Vol. 147, No. 1 — January 2, 2013
SOR/2012-296 December 14, 2012
CANADA PENSION PLAN INVESTMENT BOARD ACT
Regulations Amending the Canada Pension Plan Investment Board Regulations
P.C. 2012-1746 December 13, 2012
Whereas, pursuant to subsection 53(2) of the Canada Pension Plan Investment Board Act (see footnote a), a regulation made under subsection 53(1) of that Act has no force or effect until 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 of the participating provinces has approved the regulation;
Whereas, for the purposes of subsection 53(2) of that Act, the approval of a proposed regulation published in the Canada Gazette is deemed to be the approval of the regulation if the regulation is the same or substantially the same as the proposed regulation;
Whereas the appropriate provincial Ministers of at least two thirds of the participating provinces having in total not less than two thirds of the population of all of the participating provinces have approved the proposed Regulations, entitled Regulations Amending the Canada Pension Plan Investment Board Regulations, which were published in the Canada Gazette, Part I, on June 23, 2012;
And whereas the annexed Regulations, entitled Regulations Amending the Canada Pension Plan Investment Board Regulations, are substantially the same as the proposed Regulations published in the Canada Gazette, Part I, on June 23, 2012;
Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 53(1) of the Canada Pension Plan Investment Board Act (see footnote b), makes the annexed Regulations Amending the Canada Pension Plan Investment Board Regulations.
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 Section 3 of the Canada Pension Plan Investment Board Regulations (see footnote 1) is repealed.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 Section 12 of the Regulations is repealed.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 they are registered.
(This statement is not part of the Regulations.)
Issues 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Effective July 1, 2010, section 10 of Schedule III of the Pension Benefits Standards Regulations, 1985 (PBSR) was repealed.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.
The first amendment, the Investment Rules Amendment, aligns the investment rules under the Canada Pension Plan Investment Board Regulations (“the Regulations”) with the recent change to the PBSR. The Investment Rules Amendment allows 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, ensures that the meaning of “subsidiary” under the Regulations is fully aligned with the definition under the Canada Pension Plan Investment Board Act (“the Act”).
The Investment Rules Amendment repeals section 12 of the Regulations, which sets out quantitative investment limits in respect of real estate and Canadian resource property. This amendment aligns the Regulations with the PBSR and allows 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 Subsidiary Definition Amendment repeals 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.
Officials from the CPPIB have been consulted on both amendments. They have expressed their support for 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 approved the amendments.
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.
The amendments to the Regulations were published in the Canada Gazette, Part I, on June 23, 2012. One response was received expressing concern that the rationale and consultations for the Investment Rules Amendment were insufficient. With respect to the rationale for the Investment Rules Amendment, it is important to note that the CPPIB is a professionally managed investment management organization that is mandated to invest the assets of the CPP in a way that maximizes investment returns without undue risk of loss. The CPPIB invests globally across a wide range of asset classes, both in passive-index weighted investments and through active management, and has a proven track record with respect to the prudent person approach. Furthermore, the investment regulations applying to the CPPIB have historically been consistent with those applying to other large pension funds in Canada. As mentioned above, the Investment Rules Amendment aligns the Regulations with a recent amendment to the PBSR. With respect to consultations, it is noted that, in addition to the extensive public consultations carried out in 2009, the CPPIB and provincial ministers of finance have also been consulted and have given their approval.
The “One-for-One” Rule does not apply, as the amendments impose no administrative costs on businesses.
Small business lens
The small business lens does not apply, as the amendments impose no costs on small businesses.
The Investment Rules Amendment allows 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 ensures 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.
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