Actuarial valuations: points to consider
Below are a few points to consider with regard to actuarial valuations. The Supplemental Pension Plans Act remains the key resource to ensure an actuarial valuation complies with all requirements.
According to the Standards of Practice of the Canadian Institute of Actuaries (CIA) , the actuarial valuation report must present the assets of the pension plan by category of important assets.
In addition to that information, we also expect the report to present the asset allocation used to choose the interest rate assumption on a going concern basis. The distribution of assets must show the effect of the derivatives, if any.
Letters of credit
The liabilities of the pension plan on a going concern basis represent the value of the assets required to pay the benefits accrued as at the date of the actuarial valuation.
For plans whose assets include letters of credit, plan funding must take into account the plan's investments and the letters of credit that do not generate returns.
According to the CIA's Standards of Practice, an actuarial valuation on a going concern basis should take into account the expenses if they are expected to be paid from the pension plan's assets.
For plans where each component must be funded separately, the actuary must choose an expense assumption for each component.
Duration of the liabilities expected to be settled through the purchase of annuities
Where the actuarial valuation determines liabilities on a solvency basis using an assumption that depends on the duration of the liabilities expected to be settled through the purchase of annuities, the actuary must present that duration in the actuarial valuation report.
Alternative settlement methods
In September 2013, the Canadian Institute of Actuaries (CIA) published the Educational Note Alternative Settlement Methods for Hypothetical Wind-Up and Solvency Valuations.
The note describes four alternative settlement methods for solvency valuations for pension plans that have very large liabilities and whose benefits are indexed to the Consumer Price Index (CPI). However, the note stipulates that the actuary can use one of the four methods only if it is allowed by law, or if the actuary has reason to believe that the regulator would likely find the method acceptable.
We wish to inform actuaries that, pursuant to the Supplemental Pension Plans Act, the alternative settlement methods presented in the Educational Note of September 2013 cannot be used in Québec.
The actuarial valuation report must give the amounts required to pay the residual benefits that are due in the fiscal year covered by the actuarial valuation. If no amount is required, the actuary must indicate it in the report.
Residual benefits are the portion of member benefits that were not paid because the plan was not fully solvent. Such benefits must be paid within five years after the date of the initial payment or not later than the normal retirement age, if the members attain that age before the expiry of the five-year period.
Actuarial Information Summary
The actuary who signs the actuarial valuation report must complete the Actuarial Information Summary and sign the declaration it contains.
The Actuarial Information Summary must not accompany the notice provided for in section 119.1 of the Supplemental Pension Plans Act .
We give guidance on certain lines of the Actuarial Information Summary as a complement to the instructions given on the form.
Partial actuarial valuation
Where the Actuarial Information Summary is related to a partial actuarial valuation, the actuary must fill out lines 001 to 014a, 185 to 190, 199, 204, and part VI of the summary.
In the case of pension plans of the municipal and university sectors, as well as the pension plan for the plan for early childhood centres (CPEs) or accredited private daycares in Québec, the actuary must fill out lines 199 and 204 of the summary.
References from the Canadian Institute of Actuaries
A municipal sector pension plan is a plan where the employer is a municipality, a body referred to in section 18 of the Act respecting the Pension Plan of Elected Municipal Officers or a municipal housing bureau.