Required contributions

In the actuarial valuation report, the actuary must present the contributions that must be paid into the plan's fund for the period covered by the valuation.

Since 1 January 2016, the Supplemental Pension Plans Act has provided for 4 types of contributions:

The Act also provides for transitional measures for employer contributions required before 1 January 2019.

Note that...

Plan provisions may require members to contribute to amortization payments and current service contributions. In such a case, the actuary must show the amortization payments and current service contributions separately in the actuarial valuation report.


Legal references

Current service contribution

The actuarial valuation on a going concern basis must determine the current service contribution for each of the fiscal years ending in the 3 years following the actuarial valuation date. The contribution can be expressed as a fixed amount, a rate or a percentage of payroll. It must include the current service stabilization contribution and can be paid by the employer alone or by the employer and the members. The current service contribution is calculated as follows:

CS = (1 + SP) x ( Value of obligations arising from the plan for service performed in a fiscal year, including any explicit fees )
StabCS = CS x [ SP
(1 + SP)
]
where CS = current service contribution

StabCS = stabilization current service contribution

SP = target percentage of the stabilization provision

Legal references

Special improvement payment

Where an amendment is considered for the first time in an actuarial valuation that shows the plan is less than 90% funded not taking into account the amendment, a special improvement payment must be established. The payment 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 arising from any amendment to the plan considered for the first time on the valuation date

If the plan's funding level is 90% or more, an improvement amortization payment will be established to amortize the improvement unfunded liability.

Legal references 

Special annuity purchasing payment

Where an actuarial valuation assesses the effects of the payment in full of benefits in accordance with the annuity purchasing policy, the date of the valuation must correspond to the date of the agreement with the insurer. A special annuity purchasing payment is establish in certain circumstances.

The annuity purchasing payment is made to the pension fund in order to ensure that the plan's degree of solvency after the benefits are paid in full is at least equal to

  • 100%, if the degree of solvency established before the purchase of annuities is greater than 100%; or
  • the degree of solvency established before the purchase of annuities, in all other cases.

The special payment is payable on the date following the date of the valuation.

Note that...


In the case of a plan that has pensions in payment that are guaranteed by an insurer, it is possible, if the annuity purchasing policy so allows, payment of the benefits may be made by subrogation. Subrogation consists of replacing the insurance contract holder with the member or beneficiary. In such a case, the rules previously mentioned apply.


Example

An actuarial valuation as at 31 December 2018 is produced for a plan whose fiscal year ends on that same date. No amendment is being considered for the first time in the valuation. However, the payment of certain benefits is presented: all pensions in payment on the date of the valuation are to be paid in full in accordance with the annuity purchasing policy. Some of the pensions were guaranteed before the date of the valuation.

Not taking into account final payment, the assets of the plan's defined benefit component on a solvency basis are $98 and the liabilities are $100. By excluding the benefits paid in full 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 in full must be greater than or equal to 98%. 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 + Saap
Liabilities after payment
= 98%
98 - 15 - 30 + Saap
55
= 98%

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%.

Legal references

Amortization payments

There are 3 types of amortization payments: the 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 pay part.

Improvement amortization payments

These payments are established to amortize the improvement unfunded liabilities over a maximum of 5 years. 

Technical and stabilization amortization payments

These payments are established to amortize the technical deficiency and the stabilization deficiency over a maximum of 10 years. For any actuarial valuation dated between 30 December 2015 and 31 December 2020, the amortization period can end on 31 December 2030 at the latest.

Legal references 

Employer contributions required before 1 January 2019

Where the employer contributions increase further to the funding rules that took effect on 1 January 2016, special rules apply to actuarial valuations dated after 30 December 2015 but before 31 December 2018. The increase must be calculated in each actuarial valuation dated prior to 31 December 2018.

The formulas below must be used to determine the required contributions for the actuarial valuation as at 31 December of a plan whose fiscal year ends on that date.

The increase for year t is calculated as follows:

Increaset = Max{0; StabEmpCSt + EmpAp+ EmpSipt - EmpAp2015 - EmpSip2015}

where t = 2016, 2017 or 2018.

For an actuarial valuation as at 31 December 2015, increases are calculated for 2016, 2017 and 2018.

The employer contributions required for each of fiscal years t (2016, 2017 and 2018) are determined as follows:

If Increaset = 0:

EmpCont = EmpCSt + EmpApt + EmpSipt + EmpSappt

If Increaset > 0:

EmpCont = EmpCSt - StabEmpCSt + EmpSappt + EmpAp2015 + EmpSap2015 + Increaset x (t-2016) / 3

where EmpCont = employer contributions required for year t

EmpCSt = employer current service contributions for year t under the funding rules in effect since 1 January 2016

StabEmpCSt = stabilization employer current service contributions for year t under the funding rules in effect since 1 January 2016
  EmpApt = employer amortization payments for year t under the funding rules in effect since 1 January 2016
  EmpSipt =

employer special improvement payments for year t under the funding rules in effect since 1 January 2016

  EmpSappt = employer special annuity purchasing payment for year t under the funding rules in effect since 1 January 2016
  EmpAp2015 = employer amortization payments required for 2016 under the funding rules in effect on 31 December 2015, assuming the relief measures are prolonged. The date of the actuarial valuation will have no effect on the amount of the payments.
  EmpSap2015 = employer special amortization payments required for 2016 under the funding rules in effect on 31 December 2015. The date of the actuarial valuation will have no effect on the amount of the payments.

Legal references 

 

Exemple

An actuarial valuation as at 31 December 2015 is prepared for a non-contributory plan whose fiscal year ends on the valuation date. No amendment is considered for the first time in the valuation. No benefit payments made in accordance with the annuity purchasing policy have been considered, either. In addition, since the plan used the relief measures in 2015, the new technical deficiency on a solvency basis—determined using the funding rules in effect on 31 December 2015 and assuming the extension of the relief measures—would be amortized until 31 December 2025. 

The table below shows the information needed to determine the employer contributions required for the fiscal years preceding 1 January 2019. In our example, the stabilization provision is 13.71% of plan liabilities.

Contributions for 2016, 2017 and 2018
Type of contribution Under the rules in effect on 31 December 2015 Under the rules in effect on 1 January 2016

Year

2016 2016 2017 2018
Current service  $372 $423 $435 $447
Stabilization current service   $51  $52 $54

Technical amortization

$105 $90 $90 $90
Stabilization amortization _ $27 $27 $27
Total $477 $540 $552 $564

The increase in employer contributions for 2016, 2017 and 2018 is calculated as follows:

Increase2016 = Max{0; StabEmpCS2016 + EmpAp2016 + EmpSip2016 - EmpAp2015 - EmpSap2015}
  = Max{0; 51 + (90 +27) + 0 -105 - 0}
  = $63
Increase2017 = Max{0; StabEmpCS2017 + EmpAp2017 + EmpSip2017 - EmpAp2015 - EmpSap2015}
  = Max{0; 52 + (90 +27) + 0 -105 -0}
  = $64
Increase2018 = Max{0; StabEmpCS2018 + EmpAp2018 + EmpSip2018 - EmpAp2015 - EmpSap2015}
  = Max{0; 54 + (90 +27) + 0 -105 -0}
  = $66

Since the value of Increase2016 is not nil, the employer contribution required for 2016 is calculated as follows:

EmpCon2016 = EmpCS2016 - StabEmpCS2016 + EmpSupp2016 + EmpAp2015 +  EmpSip2015 + Increase2016 x (2016-2016) / 3
  = 423 -51 + 0 + 105 + 0 + 63 x (2016-2016) / 3
  = $477

For 2017 and 2018, the respective required employer contributions are $509 and $542, calculated as follows:

EmpCon2017 = EmpCS2017 - StabEmpCS2017 + EmpSupp2017 + EmpAp2015 +  EmpSip2015 + Increase2017 x (2017-2016) / 3
  = 435 -52 + 0+ 105 + 0 + 64 x (2017-2016) / 3
  = $509
EmpCon2018 = EmpCS2018 - StabEmpCS2018 + EmpSupp2018  + EmpAp2015 +  EmpSip2015 + Increase2018 x (2018-2016) / 3
  = 447 -54 + 0 + 105 + 0 + 66 x (2018-2016) / 3
  = $542

If an actuarial valuation as at 31 December 2016 was prepared, new contributions would have to be determined under the rules in effect since 1 January 2016. However, to determine the increase in the employer contribution for 2017 and 2018, the contributions that would have been required in 2016—under the rules in effect on 31 December 2015—assuming the extension of the relief measures—do not have to be recalculated.

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