Modernization of the Unclaimed Balances Regime and Proposals for an Unclaimed Pension Balances Framework
Table of Contents
2.1. Designated Entity
2.2. Application to Terminated versus Ongoing Plans
2.3. Transfers to the Designated Entity
2.4. Information Provision
2.5. Claiming Funds from the Designated Entity
2.6. Interest and Fees
2.7. Tax Obligations
For a variety of reasons, financial assets can end up dormant and unclaimed. The Government of Canada is committed to safeguarding Canadians’ unclaimed deposits. That is why, for many decades, the Bank of Canada has acted as the federal custodian for unclaimed deposits from federally regulated banks and trust companies and facilitated these funds being claimed by their rightful owners. The Government seeks views on proposals to modernize the Bank of Canada’s unclaimed deposit program to better serve Canadians. To further enhance Canada’s private pension policy framework, Budget 2018 announced the Government would publicly consult on a regime to address unclaimed pension balances. In keeping with that announcement, the Government seeks views on proposals for an unclaimed pension balances framework.
As part of the review of the federal financial sector framework, the Government is considering potential amendments to the Bank Act, Bank of Canada Act, Trust and Loan Companies Act and Cooperative Credit Associations Act to modernize the Bank of Canada’s administration of unclaimed balances. The Department of Finance consulted on these potential amendments in a 2017 consultation paper. Part 1 of this paper outlines these proposals, aimed at modernizing the Bank of Canada’s administration of unclaimed bank deposits and financial instruments.
Through feedback from last year’s consultation on unclaimed balances, the Government heard from many stakeholders who supported the inclusion of unclaimed pension balances in the Bank of Canada’s existing program. Part 2 of this paper introduces proposals for an unclaimed pension balances framework which would be set out in the Pension Benefits Standards Act, 1985 (PBSA) and its regulations. The framework would bring into operation the existing PBSA provisions that allow administrators of federally regulated plans to transfer the assets related to the pension benefit credits of persons who cannot be located to a designated entity under certain conditions. Individuals would be able to search for and claim their funds from the designated entity.
The objective of this paper is to seek views on the proposals for unclaimed bank balances and an unclaimed pension balances framework. Interested stakeholders, including financial institutions, consumer advocacy groups, pension plan sponsors, unions, the actuarial and legal professions, and retiree groups are invited to indicate whether they support the proposals in general, comment on any specific elements, respond to the consultation questions posed, and identify and comment on any additional questions that they consider relevant.
Submission of comments
Written comments should be sent by August 21 via email to: FIN.Pensions-Pensions.FIN@canada.ca.
By submitting a response to this consultation you consent that all or part of your response may become public and may be posted on the Department of Finance Website to add to the transparency and interactivity of the consultation process. Where necessary, submissions are revised or redacted to remove sensitive information. Should you post all or part of your response on your website, you consent that the Department of Finance may either post all or part of your response on its website, or provide a link directly to your website.
As the Department of Finance may wish to quote from, or summarize submissions in its public documents and post all or part of them on its website, we ask persons making submissions to clearly indicate if they wish us to keep all or part of their submission or their identity confidential. If you make a submission, please clearly indicate if you would like the Department of Finance to:
- Withhold your identity when posting, summarizing, or quoting from your submission, or
- Withhold all or part of your submission from its public documents.
If you wish for all or part of your submission to remain confidential, you must expressly and clearly indicate this fact when submitting your document. However, persons making submissions should be aware that once received by the Department of Finance, all submissions will be subject to the Access to Information Act and may be disclosed in accordance with its provisions.
Part 1: Modernization of the Unclaimed Balances Regime
Since 1944, the Bank of Canada has been the federal custodian of unclaimed balances – i.e., Canadian-dollar deposits or negotiable instruments issued or held by federally regulated banks or trust companies, which have had no owner activity in relation to the balance for a period of 10 years.
Under the applicable legislation, financial institutions must send notices by mail to unclaimed balance owners after two, five and nine years of inactivity, and are required to transfer unclaimed balances to the Bank of Canada after 10 years of inactivity. Financial institutions must also provide the Bank of Canada with certain information regarding the owners of unclaimed balances, which the Bank uses to administer balances and verify claims. Unclaimed balances are held by the Bank of Canada for 30 years if the amount is under $1,000, and for 100 years if the amount is $1,000 or over. At the end of the prescription period the balance is transferred to the Receiver General for Canada. The Bank of Canada pays interest on unclaimed balances that were held in interest-bearing savings accounts prior to their transfer to the Bank for the first ten years of custody. The rate of interest is set by the Minister of Finance – it is currently 1.5 per cent.
On September 29, 2017, the comment period closed for the Department of Finance’s second consultation paper on the review of the federal financial sector framework, “Potential Policy Measures to Support a Strong and Growing Economy: Positioning Canada’s Financial Sector for the Future,” which solicited stakeholders’ views regarding the modernization of the Bank of Canada’s administration of unclaimed balances. Consistent with that consultation, and for holistic consideration alongside the proposed unclaimed pension balances framework, the following sections outlines proposals to strengthen the unclaimed balances program for stakeholder views.
Provision of balance information
Current legislation restricts the scope of information disclosed by financial institutions to the Bank of Canada in respect of unclaimed balances. Lack of detailed information can make it difficult to verify claims and often requires the Bank to request additional information from claimants and financial institutions. Consideration is being given to require financial institutions to provide further information to the Bank of Canada, such as Social Insurance Number, date of birth, signature card and business number of the balance owner, at the time of transfer of the unclaimed balances.
Method of contact
Legislation only requires that financial institutions send notices by mail to balance owners after two, five, and nine years of inactivity. Other methods of communication could be more effective at locating and alerting owners. Consideration is being given to require financial institutions to send notices by electronic means (such as email), in addition to mail, to balance owners.
Legislation limits the definition of an unclaimed balance as being in Canadian dollars, which leaves no recourse for banks or consumers dealing with unclaimed foreign-denominated accounts. To better protect consumers and provide a wider registry into which banks can transfer their unclaimed balances, consideration is being given to broaden the definition of unclaimed balances to include foreign-denominated accounts.
Balance prescription timeframes
Unclaimed balances under $100 account for approximately 70 per cent of all unclaimed balances held by the Bank of Canada, yet the vast majority of these balances are never claimed, resulting in administrative costs exceeding the total value of small balances claimed. Consideration is being given to establish a reasonable threshold for “small balances” and to shorten the prescription period for these amounts.
Interest rate and administration fees
The Bank Act states that the Minister of Finance may prescribe the rate of interest to be credited on unclaimed balances originating from interest-bearing accounts. In an Order in Council from 1944, the Minister set the rate at 1.5 per cent. This is not aligned with the practices of unclaimed property regimes in other jurisdictions, where interest is typically not applied to unclaimed balances accounts. Given the current low interest rate environment, 1.5 per cent is also much higher than could be received on a savings account.
With regard to administration fees, unclaimed balance claimants are not currently charged fees for the services provided by the Bank. While charging a fee on a cost-recovery basis when balances are claimed would be more in line with unclaimed property regimes in other jurisdictions, it could partially erode the full amount of the balance to which owners may feel entitled.
Given that the policy objective of the unclaimed balances regime is for these balances to be claimed, it may not be prudent to reward people for maintaining their unclaimed balances with the Bank of Canada via comparatively high interest rates, nor to penalize them by charging administration fees to claim their funds. Consideration is therefore being given to reduce or eliminate the interest rate paid on unclaimed balances and maintain the current policy of no administration fees.
Exiting financial institutions
Presently, financial institutions exiting the marketplace cannot do so if they hold unclaimed balances that have not reached the 10-year dormancy period. Consideration is being given to allow exiting financial institutions to transfer outstanding unclaimed balances to the Bank of Canada prior to reaching the full 10-year dormancy period.
- Should financial institutions provide the Bank of Canada with further information (e.g., Social Insurance Number, date of birth, signature card and business number) to streamline the validation process for claimants and to protect against fraudulent claims?
- Should the prescription time for smaller balances be reduced, and if so, for which amounts and for how long?
- Should the definition of unclaimed balances in legislation be expanded to include foreign denominated accounts?
- Should financial institutions be required to notify balance owners through electronic means such as email, if possible, in addition to mail?
- Should the Bank stop paying a rate of interest on unclaimed balances? Should the Bank have the ability to charge administration fees, such as on a cost recovery basis?
- Should exiting financial institutions be allowed to transfer unclaimed balances to the Bank of Canada prior to reaching the 10-year dormancy period?
Part 2: Proposals for an Unclaimed Pension Balances Framework
The proposed unclaimed pension balances framework is intended to safeguard the unclaimed pension funds of unlocatable beneficiaries and help beneficiaries reclaim their funds, and help relieve the burden for plan administrators of administering these unclaimed balances.
The framework would be set out in the Pension Benefits Standards Act, 1985 (PBSA) and the Pension Benefits Standards Regulations, 1985 (PBSR), which govern pension plans linked to federally regulated employment, such as banking, inter-provincial transportation, telecommunications, navigation and shipping, and employment in most federal Crown corporations, Yukon, the Northwest Territories and Nunavut. Pooled Registered Pension Plans (PRPPs) regulated under the federal Pooled Registered Pension Plans Act would not be included in the proposed framework at this time as it would require consultations with the provinces that are part of the federal-provincial PRPP agreement.
An “unclaimed pension balance” arises when a pension benefit is supposed to be paid under the terms of a plan or legislation, but the person entitled to the benefit has not claimed it. Situations where unclaimed pension balances may arise include the termination of a plan, or the Income Tax Act requirement that retirement income from a registered pension plan begin no later than the end of the year in which the beneficiary turns 71.
Plan administrators have a fiduciary duty to ensure that each plan beneficiary is paid the benefits to which they are entitled. So long as the obligation to provide benefits is unsatisfied, unclaimed pension balances can remain as plan liabilities indefinitely, which can prevent terminated plans from fully winding-up and cause the plan to incur expenses to continue administering the unclaimed balances. Additionally, owners of unclaimed pension balances can have difficulties tracking down their pension funds, especially if the employer that used to administer the plan has ceased to exist and/or the plan has been terminated.
Frequently, unclaimed pension balances arise because the beneficiaries are “unlocatable” (i.e., the plan administrator does not have their contact information) and therefore cannot be informed or reminded that their benefit is supposed to be paid. In addition to giving rise to unclaimed pension balances, unlocatable beneficiaries can cause administrative burdens as plan administrators must still attempt to provide them with prescribed annual statements as per the PBSA.
Although the number of unlocatable beneficiaries in Canada is unknown, the number may be increasing due to certain factors. First, most jurisdictions in Canada require immediate vesting of benefits, which entitles workers to a deferred pension as soon as they accrue service in the plan. Second, with increasing labour mobility leading to more frequent career changes, workers may accumulate pension balances in multiple plans, often small amounts, and may forget their entitlements. Third, plan administrators may have difficulties keeping track of former plan members due to non-responsiveness of beneficiaries and cases of retirees moving abroad in retirement. Finally, the prevalence of technology such as electronic communication and direct banking can make people less likely to update their mailing addresses, resulting in plan administrators losing track of beneficiaries.
The PBSA currently contains provisions in section 10.3 to allow the Minister of Finance, with the approval of the Governor in Council, to designate an entity to receive and hold the assets related to the pension benefit credits of people who cannot be located, and to disburse those funds in a lump sum. Under the PBSA, plan administrators have the option to transfer the assets related to the pension benefit credits of unlocatable beneficiaries to the designated entity under certain conditions. However, the consent of the Superintendent of Financial Institutions is required if, in the Superintendent’s opinion, a transfer would impair the solvency of the plan. The assets transferred from the plan are held by the designated entity for a prescribed period of time, after which time the assets are transferred to the Crown and claims against them can no longer be made. To date, no entity has been designated and the framework has not begun operating.
The Department of Finance has received numerous requests from stakeholders to make the unclaimed pension balances framework operational. Most recently, the second consultation paper on the review of the federal financial sector framework solicited input regarding the modernization of the Bank of Canada’s administration of unclaimed balances, including whether other types of unclaimed funds should be captured. Several stakeholders commented that a framework should be created to address unclaimed pension balances under federal jurisdiction.
Quebec, Alberta and British Columbia currently have frameworks in place to address unclaimed pension balances. The frameworks in Quebec and Alberta apply to ongoing and terminated plans, while the one in British Columbia is available to terminated plans only. In each of these three provinces, plan administrators must1 transfer unclaimed pension balances to the applicable unclaimed property administrator under certain circumstances. These unclaimed property administrators hold the unclaimed pension balances and process and pay out claims, including interest credited in the case of Quebec. Quebec and Alberta’s frameworks may also charge administration fees, deducted from balances claimed. In addition, publicly accessible databases of the unclaimed funds exist in all three provinces to help owners find their money.
In December 2017, Ontario passed legislative amendments for the Financial Services Commission of Ontario (FSCO) to establish, maintain and operate an electronic registry of unlocatable beneficiaries belonging to Ontario-registered pension plans, with the goal of helping beneficiaries locate the benefits they are owed. Once the registry is established, plan administrators must notify FSCO when plan beneficiaries cannot be located so that the registry may be updated, but administrators will continue to hold beneficiaries’ pension benefits. Beneficiaries who are listed in the registry may contact FSCO to receive the contact information of their pension plan administrator, whom they then contact directly to claim their pension benefits. FSCO has also released a waiver that exempts plan administrators from having to provide biennial statements to a missing beneficiary, so long as the administrator conducted a search that did not result in the beneficiary being found.
2.1. Designated Entity
The designated entity would act as the custodian and administrator of unclaimed pension balances. The entity being considered is the Bank of Canada.
In many respects, unclaimed pension balances are similar to unclaimed balances currently managed by the Bank of Canada. Leveraging the existing unclaimed balances regime and integrating the unclaimed pension balances framework under the Bank of Canada would provide for a consistent and holistic treatment of unclaimed federal financial assets.
Additionally, the Bank of Canada’s existing infrastructure and experience could be extended to handle unclaimed pension balances to generate greater administrative efficiency. The Bank is also upgrading its systems and developing best practices to improve its administration of unclaimed funds.
It is proposed that the Bank of Canada be the designated entity for the unclaimed pension balances framework. The Minister of Finance, with the approval of the Governor in Council, would designate the Bank of Canada as the entity. Unclaimed pension balances would be listed in the Bank’s public online registry of unclaimed balances. To fully capitalize on the Bank’s existing infrastructure and experience, and for consistency, proposals for the unclaimed pension balances framework presented in this paper, where reasonable, have been aligned with the framework for unclaimed balances.
2.2. Application to Terminated versus Ongoing Plans
As per the existing PBSA provisions, the unclaimed pension balances framework is optional for federally regulated pension plans, however the regulations would specify that the framework is only available to terminated plans.
When a plan is terminated, the plan administrator must pay out benefits to all members of the plan. Unclaimed pension balances can prevent terminated plans from fully winding up, resulting in additional costs for the plan. The Office of the Superintendent of Financial Institutions (OSFI) has issued Instruction Guides on the filing and reporting requirements for defined benefit and defined contribution pension plan terminations (the “OSFI Instruction Guides”), which state that if a plan administrator has made appropriate efforts but is unable to locate everyone who has benefits payable from a plan, the administrator may consider the following options:
- Purchase deferred annuities for the former members or beneficiaries;
- Pay funds into the Court in accordance with, for example, provincial trust legislation, if applicable;
- Apply to the Court for its opinion, advice or direction;
- Additional options may be available for any former members or beneficiaries of the plan who fall under provincial jurisdiction.
If these options are not applicable or available, terminated plans could be required to administer unclaimed pension balances indefinitely; incurring administration and possibly search costs for unlocatable beneficiaries with unclaimed pension balances, possibly without receiving further contributions. Owners may also have difficulties tracking down their funds in terminated plans if the employer that sponsored the plan has ceased operating or a replacement administrator is appointed. Unclaimed pension balances in terminated plans can create material administrative burdens for administrators and complexities for beneficiaries.
Pension plans do not specifically report their number of unclaimed pension balances or unlocatable beneficiaries, however, according to data provided by OSFI, there are currently more than 500 unclaimed pension balances in terminated federally regulated plans, and approximately 25 per cent of terminated plans consist wholly of unclaimed pension balances of unlocatable beneficiaries.
In ongoing pension plans, unclaimed pension balances may arise when a member reaches an age where, under the terms of the plan text, pension benefit payments must commence but the member has not claimed their benefit. This can result in pension plans being unable to comply with the Income Tax Act requirement that retirement income from a registered pension plan begin no later than the end of the year in which the beneficiary turns 71. Additionally, unclaimed pension balances impose administrative burdens on ongoing plans, most notably the requirement to send annual statements to the owners of the balances, who are often unlocatable. Although it may be easier for the owners of unclaimed pension balances to contact ongoing plans in search of their funds compared to terminated plans, they may still face difficulties if the situation of the plan or sponsoring employer has changed (e.g., due to a merger or name change).
The number of unclaimed pension balances and unlocatable beneficiaries in ongoing federally regulated pension plans is unknown.
It is proposed that the PBSR be amended to make the federal unclaimed pension balances framework available to terminated pension plans only. Plan administrators of terminated plans would have the option to transfer the unclaimed pension balances of unlocatable beneficiaries to the designated entity, conditional on meeting additional criteria discussed below.
This approach would relieve the pressure of unclaimed pension balances where the need is greatest – i.e., terminated pension plans. It would also ensure that the number of unclaimed pension balances initially transferred to the designated entity is manageable. Consideration may be given to expanding the unclaimed pension balances framework to ongoing pension plans at a later date.
- Do unclaimed pension balances and/or unlocatable beneficiaries pose other issues for terminated and ongoing plans than those identified above?
- Can any plan sponsors or administrators of ongoing plans provide an estimate of the number of unclaimed pension balances and unlocatable beneficiaries in their plan?
2.3. Transfers to the Designated Entity
Terminated pension plans are currently required to file a termination report with OSFI that describes the efforts that have been made to locate all beneficiaries of the plan and how the plan administrator intends to proceed with regard to the pension benefits of unlocatable beneficiaries. In addition, it is proposed that plan administrators would have to make a separate application seeking OSFI’s authorization to transfer unclaimed pension balances to the designated entity. The pension benefit credits of unlocatable beneficiaries would be calculated in accordance with existing standards.
Plan sponsors or administrators who terminate a pension plan must file a termination report with OSFI. Until the termination report is approved, benefits from the plan cannot be disbursed. As per the OSFI Instruction Guides, the termination report should include a description of the efforts that have been made to locate unlocatable beneficiaries and how the plan intends to proceed with the liabilities in respect of these beneficiaries. Plan administrators intending to transfer unclaimed pension balances to the designated entity would therefore have to disclose their intention of doing so in the termination report.
Efforts to locate owners
As per existing PBSA provisions, only the unclaimed pension balances of people who cannot be located may be transferred to the designated entity. It is important that efforts to locate beneficiaries are undertaken by plan administrators to ensure that the beneficiaries in question are in fact unlocatable, and that the administrator has attempted to pay benefits to all entitled plan beneficiaries in fulfillment of its fiduciary and statutory duties.
As set out in the OSFI Instruction Guides, a plan’s termination report should describe the efforts that have been made to locate all beneficiaries of the plan. When a federally regulated pension plan is terminated, OSFI expects the plan administrator to make appropriate efforts to locate everyone who has benefits payable from the fund through, for instance:
- Notices in local and national newspapers, union central publications, newsletters or postings in local union halls;
- Private search agencies and databanks; and
- If possible, Government department databases such as provincial motor vehicle registries.
The Canada Revenue Agency (CRA) also provides a letter forwarding service which plan administrators may use, for a fee, provided all other search efforts have been exhausted.
The search methods mentioned above do not constitute an exhaustive list of possibilities nor would they necessarily collectively satisfy the efforts to locate plan beneficiaries which OSFI expects to be made. Effective searches are iterative processes that adapt to changing circumstances and leverage evolving best practices, techniques and technology. Additionally, the degree of effort to locate beneficiaries generally should increase with the size of the unclaimed pension balance, and searches need not be confined to unlocatable beneficiaries, but can also include their survivors or designated beneficiaries. Prescribing specific search methods in legislation or regulations could unduly constrain administrators from conducting dynamic, adaptive searches, and it may be difficult to prescribe search methods that would be appropriate in every circumstance.
It is reasonable to expect that administrators incur search costs when attempting to locate unlocatable beneficiaries. However, as these costs are often ultimately borne by the plan, it is important that search costs be reasonable and generally commensurate with the size of the unclaimed pension balance.
Amounts to be transferred
As per existing PBSA provisions, plan administrators would transfer the assets (i.e., money) related to unlocatable beneficiaries’ pension benefit credits directly to the designated entity. The PBSR provides standards for calculating pension benefit credits. For defined benefit pension plans, a pension benefit credit is the commuted value as determined in accordance with Canadian Institute of Actuaries standards as at the date of plan termination, including interest credited from the date of the calculation (i.e., the date of plan termination) to the date of disbursement. For defined contribution plans, a pension benefit credit is the value of the accumulated assets related to a particular plan member’s account at the time of transfer.
In certain circumstances, unlocatable beneficiaries may be eligible for a portion of any surplus distributed from a terminated plan. Allowing plan administrators to transfer to the designated entity any assets related to a distribution of surplus would protect unlocatable beneficiaries’ surplus entitlements and permit the plan administrator to wind-up the pension plan.
Where a plan terminates underfunded and the employer is unable (because of bankruptcy or insolvency) or, in the case of a negotiated contribution plan, not required to eliminate the wind-up deficit, plan assets would be insufficient to provide all benefits. In such cases, the portion of the pension benefit credits that will be paid is determined in the termination report that must be approved by the Superintendent.
The amount eligible to be claimed from the designated entity must be equal to the amount of assets held by the entity, which, in some cases, may only represent a portion of the pension benefit credit. Otherwise the designated entity could inappropriately assume responsibility for providing the full pension benefit credit even though the funded status of the pension plan did not support providing that amount. Under the current wording of the PBSA, both the pension benefit credit and the assets related to that credit must be transferred to the designated entity, however it is unclear what the implications would be if those two amounts did not match.
Currently, terminated pension plans must file termination reports with OSFI that include descriptions of the search efforts that have been made to locate all plan beneficiaries, and how the administrator intends to treat the liabilities in respect of unlocatable beneficiaries. OSFI must approve the termination report prior to the disbursement of benefits.
It is proposed that the PBSA be amended to provide that transfers of unclaimed pension balances to the designated entity cannot occur without the authorization of the Superintendent of Financial Institutions. This authorization could be subject to terms and conditions, as permitted under the PBSA. After the termination report has been approved by the Superintendent and a plan administrator has undertaken what it considers to be sufficient time and effort searching for unlocatable beneficiaries, it would apply to the Superintendent for permission to transfer the assets related to the pension benefit credits of unlocatable beneficiaries to the designated entity. OSFI would review the application, including the particular circumstances for that plan, the amounts owed to the unlocatable beneficiaries and steps that have been taken to locate them, and then either ask the plan administrator for further efforts and/or information, or agree to the transfer. OSFI may issue guidance for plan administrators to provide further details regarding this process.
It is also proposed that the PBSA be amended to clarify that only the assets related to a pension benefit credit, not the credit itself, would be transferred to the designated entity, and the entity would be responsible for disbursing those assets in a lump sum. For further clarity, it is also proposed that the PBSA be amended to allow plan administrators to transfer to the designated entity any portion of surplus for which the unlocatable beneficiaries are eligible, and that the entity would be responsible for disbursing that surplus.
It is understood that terminated pension plans that transfer unclaimed pension balances to the designated entity would not retain any liability in respect of those balances under the PBSA.
- What are examples of effective search methods/techniques?
- What seems like a reasonable minimum time period to make appropriate efforts to search for a plan beneficiary?
- Should there be a minimum time period before eligible unclaimed pension balances may be transferred to the designated entity?
- What necessary criteria, if any, should be required to obtain OSFI’s authorization?
2.4. Information Provision
In order to accurately validate claims, the designated entity requires certain personal information concerning the owners of unclaimed pension balances which plan administrators would have to provide at the time of transfer. Additionally, certain information would be published in a public database so that individuals may search for their unclaimed funds.
While providing the designated entity with more information could help ensure more accurate claim validations, the privacy of the owners of unclaimed pension balances must also be respected and protected in accordance with privacy laws. To that end, the designated entity would not collect information beyond what is needed to ensure the proper operation of the unclaimed pension balances framework and only basic, non-sensitive information would be posted in the public database. Posting information publicly would allow the owners of unclaimed pension balances to search for their funds and provide them with a reasonably high degree of certainty that they are in fact the owner of a balance prior to submitting a claim.
Personal information is typically required to be collected directly from the individual to whom the information pertains, however this is not possible under the framework since the affected individuals are unlocatable. Furthermore, the transmission of certain personal information could be in the best interest of the beneficiary as it could help them track down their funds using the public database.
It is proposed that the PBSA be amended to require that plan administrators, upon transferring the assets related to a pension benefit credit of a person who cannot be located to the designated entity, would have to provide the designated entity with any prescribed information related to that credit, insofar as it is known to the plan administrator. The PBSR would be amended to provide that the prescribed information includes the following:
- The date of the transfer;
- The name of the person who accrued the pension balance (“the person”) and, if applicable, the name of the survivor or designated beneficiary;
- The recorded address of the person;
- The date of birth of the person;
- The social insurance number of the person;
- The amount of assets related to the pension benefit credit and any portion of surplus for which the person is eligible;
- The name and registration number of the pension plan, as at the date of transfer;
- The recorded name of the plan sponsor (i.e., employer) of the pension plan under which the balance was accrued; and
- The name and address of the administrator of the pension plan under which the balance was accrued, as at the date of transfer, if different than the plan sponsor.
The existing PBSA requirement for employers to provide any information to the plan administrator required for the administration of the plan would apply with respect to the above information.
It is further proposed that the PBSA be amended to provide the designated entity with the authority to publish any prescribed information with respect to unclaimed pension balances. The PBSR would be amended to prescribe that the designated entity could publish the following information in respect of unclaimed pension balances until the balance is no longer held by the designated entity:
- The date of transfer;
- The name of the person;
- The recorded address of the person;
- The amount of assets held by the designated entity related to the pension benefit credit and any distribution of surplus;
- The name and registration number of the pension plan as at the date of transfer; and
- The recorded name of the plan sponsor (i.e., employer) of the pension plan under which the balance was accrued.
- What are your views on plan administrators having to provide the proposed information to the designated entity, and having the proposed information posted publicly?
- Do plan administrators have access to all the proposed information to provide to the designated entity?
2.5. Claiming Funds from the Designated Entity
The verified owners of unclaimed pension balances, or their survivors or designated beneficiaries, would be able to claim their pension balances from the designated entity so long as the prescription period has not expired – i.e., the amount of time that the designated entity holds the assets related to the unclaimed pension balance before transferring the assets to the Crown (i.e., the federal government’s Consolidated Revenue Fund).
To facilitate unclaimed pension balances being claimed by those who are entitled to them, the framework should allow for a balance to be claimed not only by the owner who accrued it, but also by their survivor or designated beneficiary in cases where the owner is deceased. Additionally, individuals with power of attorney or legal mandate to represent the owner, or individuals representing the owner’s estate should be able to claim balances on behalf of the owner. In any case, proper verification would be required before the designated entity could distribute claims in order to ensure that only those entitled to the funds, or are authorized to represent the ones entitled to the funds, are able to claim them. The PBSA currently provides that once a claim is verified, the claimant would receive the funds as a lump sum.
The length of the prescription period should respect the entitlements of beneficiaries by providing reasonable time for them, or their survivors or estates, to claim their funds. Generally, a longer prescription period would enhance consumer protection.
However, for very small balances, a long prescription period may not necessarily lead to higher incidence of claims. The Bank of Canada reports that the vast majority of unclaimed balances under $100 are never claimed. Additionally, for small balances, the costs to the designated entity to pay out verified claims could exceed the amount of the balances. From a public policy standpoint, the cost of administering small balances may outweigh the public benefit. Furthermore, individuals may decide that claiming their small balance is not worth the effort. Therefore, a relatively short prescription period could be justified for small unclaimed pension balances.
It is proposed that the PBSR be amended to specify that, until the prescription period with respect to an unclaimed pension balance expires, the following individuals would be eligible to claim the balance from the designated entity: the owner of the balance; any individual with power of attorney or legal mandate to represent the owner; and, if the owner is deceased, their survivor or designated beneficiary or any individual representing the owner’s estate. Funds claimed from the designated entity would be disbursed as an unlocked lump sum to the claimant.
It is proposed that the prescription periods for unclaimed pension balances would be consistent with the framework for unclaimed balances. That is, the prescription period would be 100 years for pension balances (including any surplus) of $1,000 or more, and 30 years for balances less than $1,000. Additionally, consideration is being given to establishing a third threshold for “small balances” with a shorter applicable prescription period, consistent with the proposal under consideration for unclaimed bank balances. Once the applicable prescription period has expired, claims against an unclaimed pension balance could no longer be made.
- Are there others who should be eligible to claim funds from the designated entity?
- What are your views on the proposed prescription periods, including views on what would be an appropriate prescription period and threshold for small balances, and the appropriateness of full alignment with the framework for unclaimed bank balances?
2.6. Interest and Fees
Interest could be paid on unclaimed pension balances transferred to the designated entity, if the balance were ultimately claimed, and/or the entity could charge administration fees.
Paying interest on pension balances claimed from the designated entity could partially compensate owners for the foregone investment and/or interest income they could have earned during the time their funds were held by the entity and would help to offset the negative impact of inflation on the real value of the benefit.
Crediting interest in would increase costs and administrative and operational complexities for the designated entity, which could warrant charging fees for such services. The unclaimed property regimes of Alberta and British Columbia do not credit interest on unclaimed assets.
Allowing the designated entity to charge cost-recovery fees would help cover the operational and administrative costs of the framework. This would also be fairly consistent with how unclaimed pension balances may be subject to fees related to investment and/or administration expenses while held within a pension plan.
Fees should not be deducted on a periodic basis from unclaimed pension balances held by the designated entity as this could eventually reduce balances to zero before the prescription period expires. Instead, individuals could be charged a one-time fee for submitting a claim and/or for receiving a verified claim to ensure that only those who utilize the service would be charged.
It is important that any fee be determined so as not to exceed what would be charged on a cost-recovery basis to ensure that the designated entity does not profit from fulfilling its role. Any fee should also be capped at a certain percentage of the amount of the balance to avoid significantly eroding the amount of small pension balances.
However, any amount of fees could result in claimants receiving a lower amount than the full pension balance to which they may feel entitled.
It is proposed that no interest would be credited on unclaimed pension balances, nor would any administration fees be charged when individuals submit a claim or receive a verified claim.
- Are there other reasons to support crediting a reasonable rate of interest on amounts claimed from the designated entity, or charging a cost-recovery administration fee?
2.7. Tax Obligations
Pension benefit payments made from a registered pension plan to the plan member or surviving beneficiary are generally included in the taxable income of the recipient. Options are being considered for appropriate tax rules to apply in cases where a person’s unclaimed pension balance is paid to a designated entity.
As noted earlier in this paper, Quebec, Alberta and British Columbia established statutory frameworks to address unclaimed pension balances. The interaction to date between the provincial designated entities and the Canada Revenue Agency (CRA) has raised the following key considerations for an appropriate tax framework:
- Which entity (the plan administrator or the designated entity) should be required to withhold and remit the tax?
- Should the tax be payable at the time that the unclaimed balance is transferred to the designated entity?
- What is the appropriate rate(s) of tax?
- Should the unclaimed pension balance become an “unregistered” account when it is paid to the designated entity?
It is proposed that payments of unclaimed pension balances to a designated entity be made on a pre-paid tax basis. That is, income tax would be withheld and remitted to the CRA, by the administrator of the registered pension plan, at the time the administrator transfers an unclaimed pension balance to the designated entity. The appropriate rate of tax that would apply for the purpose of withholding tax on payments of unclaimed pension balances to a designated entity would need to be carefully considered.
If an unlocatable pension plan member or their survivor or designated beneficiary subsequently makes a claim to the designated entity to be paid the account balance, the designated entity would not report an amount to the CRA (e.g. no T4A slip) and the amount would not be included in the claimant’s taxable income because the account held by the designated entity would be net of the pre-paid tax. Since it is proposed that no interest be paid on unclaimed pension balances held by the designated entity, the issue of the tax treatment of interest income would not arise. That is, such an approach avoids the need to consider whether and how income tax should be paid on interest earned on such balances.
It is also proposed that the unclaimed pension balance would no longer be “registered” tax-deferred funds after being paid to the designated entity. Under that approach, the designated entity would be relieved of several tax obligations, such as the requirement after age 71 to annually pay out a prescribed minimum amount and to remit to the CRA the applicable income tax.
- Do you agree that remitting a pre-paid tax is a simple, efficient and practical approach to the taxation of unclaimed pension benefits?
- Do you agree that the pension plan administrator is in the best position to report, withhold and remit the pre-paid tax to the CRA?
- What would be an appropriate rate of tax to apply on payments of unclaimed pension balances to a designated entity?
- Should the account held by the designated entity (net of the taxes paid) be an unregistered account?
Stakeholders are invited to provide their views on these issues and/or to identify and comment on any other questions that they consider relevant in relation to the potential tax treatment of unclaimed pension balances.
1 Although it is optional in British Columbia.