Canada Gazette, Part I, Volume 146, Number 25: Regulations Amending the Canada Pension Plan Investment Board Regulations
June 23, 2012
Canada Pension Plan Investment Board Act
Department of Finance
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issue and objectives
Effective July 1, 2010, section 10 of Schedule III of the Pension Benefits Standards Regulations, 1985 (PBSR) was repealed. This provision placed limits on the amount of a pension plan’s assets that could be invested in real estate or Canadian resource properties. The amendment was made to the PBSR in order to provide more flexibility for plans to choose the investment options that best suit their investment needs. In particular, the objective was to adopt flexible, prudent and effective principles-based investment rules.
An amendment, the Investment Rules Amendment, would align the investment rules that apply to the Canada Pension Plan Investment Board Regulations (“the Regulations”) with the recent change to the PBSR. The Investment Rules Amendment would allow the Canada Pension Plan Investment Board (CPPIB) to rely on the prudent person standard and have the same investment flexibility as is currently available to federally regulated pension plans operating under the PBSR and provincially regulated pension plans operating under regulations that are influenced by the PBSR.
A second amendment, the Subsidiary Definition Amendment, would ensure that the meaning of “subsidiary” under the Regulations is fully aligned with the definition under the Canada Pension Plan Investment Board Act (“the Act”).
Description and rationale
The Investment Rules Amendment would repeal section 12 of the Regulations, which sets out quantitative investment limits in respect of real and Canadian resource property. This amendment would align the Regulations with the PBSR and allow the CPPIB the same investment flexibility with respect to real estate and Canadian resource properties as is enjoyed by federally regulated pension plans operating under the PBSR and provincially regulated pension plans operating under regulations that are influenced by the PBSR. The Investment Rules Amendment would allow the CPPIB to rely on the prudent person standard when deciding on real estate and Canadian resource investments. Given that sections 14 and 35 of the Act already require the CPPIB to act in accordance with a prudent person standard, and since the quantitative limits under sections 11 and 13 of the Regulations will remain in place, section 12 of the Regulations is unnecessary and overly restrictive.
The Subsidiary Definition Amendment would repeal section 3 of the Regulations. Section 3 states that “a corporation is a subsidiary of another corporation if it is controlled by the other corporation”. However, section 2 of the Act defines “subsidiary” as a corporation that is wholly owned by the CPPIB. The Subsidiary Definition Amendment will ensure that the definition of “subsidiary” is consistent across the Regulations and the Act. In past practice, the CPPIB has applied the definition of “subsidiary” found under the Act when conducting its operations. Therefore, the repeal of section 3 should not impact the CPPIB’s operations or corporate structure.
The Investment Rules Amendment is expected to minimally reduce the compliance costs of the CPPIB. The Subsidiary Definition Amendment has no expected cost as it will not alter the current structure or operations of the CPPIB.
Officials from the CPPIB have been consulted on both amendments. They have expressed their support of the Investment Rules Amendment and do not object to the Subsidiary Definition Amendment. In addition, the participating provinces (i.e. all provinces except Quebec, as defined under the Act) were consulted on both amendments as part of the Canada Pension Plan triennial review and expressed no objections.
In 2009, the Government undertook public consultations regarding the recent changes to the PBSR. During public meetings held in cities across Canada, there was a wide degree of support from plan sponsors and industry experts for eliminating all quantitative investment rules and relying exclusively on a prudent person standard. Certain unions and plan members advocated retaining the quantitative limits for benefit security purposes. Repealing the real estate and resource property investment limits for private pension plans represented a balance between these two points of view.
Given the results of the 2009 public consultations, the Investment Rules Amendment is expected to be supported by most stakeholder groups. The Subsidiary Definition Amendment is not expected to impact any stakeholders.
Government Financing Section
Financial Markets Division
Department of Finance
L’Esplanade Laurier, East Tower, 11th Floor
140 O’Connor Street
PROPOSED REGULATORY TEXT
Notice is hereby given that the Governor in Council, pursuant to subsection 53(1) of the Canada Pension Plan Investment Board Act (see footnote a), proposes to make the annexed Regulations Amending the Canada Pension Plan Investment Board Regulations.
Interested persons may make representations concerning the proposed regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to Ian Wright, Chief, Government Financing Section, Department of Finance, L’Esplanade Laurier, 19th Floor, East Tower, 140 O’Connor Street, Ottawa, Ontario K1A 0G5 (tel.: 613-996-0316; fax: 613-943-2039; e-mail: Ian.Wright@fin.gc.ca).
Ottawa, June 19, 2012
Assistant Clerk of the Privy Council
REGULATIONS AMENDING THE CANADA PENSION PLAN INVESTMENT BOARD REGULATIONS
1. Section 3 of the Canada Pension Plan Investment Board Regulations (see footnote 1) is repealed.
2. Section 12 of the Regulations is repealed.
COMING INTO FORCE
3. These Regulations come into force on the day on which the appropriate provincial Minister of each of at least two thirds of the participating provinces having in total not less than two thirds of the population of all the participating provinces has approved them.