Actuarial reports – Items warranting review (November 2020)

A plan’s Relationship Manager in the Private Pension Plans Division generally reviews the actuarial report submitted to OSFI and may refer the report to the division’s actuarial team for a more detailed review.

The Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans sets out the reporting requirements for actuarial reports filed with us. Based on the Canadian Institute of Actuaries (CIA) Standards of Practice, we expect 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.

We would like to share with plan actuaries our expectations relating to the following items that warranted a more detailed review in some actuarial reports:

1. Going concern valuation – Disclosure of active and passive investment management expense assumptions

   In accordance with the CIA Standards of Practice, it is generally acceptable to assume that active investment management will generate additional return only to the extent that management expenses associated with active management exceed those for passive management.

   Where a plan pursues an active investment management strategy, we require separate disclosure of active and passive investment management expense assumptions. The passive investment management expense assumption should reflect the costs of maintaining a passive investment portfolio based on the target asset mix stipulated in the plan's investment policy, which typically includes investment administration, rebalancing, transaction, and custodial fees relating to the management of assets. The assumption for active investment management expenses should account for expenses expected to be incurred by the plan in excess of the assumed passive investment management expenses.

   When reviewing assumptions, we take into account, among other things, actual expenses experienced by the plan in recent years, and the level of additional return assumed for active management. Therefore, the separate disclosure of active and passive investment management expense assumptions is required even if the additional return due to active management is assumed to be exactly offset by the additional associated expenses.

2. Adjustment of contribution amounts for subsequently filed valuation report

   In accordance with subsection 9(14) of the Pension Benefits Standards Regulations, 1985 (PBSR), current service cost contributions and special payments due to the plan must be paid not less frequently than monthly and not later than 30 days after the end of the period in respect of which the installment is paid. Any payment that is not paid at the times set out in subsection 9(14) of the PBSR is subject to the interest adjustment described in subsection 10(2) of the PBSR.

   Given that the actuarial report is generally prepared after the beginning of the plan year to which the funding recommendation applies, it is our expectation that, until a subsequent actuarial report is filed, current service contributions and special payments continue to be paid based on the most recent actuarial report. If a subsequent actuarial report reveals required current service cost contributions or special payment amounts that are greater than those paid to the plan, the outstanding amount, accumulated with interest from the required payment date as described in subsection 10(2) of the PBSR, is due at the time of filing. No interest adjustment should be made in the case where special payments were made in excess of those required.

   The actuarial report should state that any adjustments to current service cost contributions and special payments applicable to the year should be made when the report is filed.

3. Plan provisions

   The administrator of a pension plan is required to file a copy of the plan text and any subsequent plan amendments with OSFI. In cases where a plan has been amended several times, it can be difficult to ascertain the plan provisions currently in effect in the absence of an up-to-date consolidation. In accordance with section 30 of the PBSR, the Superintendent may request an up-to-date consolidation of a plan and any amendments thereto.

   We expect an actuarial report to include a detailed summary of the plan provisions in effect at the valuation date that have a material impact on the valuation results. Where the summary of plan provisions is incomplete or inconsistent with the plan text, we may contact the actuary for an explanation.