In the actuarial valuation report, the actuary must present the contributions that must be paid into the pension fund for the period covered by the actuarial valuation.
Supplemental Pension Plans Act provides for 4 types of contributions:
The plan provisions may provide for the members to contribute to the payment of amortization payments and current service contributions. The actuary must therefore indicate the amortization member contributions and the current service member contributions separately in the actuarial valuation report.
Current service contribution
The actuarial valuation on a funding basis must establish the current service contribution for each fiscal year ending in the last 3 years following the actuarial valuation date. This contribution can be a fixed sum, a rate or a percentage of the payroll. It includes the current service stabilization contribution and can be paid by the employer only or by the employer and the members. The contributions correspond to the following:
|CS = (1 + SP)||x||(||The value of the obligations arising from the plan for the service performed during a fiscal year, including the assumption of explicit fees, if applicable||)|
|StabCS = CS ||x||[||SP
(1 + SP)
|where||CS||=||current service contribution|
|StabCS||=||current service stabilization contribution|
|SP||=||percentage of the stabilization provision|
Special improvement payment
When an amendment is valuated for the first time in the actuarial valuation of a plan of which the determined funding ratio, by disregarding the amendment, is less than 90%, a special improvement payment is established. It is payable on the day following the date of the actuarial valuation. It is calculated as follows:
Sip = (1 + SP) x Wgc
|where||Sip||=||special improvement payment|
|SP||=||target percentage of the stabilization provision|
|Wgc||=||the value, on a going-concern basis, of the additional obligations resulting from amendments to the plan considered for the first time on the valuation date|
If the funding ratio is greater than 90%, an improvement amortization payment will be established to amortize the
improvement unfunded liability.
Special annuity purchasing payment
When an actuarial valuation evaluates the impact of paying benefits, made in accordance with the annuity purchasing policy, the date of the actuarial valuation must coincide with the one from the agreement with the insurer and a special annuity purchasing payment is established under certain circumstances.
This contribution must be paid into the pension fund so that the plan's degree of solvency, after payment, is at least equal to:
- 100% if the degree of solvency calculated before the purchase of annuities is greater than 100%; or
- the degree of solvency calculated before the purchase of annuities, in other cases.
This special contribution is payable the day following the date of the actuarial valuation.
For a plan in which certain annuities in payment are guaranteed with an insurance company, it is possible, if the annuity purchasing policy allows it, to pay the rights by subrogation. Subrogation consists of replacing the holder of the insurance contract so that he or she is the member of beneficiary. In that case, the rules aforementioned apply.
An actuarial valuation as at 31 December 2018 is produced for a plan whose fiscal year ends on that date. In that valuation, no amendment is being considered for the first time. However, the payment of certain benefits is presented: all pensions in payment on the date of the valuation are to be paid, in accordance with the annuity purchasing policy. Some of the pensions were guaranteed before the date of the valuation.
Without taking into account the payment, the assets of the plan's defined contribution component on a solvency basis are $98 and the liabilities are $100. By excluding the benefits paid from the liabilities, the amount is $55. On a solvency basis, the value of the pensions in payment that were guaranteed prior to the date of the valuation is $15. According to the 31 December 2018 agreement, a $30 premium must be paid to the insurer.
In this example, the degree of solvency after the benefits are paid must be greater than or equal to 98%. Therefore, the special annuity purchasing payment (Sapp) is the value determined in the following equation, provided it is positive:
|Assets before payment − Guaranteed pensions paid − Premium + Sapp
Liabilities after payment
|98 − 15 − 30 + Sapp
As a result, the value of the special annuity purchasing payment is $0.90 in order to maintain a degree of solvency of 98%.
The actuary must, in his or her report, present the degree of solvency that applies to plan funding, which takes into account the purchase of annuities and is 98%.
There are 3 types of amortization payments: improvement amortization payments, the technical amortization payment and the stabilization amortization payment.
These payments can be made by the employer or by both the employer and the members. They can be a rate or percentage of the total payroll if the members contribute to the payment.
Improvement amortization payments
The payments are established to amortize the
improvement unfunded liabilities over a maximum period of 5 years.
Technical and stabilization amortization payments
These payments are established to amortize the
technical deficiency and the
stabilization deficiency over a maximum period of 10 years. However, for any actuarial valuation dated between 30 December 2015 and 31 December 2020, the amortization period of the deficiencies can end on 31 December 2030 at the latest.