Common Concerns Raised in the Review of Actuarial Reports (May 2015)

The Actuarial team in OSFI's Private Pension Plan Division (PPPD) regularly reviews actuarial reports that have been referred to them by the Relationship Managers in PPPD's Supervision team. The following three concerns are often identified in these reviews and we would like to remind plan actuaries of OSFI's expectations:

1. Going concern expense assumptions vary from recent plan experience: We expect that investment and administration expense assumptions in going-concern valuations are based on recent plan experience. If not, then we would expect plan actuaries to include an explanation that justifies any variation in the actuarial report.
2. All deferred members are assumed to choose a commuted value for solvency valuation purposes: Deferred members are entitled to a deferred annuity on plan termination. A plan administrator may offer a deferred vested member other portability options such as a transfer of the commuted value into a prescribed locked-in savings vehicle. It is OSFI's view that is not reasonable to assume that all members who had previously opted for a deferred pension will choose to receive a commuted value upon plan termination if they are given a second opportunity to choose. Plan actuaries should consider this when setting and justifying the assumption for how deferred pension benefits will be settled in the actuarial report.
3. The duration of liability for retirees is not specified: The Canadian Institute of Actuaries (CIA) provides guidance for the duration of liabilities to be considered in setting the annuity proxy rate used for non-indexed pensions for solvency valuation purposes. OSFI expects plan actuaries to disclose the duration of the underlying liabilities in their actuarial reports. The most recent guidance on this issue was published in January 2015.

Based on the CIA's Standards of Practice, OSFI expects plan actuaries to provide sufficient details in their actuarial report to enable another actuary to assess the reasonableness of the data, assumptions and methods used.