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.
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.
- 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.
The actuarial valuation report must indicate the number of members and beneficiaries of the plan at the date of the valuation. The report must present them separately, according to the type of benefits accrued:
- defined-contribution benefits only
- defined benefits only or
- defined-contribution benefits and defined benefits.
If this information does not correspond to the information entered on lines 11.1 to 11.6 of the annual information return,
expects the actuary to explain the difference in his or her report.
Amortization of a deficiency
Retraite Québec has observed that certain actuarial valuation reports present annual amortization payments to amortize a deficiency Retraite Québec would like to remind actuaries that the amortization payments must be determined and presented monthly.
Furthermore, when a deficiency is amortized over the maximum period allowed by law, if the result of the calculation establishing the amortization payments is rounded, it must be rounded up.
For example, if the result of the calculation establishing the amortization payments is $12 425 per month, the amount of the amortization payments cannot be rounded to $12 000. It must be rounded up, otherwise the maximum amortization period would be exceeded.
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.
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.
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.
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.
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.
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.
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.
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 , 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 or transitional measures provided for in
section 318.4 of the Supplemental Pension Plans Act , 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.
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.
Merger outside Québec
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.
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 , which provides special conditions for the transfer of assets.
Assumption for expenses
Standards of Practice of the Canadian Institute of Actuaries , 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.
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.
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.
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 .
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.
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 , is governed by the
Rules of Professional Conduct and the
Standards of Practice 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.
Actuarial Information Summary
The actuary who signs the complete actuarial valuation report must complete the
Actuarial Information Summary and sign the declaration it contains.
Actuarial Information Summary does not need to be included with the notice provided for in
section 119.1 of the Supplemental Pension Plans Act.
Retraite Québec gives
guidance on certain lines of the Actuarial Information Summary as a complement to the instructions given on the form.
For pension plans subject to the
Regulation respecting the funding of pension plans of the municipal and university sectors , 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.
References of the Canadian Institute of Actuaries