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.
On the one hand, 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.
On the other hand, in addition to that information, we expect the report to present the asset allocation used to choose the interest rate assumption on an on-going basis. The distribution of assets must show the effect of the derivatives, if any.
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.
Interest rates on a solvency basis
The actuarial valuation report should indicate the interest rate used to discount the amortization payments on a solvency basis. The rate must be prorated to the following, according to their respective liabilities:
- the interest rate for retired members (uninsured pensions)
- the interest rate for the other members (including insured pensions).
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.
The amounts required to pay the residual benefits must be paid in addition to current service contributions and amortization payments.
Actuarial Information Summary
The actuary who signs the actuarial valuation report must complete the Actuarial Information Summary and sign the declaration it contains.
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, 201, 204, and part VII of the summary.
In the case of pension plans for municipal and university sectors, as well as for the plan for early childhood centres (CPEs) or accredited private daycares in Québec, the actuary must fill out lines 196 and 198 of the summary instead of lines 201 and 204.
Relief measures for private sector pension plans
The actuarial valuation report prepared according to the conditions provided for under the Regulation providing new relief measures for the funding of solvency deficiencies of pension plans in the private sector must meet the following two requirements:
- It must specify which relief measures are used (assets smoothing on a solvency basis, the consolidation of certain deficiencies or extension of the amortization period).
- It must contain a description of the asset valuation method, where the relief measure for assets smoothing on a solvency basis is used.
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.