Common concerns raised in the review of actuarial reports (May 2017)

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

1. Going concern valuation – Interest rate: Assumptions for administration, active and passive investment management expenses should cover all expenses paid by the plan. The provision for each expense item should be clearly and separately disclosed in the actuarial report, and quantified so that the appropriateness of expense provisions taken individually and as a whole may be assessed.

   In particular, where a plan buys units of an investment fund, investment expenses might not all be paid directly by the pension fund. A portion of investment expenses might be paid through net investment income received by the plan. These indirect expenses paid by the plan should be clearly and separately disclosed in the actuarial report, and taken into consideration in the determination of the discount rate.

2. Going concern valuation –Provision for adverse deviations (PfADs): OSFI expects that a set of actuarial assumptions would, as a whole, include an appropriate provision for adverse deviations, and that the actuarial present value of this provision be disclosed in the actuarial report. It is not necessary that each assumption include a margin for adverse deviations. Most actuaries select best estimate assumptions for all contingencies except the discount rate, and disclose in the actuarial report the actuarial present value of the provision for adverse deviations included in the interest rate.

   Some actuarial reports include additional margins in other economic assumptions (e.g. salary increase) or demographic assumptions (e.g. mortality). This approach is acceptable to OSFI provided that the margins are explicitly stated. In such cases, the actuarial present value of the provision for adverse deviations disclosed in the actuarial report should include the present value of these margins as well. 

3. Asset mix: The actuarial report should include information on the actual asset mix of the plan by major asset category at the valuation date. Both the target asset mix and ranges stipulated by the Statement of Investment Policies and Procedures (SIP&P) of the plan should also be disclosed.

The Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Planssets out the reporting requirements of actuarial reports filed with OSFI for pension plans with defined benefit provisions. 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.