Common concerns raised in the review of actuarial reports (May 2016)

Actuarial reports submitted to OSFI may be referred by the plan's relationship manager to the actuarial team in the Private Pension Plans Division for a detailed review. The following three issues are often identified in these reviews as concerns and we would like to remind plan actuaries of OSFI's expectations for actuarial reports related to these issues:

1. Going concern valuation – disclosure for mortality adjustments: It is OSFI's position that adjustments to the base mortality table published in the Canadian Institute of Actuaries (CIA) Final Report – Canadian Pensioners' Mortality (i.e., CPM2014, CPM2014Publ, or CPM2014Priv, with related projection scale), are generally not warranted, although they may be appropriate in certain cases. Because of the scope of the CIA mortality study, the resulting mortality tables provide an industry standard of expected mortality with respect to Canadian pension plans. As such, OSFI expects any adjustments to these tables to be justified in the actuarial report.

If adjustments are made in accordance with the CIA mortality study (e.g., for pension size or industry), it is not necessary to quantify the financial impact of these in the actuarial report. OSFI would require quantification of the impact (sensitivity information) to be provided only where mortality adjustments are based on plan experience.

2. Solvency valuation – termination expenses: A list of expenses that we would normally expect to be included in the termination expenses is provided in the Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans. Among others, the provision for termination expenses should include expenses up to the plan's wind-up date. It is neither realistic nor acceptable to assume that the plan wind-up will coincide with the termination date.

In determining the period of time elapsed between the termination and wind-up date, actuaries should consider the following factors:

• Plans have up to 90 days after the termination date to file their termination report.
• OSFI's review of the termination report and all relevant information may take several months (or potentially longer for complex cases).
• The pension plan administrator may not apply the assets toward the provision of any benefits until the Superintendent gives approval of the termination report. After approval, this distribution of assets may take several months.

3. Solvency valuation – portability for members eligible for early retirement (i.e. those who are within 10 years of pensionable age): If the plan text provides for portability during this period, members would be offered the choice of a pension or portability of the commuted value. The actuary should then assume that at least 50% of those members will choose the option that creates the highest solvency liability.

If the plan text does not provide for portability to members eligible for early retirement, normally no member would be assumed to take a commuted value.

However, even if portability is not available from an ongoing plan to members eligible for early retirement, the plan administrator could still choose to offer this option to these members on plan termination. The assumption made by the actuary with respect to the form chosen by these members should be based on whether or not the plan administrator has indicated that they would grant this option on plan termination. This decision of the administrator should be disclosed in the actuarial report. In other words, the assumption to grant portability to members eligible for early retirement should be made by the plan administrator, not the actuary.

Based on the CIA 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.