Actuarial assumptions and methods

The following instructions are designed to help actuaries choose actuarial assumptions and methods for determining the value of pension plan commitments on a going concern basis. Retraite Québec may request explanations from actuaries who use assumptions that would deviate from the instructions described below.

Note that

As part of its supervisory mandate, Retraite Québec may also require any information that it deems necessary to verify that the actuarial valuation report complies with all legislative requirements.

Interest rate assumption

Maximum assumption

Retraite Québec has analyzed the information regarding the interest rate assumptions used in actuarial valuation reports as at 31 December 2020, as well as the most recent return forecasts for the coming years. Based on this analysis, Retraite Québec expects the interest rate assumption of actuarial valuations carried out after 30 December 2021 to be established using a best estimate of the rate of return on investments (including the effects of rebalancing and diversification) that does not exceed 5.75%. This limit applies to plans with investment policies that provide for 50% of plan investments to be fixed-income investments, as defined in the first paragraph of section 60.8 of the Regulation respecting supplemental pension plans This link will open in a new window..

For other investment policies, the actuary will establish the interest rate assumption of the actuarial valuation by taking into account this limit as well as the risk premium limit presented below.

Risk premium

The educational note from the Canadian Institute of Actuaries concerning the determination of best estimate discount rates shows the reasonable risk premium for the different categories of a pension plan's assets. Retraite Québec expects actuaries to respect the educational note when determining the best estimate for the rate of return on investments.

Best estimate and margins for adverse deviations

According to the Canadian Institute of Actuaries' Standards of Practice This link will open in a new window., for valuations on a going concern basis, actuaries must choose best-estimate assumptions that have been modified to include margins for adverse deviations to the extent required by legislation or by the terms of an appropriate engagement.

The Standards of Practice define a best-estimate assumption as an unbiased assumption. It must not be conservative or non-conservative. In cases where a stochastic model is used to determine the best estimate of the expected rate of return, Retraite Québec considers the median of the distribution of returns on investments to be the best estimate.

In addition, Retraite Québec expects actuarial valuations to include a margin for adverse deviations when the interest rate assumption on a going concern basis is established for a pension plan or the component of a plan where

  • either no stabilization contribution is required by law
  • or the following 2 conditions are met:
    1. a stabilization provision is established.
    2. the interest rate assumption stems from an investment policy in which the target distribution of investments in variable-income securities is higher than the one used to establish the stabilization provision.

In the absence of such a margin, Retraite Québec could require that the valuation be revised or that a complete actuarial valuation be produced at the end of the fiscal year following the valuation date.


In an actuarial valuation report, actuaries must describe the methodology used to establish the interest rate assumption. The description must take into account the following:

  • best estimate rate of return on investments
  • the adjustment stemming from the zero return of letters of credit
  • rebalancing and diversification
  • value added returns from active investment management
  • investment management fees
  • plan administration fees
  • rounding of figures
  • margin for adverse deviations.

Letters of credit

An actuary cannot exclude certain elements from the plan's assets, such as a letter of credit, to determine the interest rate assumption, regardless of the funding level of the plan. The best-estimate assumption on the rate of return on investments must therefore be adjusted to take into account the letters of credit's zero return.

The adjustment applicable to the assumption used to determine the current service contribution and liabilities must be the same. It must be equal to the proportion that corresponds to the letters of credit included in the assets on the greater of the following amounts, determined on a going concern basis:

The adjustment could be less if a projection of the assets and liabilities, consistent with the going concern basis assumptions and methods, shows that the proportion will reduce over time. In this situation, the actuary must describe, in the report, the methodology used to determine it.

Retraite Québec will accept an adjustment that only applies for periods during which the letters of credit are expected to be renewed, in accordance with the funding policy. In such cases, the interest rate assumption would be select and ultimate.

Active investment management

According to the educational note concerning the determination of best estimate discount rates, it is generally reasonable to assume that active management will generate returns equivalent to the additional investment management fees associated with active management over those for passive management. Retraite Québec therefore expects the actuary to limit the added value of active management that is included in the interest assumptions to the fees incurred for active management.


The assumptions regarding the plan's administration fees and the pension fund's management fees must be listed separately and reflect the advice provided in the educational note concerning expenses in funding valuations.

Rounding of figures

Actuaries can, in a reasonable manner, round the interest assumption to the nearest 0.1%. However, this rounding of figures must be done consistently from year to year before applying the margin for adverse deviations (so that the margin chosen by the plan administrator is not changed by the rounding of figures).

Salary increase assumption

Where an actuarial valuation uses a salary increase assumption that is less than the assumption used in the previous valuation, actuaries should justify their choice of assumption by referring to plan experience, the interdependence of salary increase and inflation assumptions, economic conditions, the collective agreement, etc.


Expected returns

The following table presents the best estimates for the returns of pension funds set out in the complete actuarial valuation reports as at 31 December 2020 filed with Retraite Québec. The estimates exclude the added value of active management and the provision for administration costs and pension fund management fees. Note that the median expected return is 5.30% for plans in the private sector and 5.95% for plans in the municipal and university sectors.

Expected returns as at 31 December 2020
Expected returns (%) See Note 1Number of plans
Municipal and university sectors See Note 2 Private sector See Note 3 Total
4.00 or under01616
7.00 or over426
Total                     40                     90 130

Notes :

  1. The expected return has been rounded up to the nearest 0.25%. Back to reference
  2. Municipal-sector plans are those where the employer is a municipality, a body referred to in section 18 of the Act respecting the Pension Plan of Elected Municipal Officers This link will open in a new window. or a municipal housing bureau. Retraite Québec received 26 actuarial valuation reports as at 31 December 2020 for plans in the municipal and university sectors. In the 14 cases where different components of a single plan did not have the same expected returns, the data for each component are shown. Back to reference
  3. Private-sector plans are not grouped with plans in the municipal and university sectors. They include the pension plans for Québec emergency medical technicians, accredited early childhood centres (CPEs) and private daycares. Retraite Québec received 89 actuarial valuation reports as at 31 December 2020 for plans in the private sector. In the only case where different components of a single plan did not have the same expected returns, the data for each component are shown. It is the case for one plan. Back to reference


Legal references

References from the Canadian Institute of Actuaries

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