Canadian Payroll Reporter

CPR_JULY_2013V2:Canadian Employer.qxd 13-06-14 12:42 PM Page 3 CANADIAN PAYROLL REPORTER The future of Quebec's retirement system | BY NATALIE BUSSIËRE | THE EXPERT COMMITTEE on the Future of the Quebec Retirement System, known as the D'Amours Committee, issued its report on April 17. The committee's initial mandate was to study the plans overseen by the Régie des rentes du Québec (the Régie) and sponsored by publicsector employers (mainly university and municipal pension plans). However, the committee's mandate was broadened to cover the other components of the Quebec retirement system, including the retirement plans which provide defined benefits (DB) and are offered by private-sector employers. A new 'enhanced funding' method The committee recommends all pension plans overseen by the Régie be subject to a single valuation method to be used to determine the funding requirements for both past and future service. The committee recommends the application of a socalled "enhanced funding" method in order to assess pension plan funding. According to the committee, this method would paint a better picture of the financial condition of a pension plan than the funding test currently used. Based on the committee's recommendations, the funding rule would essentially be based on a goingconcern valuation but would use new rules to define the discount rate. The "enhanced funding" method would be used to determine the contribution for current service and the funding deficiency. The deficiency would initially be amortized over a 15-year period, which would be gradually reduced to 10 years over the five years following the implementation of the rule. The deficiencies and the amortization payments would be consolidated every year, but the amortization payments could not be reduced until the funding deficiency has been reduced. Under the "enhanced funding" method, the market value of the assets would have to be used and asset smoothing would be permitted over a maximum period of three years. Annual valuations would be required except for fully funded and fully solvent plans. Using the solvency rule given the use of surplus assets Funding of solvency deficiencies would no longer be required; however, a solvency valuation would still be performed to determine the ability to use surplus for contribution holidays or to fund benefit improvements. During the life of a plan, surplus assets calculated on a solvency basis could be used to take a contribution holiday, fund a plan improvement or make refunds to the employer, provided the actuarial assessment confirms the existence of surplus assets on a solvency basis. Contribution holidays and the funding of benefit improvements from the surplus would still be subject to the funding of provision for adverse deviation (PFAD) and a requirement that the plan be funded in accordance with the new "enhanced funding" valuation. Calculating the transfer value The committee recommends establishing a new method to calculate the transfer value that better reflects the financial reality of the plan and ensures greater equity between members who remain in the plan and those who transfer the value of their benefits following termination of employment. The committee has asked the Régie to initiate discussions with the Canadian Institute of Actuaries in order to assess the formula and its application. Among other things, the committee has proposed a new, two-tier formula with different discount rates for the first 10 years and for subsequent years that would apply to non-indexed benefit plans. The new methodology would also be used to establish solvency liabilities for active and deferred members. Provision for adverse deviations According to the committee, the provision for adverse deviations should be increased from seven per cent to 15 per cent of the plan's solvency liabilities. The committee recommends the provision for adverse deviations continue to be based on the plan's actuarial gains. Risk disclosure The committee is of the opinion the provisions of the Supplemental Pension Plans Act (the SPPA) should be amended in order to ensure greater communication of the level of risk relating to the plans as well as risk disclosure and management. More specifically, the committee recommends employers be required to establish a funding policy setting out the objectives to be achieved taking into account various factors, including the security of the benefits provided for in the plan. Moreover, the pension committee should have an assessment prepared that would permit the different risk levels relating to or that may relate to the plan to be quantified in accordance with a procedure to be determined by regulation. Such an assessment would be carried out for the first time at the end of the five-year restructuring period to which the committee refers further on in its recommendations and at least every six years thereafter. According to the committee, a stochastic analysis would be the best tool for large plans in order to evaluate funding or sustainability risks. Canadian HR Reporter, a Thomson Reuters business 2013 continued on page 6 3

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