Regulations Amending the Public Sector Pension Investment Board Regulations: SOR/2021-207

Canada Gazette, Part II, Volume 155, Number 18

SOR/2021-207 August 12, 2021


P.C. 2021-886 August 11, 2021

Her Excellency the Governor General in Council, on the recommendation of the President of the Treasury Board, pursuant to section 50 of the Public Sector Pension Investment Board Act footnote a, makes the annexed Regulations Amending the Public Sector Pension Investment Board Regulations.

Regulations Amending the Public Sector Pension Investment Board Regulations


1 (1) The portion of subsection 11(1) of the Public Sector Pension Investment Board Regulations footnote 1 before paragraph (a) is replaced by the following:

11 (1) The Board must not directly or indirectly invest more than 10% of the total market value of the Board's assets in the securities of

(2) Subsection 11(2) of the Regulations is amended by adding the following after paragraph (b):

Coming into Force

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


(This statement is not part of the Regulations.)


The Public Sector Pension Investment Board Regulations (the Regulations) currently prohibit the Public Sector Pension Investment Board (PSPIB) from investing more than 10 per cent of the total book value of the public sector pension plans' assets in any one entity or any associated or affiliated entities (the “10 per cent limit”).

While the Regulations allow an exception to the 10 per cent limit for fixed income securities (i.e. nominal bonds, treasury bills, and real return bonds) issued by the Canadian federal and provincial governments, no exception exists with respect to investments in securities issued or fully guaranteed by the Government of the United States of America (“U.S. Treasury Securities”). This is suboptimal from risk/return and diversification perspectives, since the United States of America has, by far, the largest and most liquid government bond market in the world; Canadian fixed income securities represent only a small proportion of the global fixed income securities market.

The PSPIB portfolio relies on government bonds to provide protection in times of crisis and reduce the overall risk of its investment portfolio. Specifically, inflation-linked bonds (ILBs) form part of the PSPIB investment strategy because pension plan liabilities are highly sensitive to inflation. ILBs reduce the risk of funding deficits in pension plans.

As PSPIB's current allocation in U.S. Treasury Securities has almost reached the 10 per cent threshold, mainly in holdings of ILBs, a new exception to the limit will relieve the constraint on PSPIB's access to nominal bonds or other types of U.S. fixed income securities. Given PSPIB's legislated focus on maximizing return, while minimizing risk, it can be seen that PSPIB will be able to more effectively manage its portfolio risk without a hard-wired diversification restriction on U.S. Treasury Securities that may actually be inconsistent with that mandate.

Furthermore, under the current Regulations, the basis on which compliance with the 10 per cent limit is measured is book value (i.e. the original purchase price of an asset). Using market value (i.e. the price of an asset in the current marketplace) instead will make compliance with the 10 per cent limit much easier for PSPIB as, over time, investment allocations will have more flexibility as the market values of plan assets grow. The book value measure could result in a situation where the 10 per cent limit would be reached even though the true relative weight of a certain type of asset, such as fixed-income securities, could be significantly below 10 per cent. Continuing to use the book value measure could thus possibly result in a poorly optimized and balanced total investment portfolio.


The PSPIB, established under the Public Sector Pension Investment Board Act (the Act), is an arms-length Crown corporation mandated to manage the amounts transferred to it by the Government of Canada for the funding of retirement benefits accrued since April 1, 2000, by members of the pension plans for the federal public service, the Canadian Armed Forces (CAF) — Regular Force, and the Royal Canadian Mounted Police (RCMP), and since March 1, 2007, the CAF — Reserve Force (the “public sector pension plans”). Since its establishment in 2000, PSPIB has grown to be one of the largest pension fund investors in Canada, managing over $204.5 billion in assets as at March 31, 2021.

The PSPIB is legislatively mandated to manage the pension plan assets in the best interests of the plans' contributors and beneficiaries, with a view to achieving a maximum rate of return without undue risk of loss. The Regulations also impose certain quantitative investment rules. The underlying policy intent of these rules was originally to ensure diversification of plan assets, as well as to manage certain financial risks (such as the risk of employer failure/insolvency). However, such limits are no longer aligned with best practices and are typically aimed at smaller, less sophisticated plans.


The objective of the amendments to the Regulations is to modernize the investment rules applicable to the federal public sector pension plans to ultimately enable PSPIB to more effectively carry out its mandate of managing the pension assets in the best interests of the plans' contributors and beneficiaries. The amendments achieve this by


The amendments to section 11 of the Regulations create a new exception to the 10 per cent limit for U.S. Treasury Securities, thereby allowing the PSPIB to hold more than 10 per cent of its assets in securities issued or fully guaranteed by the Government of the United States of America; and change the basis on which compliance with the 10 per cent limit is measured from book value to market value.

Regulatory development


As the legislated investment manager for the public sector pension plans, the PSPIB has been closely consulted in the development of the amendments to the Regulations. PSPIB submitted a business case to demonstrate the benefits of the proposal from its perspective, and additional subsequent consultations took place through discussions and email. PSPIB fully supports implementation of these amendments at the soonest opportunity and has not expressed any concerns related to their design.

The Government of Canada, as the employer, and the contributors and beneficiaries of the plan are each represented on three legislated Pension Advisory Committees for the Public Service, CAF, and RCMP respectively. Each committee has members appointed by the Governor in Council to represent the employer, employees, and pensioners, and serves as an important forum for consultation with these groups on pension matters. The three Pension Advisory Committees were consulted on these amendments in June-July 2021. Members of each Committee were interested in whether enactment of these amendments would increase the funding risk of the portfolio, particularly during times of market volatility, and how the securities allocations would be monitored if the 10 per cent limit were to be removed. In response, it was noted that risk tolerance levels are set on a yearly basis and that there are several mechanisms in place, such as financial reporting requirements and continuous engagement with PSPIB throughout the year, for the plan sponsor to monitor whether expected returns at acceptable levels of risk are being achieved. Further, it was explained that these measures help to address market volatility by pursuing a more diverse portfolio. The Asset-Liability Committee (ALCO), which includes members from Department of Finance, Treasury Board of Canada Secretariat (TBS), the Office of the Chief Actuary, Department of National Defence, RCMP, and PSPIB, will also be involved in continuing to monitor investment decisions over time and will address any concerns of too much risk being brought to the portfolio. No concerns related to the enactment or implementation of these amendments were expressed by the Committee members.

Exemption from prepublication in the Canada Gazette, Part I, is warranted because the amendments do not have an impact on the general public or the business community. The Regulations are related to internal government operations, pertaining only to federal public sector pension plan investment strategies implemented by the PSPIB.

Modern treaty obligations and Indigenous engagement and consultation

The amendments to the Regulations do not require Canada to fulfill any consultation/engagement requirements described in a modern treaty, nor do they create other federal modern treaty responsibilities.

Instrument choice

There is no alternate instrument to address the issue. The matter is explicitly within the purview of the Regulations.

Regulatory analysis

Benefits and costs

There are no costs to businesses, consumers, Canadians and government associated with the amendments to the Regulations. There are no anticipated impacts for the Canadian government bond market. Any future adjustments to the PSPIB's allocations in Canadian securities would be expected to continue to be driven by changes in expected risk-adjusted returns, rather than by these amendments.

It is expected that implementation will result in operational savings in PSPIB's financial administrative costs of approximately $10 million per year. As a result of the 10 per cent limit imposed on U.S. Treasury Securities, the PSPIB uses higher-cost synthetic exposures, such as derivatives and swap arrangements, to replicate the characteristics of U.S. inflation-protected securities without actually purchasing them. Such strategies come with higher administrative costs (e.g. transaction costs and management fees) that are estimated to be approximately $10 million per year (based on costs of 30 basis points associated with synthetic exposures totalling $3.2 billion) more than the relative costs of commensurate purchases in U.S. Treasury Securities. The exception to the 10 per cent limit for U.S. Treasury Securities is expected to effectively reduce the portfolio's overall administrative costs needed to achieve the desired asset exposure.

As well, further operational savings and efficiencies could be realized as the current extensive monitoring efforts to ensure that the total fund level does not breach the 10 per cent limit for U.S. Treasury Securities are no longer required.

Benefits will be realized for the overall pension fund, as the amendments will increase investment flexibility and help to mitigate investment risk. As the size and maturity of the pension fund grow, PSPIB will have more flexibility to make investment decisions based on their respective risk/return characteristics, with less constraint from the 10 per cent of book value measure. As well, PSPIB will no longer be constrained in the size of its allocation in the liquid U.S. fixed income securities market, which will allow for better protection from market volatility and inflation risk. These flexibilities will allow PSPIB to lower the overall risk of the portfolio by adjusting securities allocations on an ongoing basis to meet return objectives and liquidity requirements.

Small business lens

The small business lens does not apply, as there are no associated impacts on small businesses.

One-for-one rule

The one-for-one rule does not apply, as there is no impact on business.

Regulatory cooperation and alignment

The amendments to the Regulations have not been developed as part of a coordinated regulatory cooperation arrangement. However, the exception for U.S. Treasury Securities in the amendments is consistent with provincial pension standards legislation in other comparable domestic jurisdictions such as Ontario and Quebec. As well, the federal Pension Benefits Standards Regulations, 1985 — which apply to all federally regulated pension plans — were amended in 2016 to measure compliance with its 10 per cent limit based on market value, rather than book value.

Lastly, these amendments are aligned with global industry best practices, including advice issued by the Organisation for Economic Co-operation and Development's Guidelines on Pension Fund Asset Management.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for these amendments.


The amended Regulations enter into force upon registration. Consultations with PSPIB have taken place concerning the implementation strategy of the regulatory amendments. The PSPIB's ongoing modelling, monitoring, and portfolio construction activities will gradually and prudently be adjusted to shift funds to optimal allocations within the newly adapted quantitative limit framework resulting from these amendments. More specifically, PSPIB is prepared to apply the amendments to the Regulations through adjustments to the current constraints imposed on asset managers who oversee the relevant investment classes, adjustments to rebalancing exercises and streamlining regulatory compliance reporting accordingly.

The ALCO, chaired by the Pension Policy and Programs directorate in TBS, will continue to provide significant oversight of the PSPIB's investment activities from a risk tolerance lens. The ALCO will continue to monitor PSPIB's portfolio risk level to ensure that it remains commensurate with the acceptable limit established by the plan sponsor.


Thérèse Thy Ngo
Senior Director
Pension Policy and Stakeholder Relations
Employee Relations and Total Compensation Sector
Office of the Chief Human Resources Officer
Treasury Board of Canada Secretariat
Telephone: 613‑324‑5166