cia pension seminar colloque sur les régimes de retraite april 16, 2007 le 16 avril 2007 toronto,...

CIA Pension SeminarColloque sur les régimes de retraite

April 16, 2007 Ÿ Le 16 avril 2007Toronto, Ontario

New developments / Quoi de neuf ?

CIA Pension Seminar Ÿ Colloque sur les régimes de retraite

• Outline

– New funding rules set out in Bill 30 (passed in December 2006)

– Use of temporary measures for easing funding rules that were introduced in Bill 102 (adopted in June 2005)

– Specific funding rules for municipality and university plans



• Objectives of the funding rules reform:

– Better pension plan funding

– Improved benefits security

– Flexibility for employers

– Better risk management



• The new funding rules set out in Bill 30 will come into force on 1 January 2010.

• Principal measures:

– Provision for adverse deviation

– Annual actuarial valuation

– Application of the 90% rule

– Broadened use of letters of credit



• Provision for adverse deviation (PFAD)

– Fundamentally, the PFAD is intended to improve the security of pension benefits.

– It is applied on the basis of solvency.

– Constitution of the PFAD is facilitated by: systematic use of actuarial gains for that purpose prohibition of contribution holidays and obligation to

make amortization payments with respect to improvement unfunded actuarial liabilities as long as the PFAD is not fully constituted.



• Provision for adverse deviation (continuation)

– Its main parameters will be defined by regulation and will be based on the results of the working group of which the Régie is a member, which was set up by the Canadian Institute of Actuaries.



• Annual actuarial valuation

– Intended to ensure better monitoring of plans’ financial situations.

– It can be partial if the plan is both fully funded and fully solvent. However, a complete valuation must be carried out at least once every three years.

– Important! The concept of a partial actuarial valuation within the meaning of Bill 30 is totally different than before.



• Application of the 90% rule

– It is intended to ensure better plan funding.

– Where a plan’s degree of solvency following an amendment is less than 90%, a fixed amount must be immediately paid into the pension fund. It must be equal to the lesser of:

• the cost of the amendment; or

• the amount required to bring the plan’s degree of solvency up to 90%.



• Broadened use of letters of credit

– This is intended to provide more flexibility in plan funding and to partially correct asymmetry.

– A letter of credit’s principal characteristics are as follows:

• The amount cannot exceed 15% of the value of the plan’s liabilities on a solvency basis.

• It can be used to pay all or part of the amortization payment related to a solvency deficit.



• Other measures

– The degree of solvency is now determined by taking into account only defined benefits. Pursuant to a transitional rule, this measure has been in effect since 13 December 2006.

– An amendment must be taken into account at the latest of the following dates:

• the date of the last actuarial valuation that preceded the date on which the amendment was adopted;

• the date of the last actuarial valuation that preceded the date on which the amendment took effect.



• Other measures (continuation)

– The contribution required for plan funding is now equal to the current service contribution plus the higher of the following contributions:

• the amortization payment required on a solvency basis

• the amortization payment required on a going-concern basis

– Unfunded actuarial liabilities:• two types on the basis of solvency: technical actuarial

deficiencies and improvement unfunded actuarial liabilities

• only one type on a going-concern basis: funding deficiencies

• transitional rule to classify unfunded liabilities and deficiencies determined under the old rules between the two types of unfunded actuarial liabilities on a solvency basis.



• Other measures (continuation)

– Broadened regulatory powers that allow fees to be charged for any document (e.g., report on the actuarial valuation) that is filed with the Régie after the expiry of the filing deadline.



• Act respecting the funding of certain pension plans (Bill 102, passed in June 2005)

– This law provides two measures to ease the funding restrictions on pension plans:

• Consolidation of solvency deficits

• Amortization of the solvency deficit over a 10-year period

– These measures apply only at the time of the first complete actuarial valuation after 30 December 2004.



• Use of the temporary funding measures

– As of 1 April 2007, 614 plans had filed a report with the Régie with respect to a first complete actuarial valuation carried out after 30 December 2004.

– Of those 614 plans, 456 had a solvency deficit.


Eligibleplans

Plans usingthe measures

Consolidationonly

Consolidation andamortization over

10 years

Letter ofcredit

Consent

Municipalities and universities

103 87 0 87 n/a. n/a

Othersponsors

353 113 66 47 15 32

Total 456 200 66 134 15 32


• Specific funding rules for municipality and university plans

– Specific funding rules were imposed by a regulation published in the Gazette officielle du Québec on 13 December 2006.

– These rules came into force on 31 December 2006.



• The specific funding rules:

– Exempt plans subject to certain solvency rules.

– Impose new restrictions for going-concern funding and amortization of improvement unfunded actuarial liabilities.



• Relief from some solvency restrictions

– Amortization payments with respect to solvency deficits determined before 31 December 2006 will no longer have to be paid as of that date.

– An actuarial valuation on the basis of solvency will still be required after 30 December 2006. However, no solvency deficit will be determined after that date.



• New restrictions

– Prohibition of using assets smoothing on a going-concern basis.

– A contribution holiday is not allowed for a fiscal year unless:

• an actuarial valuation (complete or partial) was carried out at the end of the preceding fiscal year

• the valuation shows sufficient surplus assets on both the going-concern basis and solvency basis



• New restrictions (continuation)

– The maximum period for amortizing an improvement unfunded actuarial liability is limited to 5 years.

– Where a plan’s degree of solvency following an amendment is less than 90%, a fixed amount must be immediately paid into the pension fund. It must be equal to the lesser of:

• the cost of the amendment; or

• the amount required to bring the plan’s degree of solvency up to 90%.


cia pension seminar colloque sur les régimes de retraite april 16, 2007 le 16 avril 2007 toronto,...

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