Reminders for actuaries

The Supplemental Pension Plans Act and the regulations thereunder remain the main tools allowing to prepare a compliant document. Nonetheless, Retraite Québec has some instructions for actuaries.

Actuarial valuations:  

Document included with the notice showing the financial position of the plan

Actuarial Information Summary

References from the Canadian Institute of Actuaries

Actuarial valuations

Multi-Jurisdictional Pension Plans – 2020 Agreement 

The 2020 Agreement Respecting Multi-Jurisdictional Pension Plans (2020 Agreement), came into force on 1 July 2020. Nevertheless, the 2020 Agreement does not apply to matters pending on 30 June 2020. For example, for a plan that has members from Québec, Ontario and Alberta, the 2016 Agreement Respecting Multi-Jurisdictional Pension Plans and the Memorandum of Reciprocal Agreement continue to apply to the pending matters at that date.

In general, the division, merger or termination of a plan is pending before Retraite Québec on 30 June 2020 if a document validly establishing this event for the application of the Supplemental Pension Plans Act was sent to Retraite Québec before 1 July 2020. 

For example:

  • a termination report or a termination notice was sent to Retraite Québec before that date 
  • the division amendment or the actuarial valuation report that reflects the division was sent to Retraite Québec before that date. 

Commuted values of pensions 

The Canadian Institute of Actuaries amended section 3500 of the Standards of Practice effective on 1 December 2020. Consequently, as of that date, the value of the members' or beneficiaries' benefits must be calculated based on the revised standard. However, if the date on which the value of the benefits is determined is prior to that date, the revised standard cannot be used. For example, to determine the value of the benefits on the date on which active membership terminated, the revised standard must be used only if that date is after 30 November 2020.

Subsection 3570 of the Standards provided for certain plans, like negotiated-contribution plans and target-benefit plans, does not apply to Québec members.

Remember

The valuation on a solvency basis of actuarial valuation reports as at 31 December 2020 must reflect the revised standard (except for section 3570), contrary to the valuation as at 31 December 2019, which cannot. 

Legal references

Amendment

Where an amendment is valuated for the first time, the actuarial valuation report must show:

  • the date on which the amendment was decided 
  • the effective date of the amendment.

Retraite Québec notes that the date on which the amendment was decided is often missing.

Legal references

Stabilization provision

The calculation of the target level of the stabilization provision has changed with regard to the actuarial valuation whose date is later than 30 December 2019. The three following changes have been made:

  • The target level of the provision is, in general, increased in the case of a plan whose target for the plan investment policy for variable income securities is high; however, the asset-liability matching has a lesser impact than before on this level. 
  • Certain changes were made to the calculation of the duration of the assets. 
  • Unquoted private debts can, up to 10% of the assets on a funding basis, be considered as fixed-income securities under certain conditions. 

In order for unquoted private debts to be considered as fixed-income securities, the actuarial valuation report must mention that the plan administrator attests that the required certifications were obtained and it can file them with Retraite Québec upon request. 

Note that

The target of the plan investment policy for variable income securities to be used to determine the target level of the stabilization provision is the target in effect at the date of the actuarial valuation. 

Where an investment policy provides for a change of the target over time, like the gradual reduction of the proportion of variable income securities, the target to be used is not the ultimate target provided for in the policy, nor any other target provided for at a later date than the date of the actuarial valuation.

Legal references

Categories of investments 

To determine the target level of the stabilization provision, the actuarial valuation report must show the target proportion in effect at the date of the actuarial valuation for each category of investments.

In addition to that information, Retraite Québec expects the report to show the target proportion of the assets that is used to determine the interest rate assumption on a funding basis. The distribution of assets must reflect the effect of derivatives, where applicable.

Legal references

Appropriation of surplus assets

Retraite Québec notes certain application problems related to the use of surplus assets of private-sector pension plans. As a result, Retraite Québec points out that if the date of the complete or partial actuarial valuation does not correspond to the date of the end of a fiscal year of the pension plan, the actuarial valuation report:

  • cannot provide that surplus assets will be appropriated to the payment of the current service contribution or the value of additional obligations resulting from an amendment of the plan valuated for the first time in that valuation. The same applies for surplus assets transferred to the employer 
  • may cause the end of a contribution holiday at the date of the actuarial valuation if the conditions to take a contribution holiday are no longer met at that date.

A transfer to the employer cannot rely on an actuarial valuation report prepared after the fiscal year for which the amount of the refund was determined. For example, an actuarial valuation as at 31 December 2019 (corresponding to a date of the end of a fiscal year) determines the amount of the surplus assets that may be used during 2020. A transfer to the employer can be carried out during 2020 only if the actuarial valuation report is prepared before the end of that year.

For a plan that has members subject to an act other than the Supplemental Pension Plans Act, a transfer to the employer must take into account the rules of other applicable acts and agreements.

In order for Retraite Québec's supervision to be easier, where an actuarial valuation allows for an appropriation of surplus assets, the actuarial valuation report should indicate:

  • the plan provisions that allow for the appropriation of the surplus 
  • the documents or legal references that justify a refund to the employer where the plan has members subject to an act other than the Supplemental Pension Plans Act

Legal references 

Special monitoring

For a private-sector pension plan during each actuarial valuation (including partial valuations), the actuary must show the reconciliation of sums that are subject to special monitoring provided for in section 42.2 of the Supplemental Pension Plans Act This link will open in a new window., also called banker's clause.

To do so, and as it is the case to determine the assets and liabilities, accrual-based accounting rather than cash-based accounting must be applied. However, where the special annuity purchasing payment is included in the banker's clause under the annuity purchasing policy, it must be recorded only when it is paid.

Employer contributions that have not been paid due to the special rules for Designated Plans within the meaning of section 8515 of the Income Tax Regulations This link will open in a new window.  or transitional measures provided for in section 318.4 of the Supplemental Pension Plans Act This link will open in a new window., are not considered.

Retraite Québec verifies the reconciliation of the banker's clause from the information in the Annual Information Return (AIR) of the plan concerned. Therefore, the amounts recorded beyond the amortization payments and special contributions must correspond to the additional contributions paid in order for the financial position of the plan to be improved, included on line 308 of the AIR, entitled Required employer contributions: special improvement and amortization payments. The actuarial valuation report must show the broken down amounts included on line 308 of the AIR so that it can be shown that the amounts included in the banker's clause are limited to those allowed by the Supplemental Pension Plans Act.

Important

If the value of the banker's clause is nil on the date of the actuarial valuation, the actuary must mention it in his or her report. Retraite Québec notes that information is often missing.

Legal references

Merger outside Québec

For private-sector pension plans subject to the Supplemental Pension Plans Act, a condition related to the degree of solvency of merged plans must be met in order for the merger to be authorized.

Where at least one of the plans affected by the merger is not registered with Retraite Québec, the actuarial valuation report reflecting the merger must give the degree of solvency of plans calculated according to the rules provided for in the Supplemental Pension Plans Act, to show that the condition is met. For example, if the absorbing plan is registered in Ontario, the liabilities on a solvency basis used to calculate the plan's degree of solvency cannot exclude the value of the post-retirement indexation, even if the Ontario Pension Benefits Act allows it.

 Important

Where the merger affects members or beneficiaries subject to an act other than the Supplemental Pension Plans Act, the conditions provided for in that other act, where applicable, must also be met. It is the case, for example, of the Ontario Pension Benefits Act This link will open in a new window., which provides special conditions for the transfer of assets.

Legal references 

Assumption for expenses 

Under the Standards of Practice of the Canadian Institute of Actuaries This link will open in a new window., the actuarial valuation on a funding basis should take into account the expenses if they are expected to be paid from the plan's assets.

For a plan whose funding must be done separately by component, particularly for a municipal sector plan, the actuary must choose and disclose the assumptions related to the expenses of each component.

Legal reference

Actuarial gains

For a plan of the municipal and university sectors, the amounts of the actuarial gains and its components (additional contributions, technical gains or losses and other gains) are often missing in the actuarial valuation reports. Retraite Québec would like to remind actuaries that the information must be shown for each of the plan's components, even if some of those amounts are nil.

Legal references

Stabilization contribution

For plans of the municipal and university sectors that must provide for a stabilization contribution of at least 10% of the current service contribution, established without taking into account any margin for adverse deviation, Retraite Québec points out to the actuary that:

  • where the stabilization contribution is limited to 10% of the current service contribution established without taking into account any margin, the actuarial valuation report must, to show that the level of the stabilization contribution complies with the Act, indicate the current service contribution without a margin 
  • if the result of the calculation establishing the stabilization contribution is rounded, it must be rounded up.

For example, if the current service contribution without a margin is 17.12% of the payroll, the stabilization contribution cannot be established at 1.71% of the payroll. 

Legal references

Retirement assumption on a solvency basis

The actuarial valuation report must show all the assumptions used to determine the liabilities on a solvency basis, including the retirement age assumption, which produces the highest liabilities and the first retirement age assumption at which a person can receive an unreduced life pension. As a result, the report should show at least two retirement assumptions and, according to the plan's provisions, there could be more. 

In the past, Retraite Québec did not question the actuarial valuation reports that did not show the retirement assumption where they mentioned that the age assumption used to determine the liabilities on a solvency basis produced the highest liabilities. From now on, Retraite Québec expects the retirement assumptions to be clearly shown.

Legal reference

Alternative settlement methods

The Canadian Institute of Actuaries published, in April 2020, the Revised Educational Note – Alternative Settlement Methods for Hypothetical Wind-Up and Solvency Valuations This link will open in a new window..

The note describes four alternative settlement methods for solvency valuations for pension plans that have very large liabilities. 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.

Retraite Québec wishes to inform actuaries that, pursuant to the Supplemental Pension Plans Act, the alternative settlement methods presented in the Revised Educational Note of April 2020 cannot be used in Québec.

Legal reference

Terms of engagement of the actuary

The work of an actuary, regarding the preparation of an actuarial valuation in compliance with the Supplemental Pension Plans Act This link will open in a new window., is governed by the Rules of Professional Conduct This link will open in a new window. and the Standards of Practice This link will open in a new window. of the Canadian Institute of Actuaries.

Retraite Québec reminds the actuary that under the Rules of Professional Conduct, an actuary "who performs professional services shall take reasonable steps to ensure that such services are not used [...] to violate or evade the law". In addition, "it is the professional responsibility of the actuary not to be associated with anything which the actuary knows or should know is false or misleading".

Therefore, the actuary must be careful when a mandate entrusted to him or her seems to violate these rules.

Document included with the notice showing the financial position of the plan 

The document included with the annual notice showing the updated financial position of the plan should include:

  • the probable value of the plan's liabilities on a solvency basis on the date of the notice 
  • the market value of the plan's assets on the date of the notice, and the reconciliation of that value with the value at the end of the previous fiscal year. The information related to the defined contribution component of the plan, where applicable, must be shown separately. 

Legal references

Actuarial Information Summary

The actuary who signs the complete actuarial valuation report must complete the Actuarial Information Summary and sign the declaration it contains. 

The Actuarial Information Summary does not need to be included with the notice provided for in section 119.1 of the Supplemental Pension Plans ActThis link will open in a new window..

Note that

Retraite Québec gives guidance on certain lines of the Actuarial Information Summary as a complement to the instructions given on the form. 

Partial valuation

For pension plans subject to the Regulation respecting the funding of pension plans of the municipal and university sectors This link will open in a new window., the actuary who signs the partial actuarial valuation report must complete the Actuarial Information Summary and sign the declaration it contains.

In that case, the actuary must complete lines 001 to 014a and 185 to 190, and Part VI of the Summary.

Legal reference

References of the Canadian Institute of Actuaries

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