordance with section 64(1) of the National Pension Scheme (Occupational Pensions) Act 1998, I have the honour of submitting to you the 2007 Annual Report of the Pension Commission. The Report on the operations of the Pension Commission contains the audited accounts for the year ended 31 December, 2007 together with the Auditor s Report. 2

5 Commission Members Paul King Chairman Yvonne Joseph Deputy Chairman Senator Carol Bassett Ron Lucas Kelly Hodsoll Rodney Smith Ray Tannock, Sr Donna Harvey- Maybury Jocene Wade- Harmon Anthony Manders Ex- Officio Ministry of Finance Pension Commission Staff Peter T. Sousa Chief Executive Officer Alan E. Lugo Jewell Eve Cedallia Cartwright Racqual Wainwright June Rabain Kent Tacklyn 3

6 Paul King, Chairman Chairman s Report 2007 was a year of consolidation for the Commission, with steady progress made in the numbers of employees and self-employed in registered plans. As at 31 December, 2007, 1,230 employers and 19,449 employees/self employed persons were participating in registered plans. The Commission staff had over 125 compliance meetings with employers and members of plans as well as 27 meetings during the year with plan administrators, concerning specific compliance issues or the general administration of their plans. During 2007 Members of the Commission paid particular attention to: Establishing the Commission s Civil Debt Recovery Policy resulting from amendments to the National Pension Scheme (Occupational Pensions) Act 1998 (the Act ) which provided greater powers to recover outstanding employer pension plan contributions. Enhancing the investment return of cash balances maintained by the Commission through interest bearing short-term investments. Notification of pension plan wind-ups in the local newspapers. Creation and publication of the Commission s website in July, Reviewing and updating the terms of reference for the Commission s Audit and Human Resources Committees. 4

7 Looking ahead to 2008, Members of the Commission will wish to see further progress in numbers of employees and self employed persons in registered plans and greater efforts made by the Commission to enforce compliance by employers who fail to pay pension plan contributions within the required time established under the Act. The Commission will also wish to see continued discussions with the pension plan administrators on ways to enhance their compliance with the requirements of the Act and more effective communication between the Commission and administrators. On behalf of the Members of the Commission, I wish to extend my appreciation to the management and staff for their work during

8 Peter T. Sousa, Chief Executive Officer Chief Executive Officer s Report The Commission continued to make progress during 2007 in carrying out its various responsibilities and functions. In particular, staff of the Commission: held discussions with its Advisory Committee to finalise comments on proposed legislative amendments to the Act; achieved an increase (5.2%) in the numbers of employees/self employed persons in registered plans; maintained a high level of compliance meetings with employers/ members and plan administrators (152 in 2007 versus 150 in 2006); initiated civil recovery actions against 2 employers; approved a significant number of plan wind ups (120) than the previous year (33); registered 175 plan amendments for the year versus 62 for 2006; processed a steady number of requests to approve transfers of plan assets to overseas Prescribed Retirement Products for members of pension plans permanently relocating to overseas jurisdictions; and participated in a number of public and industry advisory meetings was a year of consolidation as the Commission continued to build on previous years achievements relating to plan registration, processing plan transfers and wind ups. During the year the Commission also took the opportunity to review its internal Audit and Human Resources Committees with the view to updating their composition and terms of reference. 6

9 The Commission s compliance efforts to ensure that employers paid the required pension contributions into their employee pension plans resulted in a material yearover-year decrease in the numbers of delinquent employers. Looking ahead to 2008, the Commission will need to continue to enhance its compliance policies and procedures for both employers and plan administrators. Additional attention will also have to be paid on the fiduciary role and responsibilities of trustees, in keeping with similar international regulatory reviews. I would like to thank the staff for their steady work and achievements during the year. 7

10 Review of Operations 2007 was a year of consolidation for the Pension Commission (the Commission ) with steady progress in carrying out its various roles and responsibilities. Plan Registrations As at 31 December, 2007, 1,230 employers and 19,449 employees/self employed persons out of a total of nearly 25,000 were participating in registered plans. In comparison, 970 employers and 18,487 employees/ self employed persons were in registered plans at the end of The Commission estimates that there was $1.4 billion in pension plan assets at the end of December, 2007 compared to $1.2 billion at the end of December, Delinquent Employers According to reports submitted to the Commission, there were approximately 600 delinquent employers/ self-employed persons by the end of the year. This compares with an estimated 737 in The Commission held 115 compliance meetings in 2007 with delinquent employers compared to 60 in Plan Administrators The Commission held 27 meetings with pension plan administrators relating to client specific issues or their plan administration responsibilities under the National Pension Scheme (Occupational Pensions) Act These meetings are routine in nature and allow for solutions to be reached on various ways to satisfy the legislative requirements for the ultimate benefit to pension plan members. Education & Public Awareness The Bermuda Association of Insurers and Financial Advisors invited the Commission to speak at its luncheon on the current status and developments relating to the National Pension Scheme. The Commission also participated in an educational meeting for members of the general public held at St. Mary s Church. Staff of the Commission gave an overview of the legislation and then held a question and answer session with those in attendance. 8

11 Legislation Proposed amendments to the Act and Regulations were finalized with the Commission s Advisory Committee and the Commission is grateful for the input and advice received. Staff Training A representative of the Financial Services Commission of Ontario ( FSCO ) traveled to Bermuda to conduct a week s training programme for staff members. The training covered the current regulatory systems and approaches used by FSCO in their supervision and regulation of occupational pension schemes in Ontario. Pension Commission Website The Commission introduced its website to the public in July, The website provides members of the public and pension plan service providers with a variety of useful information on the various requirements, documents and procedures relating to the establishment, registration and administration of private, occupational pension plans in Bermuda. International Pension Cooperation As in previous years, the Commission provided a variety of pension plan data to the International Social Security Association, the international Organization of Pension Supervisors and the Organization for Economic Cooperation and Development relating to Bermuda s pension plans. This data is used in compiling the more than 50 country profiles and is available on the internet. 9

12 Statistical Summary (As of December 31, 2007) New Applications for Registration (Form 1) 8 9 New Participants (employers) in Financial Institution Pension Plans ( FIPPS ) Pension Plan Wind-Up Approvals Approval of Transfers to FIPPS Total Number of Employers in Registered Plans Total Number of Employees in Registered Plans 19,449 18,487 Domestic Prescribed Retirement Products Approved 0 0 Value of Assets in Domestic Prescribed Retirement Products $95,239,652 $65,585,297 Overseas Prescribed Retirement Products Approved Value of Assets Transferred to Overseas Prescribed Retirement Products $530,111 $832,176 Registered Pension Plan Amendments Compliance Orders Issued 2 11 Compliance Meetings with Employers / Members Compliance Meetings with Administrators Extension of Time Approvals 16 3 Pension Plan Administrator Approvals 1 0 Approval of Pension Plan Trustees 1 8 Public / Advisory Meetings

13 The Functions of the Pension Commission The Pension Commission has been established to carry out the functions required by the National Pension Scheme (Occupational Pensions) Act 1998 (the Act ). The legislation, which came into effect on January 1, 2000, requires that employers and self-employed persons establish and maintain pension plans in relation to their employees and themselves. The Pension Commission is a body corporate with perpetual succession and a common seal. The functions of the Pension Commission are detailed in section 56 of the Act, and are outlined as follows: To administer the Act and the regulations. To consider and determine applications for the registration of pension plans. To promote and ensure compliance, by pension plans, with the provisions of the Act and the regulations. To monitor the administration, and funding, of pension plans and to enforce the provisions of the Act and the regulations in respect of such administration and funding. To verify the payment of benefits under pension plans. To promote public education on pension plans and their benefits. To advise the Minister of Finance on any matter relating to pensions, including the development of laws relating to pension plans. To provide such information relating to its functions as the Minister of Finance may require. To investigate complaints relating to a pension plan and a pension fund. To perform any other functions provided for in or under the Act. 11

14 Financial Report

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16 Statement of Financial Position as at December 31st, 2007 Assets Current Assets Cash and deposits (note 4) 1,022, ,889 Accounts receivable, net of allowance (Note 10) $ $ for uncollected accounts 219, ,025 Prepaid Expenses 1, Total current assets 1,243,662 1,081,168 Capital assets (note 5) 5,777 13,602 Total Assets 1,249,439 1,094,770 Liabilities and Net Assets Liabilities Current liabilities Accounts payable and accrued liabilities 48,408 43,904 Due to the Government of Bermuda (note 6) 28,918 24,590 Deferred Government of Bermuda Grant (note 2a) 215, ,250 Total Current Liabilities 292, ,744 Deferred capital contributions (note 7) 5,777 13,602 Total Liabilities 298, ,346 Net Assets Invested in capital assets 5,777 13,602 Unrestricted 945, , , ,424 Total Liabilities and Net Assets 1,249,439 1,094,770 The accompanying notes are an integral part of these Financial Statements. 14

17 Statement of Financial Position as at December 31st, (Note 10) $ $ Revenues Government of Bermuda grant (note 2a) 824, ,611 Fees 173, ,346 Interest 35,255 19,920 Amortization of deferred capital contributions (note 7) 8,385 13,217 Total Revenues 1,041, ,094 Expenses Salaries and staff benefits 703, ,935 Rent (note 8) 77,493 76,164 General office 64,117 52,748 Information technology 24,711 30,353 Promotion and advertising 19,056 19,001 Legal, development and consulting 15,710 4,075 Amortization of capital assets 8,385 13,217 Miscellaneous 9,563 8,560 Total Expenses 922, ,053 Excess of revenues over expenses 118, ,041 Statement of Changes in Net Assets for the year ended December 31, Invested in capital assets Unrestricted Total (Note 10) Total $ $ $ $ Balance, Beginning of Year as previously reported 13, , , ,383 Correction of prior period error (note 10) 35,575 35,575 Balance, Beginning Of Year, as restated 13, , , ,383 (Deficiency) excess of revenues over expenses (8,385) 127, , ,041 Investment in capital assets 560 (560) Balance, End Of Year 5, , , ,424 The accompanying notes are an integral part of these Financial Statements. 15

18 Statement of Cash Flows for the year ended December 31, 2007 Operating Activities Excess of revenues over expenses 118, ,041 Items not affecting cash: (Note 10) $ $ Amortization of capital assets 8,385 13,217 Amortization of deferred capital contributions (8,385) (13,217) 118, ,041 Changes in non-cash items: Increase in accounts receivable (8,611) (48,341) Increase in prepaid expenses (1,195) (189) Increase in accounts payable and accrued liabilities 4,504 11,395 Increase in due to the Government of Bermuda 4,328 3,131 - Increase in deferred Government of Bermuda grant 34,750 Net cash provided by operating activities 152,688 96,037 Investing Activities Purchase of capital assets (560) (1,389) Net cash used in investing activities (560) (1,389) Financing Activities Deferred capital contributions 560 1,389 Net cash provided by financing activities 560 1,389 Net increase in cash and deposits 152,688 96,037 Cash and deposits, beginning of year 869, ,852 Cash and deposits, end of year 1,022, ,889 The accompanying notes are an integral part of these Financial Statements. 16

19 Notes to the Financial Statements for the year ended December 31, Authority The Pension Commission ( the Commission ) operates under the authority of the National Pension Scheme (Occupational Pensions) Act 1998 (the Act ) and its related regulations. The Act requires employers and selfemployed persons to establish and maintain pension plans on behalf of their employees and themselves. The functions of the Commission are set out in section 56 of the Act. The primary functions of the Commission are to administer the Act and the regulations, to consider and determine applications for the registration of pension plans and to promote and ensure compliance with the provisions of the Act and the regulations. 2. Significant Accounting Policies The financial statements are expressed in Bermuda dollars and have been prepared in accordance with accounting principles generally accepted in Bermuda and Canada. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues earned and expenses incurred during the year. Actual results could differ from these estimates. a) Government of Bermuda grant and contributions The Commission follows the deferral method of accounting for contributions, which include government grants. Operating grants are recorded as deferred revenues and are amortized on a pro-rata basis over the term of the grant. Contributions for capital items are deferred and amortized to income on the same basis as the related capital assets are amortized. b) Capital Assets The capital assets are valued at cost and are amortized on a straight-line basis over the estimated useful lives of the assets, as follows: Computer equipment 3 years Fixtures 5 years Furniture 5 years c) Pension Plan Participation The Commission derives a portion of its revenue from annual information reports and registration fees. The Commission has accrued an estimate for the outstanding annual information report fees based on actual applications received. An estimate of the fees relating to employers who are required by the Act to have pension plans but who have not applied for registration or do not have such plans, has not been made as the amount cannot be reasonably determined using information available to the Commission. d) Accounting changes Effective January 1, 2007 the Commission adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants (which are promoted by the Institute of Chartered Accountants of Bermuda by signed agreement and therefore generally accepted in Bermuda): Section 1506, Accounting Changes Section 1506 requires that voluntary changes in accounting policies are made only if they result in the financial statements providing reliable and more relevant information. Additional disclosure is required when the Commission has not yet applied a new primary source of GAAP that has been issued but is not yet effective, as well as when changes in accounting estimates and errors occur. The adoption of Section 1506 has resulted in disclosure of future accounting changes that have not yet been adopted (note 11). Section 3855, Financial Instruments Recognition and Measurement and Section 3861, Financial Instruments Disclosure and presentation 17

20 Notes to the Financial Statements for the year ended December 31, 2007 Sections 3855 and 3861 prescribe the criteria for recognition, measurement, presentation and disclosure of financial instruments and non financial derivatives in the financial statements. Under section 3855, financial assets and liabilities are initially recorded at fair value. This section also addresses how financial instruments are measured subsequent to initial recognition and how the gains and losses are recognized. Under Section 3855, financial instruments must be classified into one of the following five categories: held for trading, available for sale, held to maturity, loans and receivables and other financial liabilities. All financial instruments classified as held for trading or available for sale are subsequently measured at fair value with any change in fair value recorded in net earnings and other comprehensive income, respectively. All other financial instruments are subsequently measured at amortized cost. The Commission s financial instruments comprise of cash and deposits, accounts receivable, accounts payable and accrued liabilities and due to the Government of Bermuda. The Commission s financial instruments are classified as held for trading and are measured at fair value. The fair value of cash and deposits, accounts receivable, accounts payable and accrued liabilities and due to the Government of Bermuda approximate their carrying amounts because of their short term to maturity. The adoption of these revised standards resulted in more disclosures in the financial statements. 3. Economic Dependence The Commission is economically dependent upon the financial assistance provided by the Government of Bermuda to fund its daily operations, cash flow and capital development. 4. Cash and deposits Cash and deposits comprise cash on hand and balances with banks. Effective Effective 2007 Yield 2006 Yield $ % $ % Cash 60,576 43,142 Deposits 962, % 826, % 1,022, , Capital Assets Accumulated Net Book Net Book Cost Amortization Value Value $ $ $ $ Computer equipment 48,711 42,934 5,777 13,476 Fixtures 102, , Furniture 82,387 82, , ,504 5,777 13, Due to the Government of Bermuda The amount due to the Government of Bermuda represents year-end accruals for payroll tax, social insurance and pension. 18

21 Notes to the Financial Statements for the year ended December 31, Deferred Capital Contributions Deferred capital contributions represent contributions made by the Government of Bermuda utilized for the acquisition of capital assets. The contributions are amortized to revenue on the same basis as the amortization expense of the acquired assets $ $ Balance, beginning of year 13,602 25,430 Add: purchase of capital assets 560 1,389 Less: amount amortized to operations (8,385) (13,217) Balance, end of year 5,777 13, Commitments The Pension Commission has entered into a lease agreement for the rental of its offices. The lease expires on October 31, 2008 and the remaining obligation under the lease is $65, Employee Benefits a) Pensions The employees of the Commission are included in the Public Service Superannuation Fund (the Fund), which is a defined benefit plan administered by the Government of Bermuda. Contributions to the Fund are required from both the employees and the Commission and are recognized in the accounts on a current basis. The Commission s contributions during 2007 were $39,349 (2006 $31,112). The Commission is not required under present legislation to make contributions with respect to actuarial deficiencies of the Fund. As such, the current year contributions to the Fund represent the total liability of the Commission. b) Other Benefits Other employee benefits include maternity leave, sick leave and vacation days. All of these plans are unfunded.maternity leave does not accumulate or vest and therefore an expense and liability is only recognized when applied for and approved. There were no maternity benefits applied for or approved during the current year and therefore, no liability has been accrued in the accounts. Sick leave accumulates but does not vest, and like maternity leave, a liability is recorded only when extended leave is applied for and approved. There was no extended sick leave applied for or approved during the current year and therefore, no liability has been accrued in the accounts. Vacation days accumulate and vest and therefore a liability is accrued each year. An actuarial study has not been performed for the vacation days benefit obligation as there were no factors used in the calculation that are materially different from the figures that would be estimated by an actuary. The accrued vacation liability as of December 31, 2007 is $5,708 ( $8,392) and is included in accounts payable and accrued liabilities. 19

22 10. Correction of a Prior Period Error Due to an error in the recording of annual information reports fees in 2006, accounts receivable and revenues were understated in the December 31, 2006 financial statements by $35,575. As a result the 2006 balances have been restated to reflect the corrections of this error, as shown below: Fees As previously stated (December 31, 2006) $201,771 As restated $237,346 Accounts receivable As previously stated (December 31, 2006) $175,450 As restated $211,025 Excess of revenues over expenses As previously stated (December 31, 2006) $ 94,446 As restated $130,041 Unrestricted net assets As previously stated (December 31, 2006) $783,247 As restated $818, Future Accounting Policy Changes Section 3862: Financial Instruments Disclosures and Section 3863: Financial Instruments Presentation As of October 1, 2007, Section 3861: Financial Instruments Disclosure and Presentation will be replaced by two new standards, Section 3862: Financial Instruments Disclosures and Section 3863: Financial Instruments Presentation which enhance the abilities of users of financial statements to evaluate the significance of financial instruments to an entity, related exposures and the management of these risks. Section 1535: Capital Disclosures In December 2006, the Canadian Institute of Chartered Accountants published new Section 1535, Capital Disclosures. The new section establishes standards for disclosing information about an entity s capital and how it is managed. This new standard is effective for fiscal years beginning on or after October 1, Section 1400: General Standards of Financial Statement Presentation In June 2007, the Canadian Institute of Chartered Accountants modified Section 1400, General Standards of Financial Statement Presentation, in order to require that management make an assessment of the Commission s ability to continue as a going concern over a period which is at least, but is not limited to, twelve months from the balance sheet date. These new requirements are effective for fiscal years beginning on or after January 1, These changes in accounting policies, which will be adopted affective January 1, 2008, will only require additional disclosures in the financial statements. 12. Comparative Figures Certain comparative figures have been restated to conform to the current year s presentation. 20

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