Effective December 31, 2010, revisions were made by the Canadian
Institute of Actuaries (CIA) to its Standards of Practice–
Practice-Specific Standards for Pension Plans. In particular,
the revised CIA Standards of Practice now provide that assumptions
for going concern valuations are either best estimates or best
estimates modified to incorporate margins for adverse deviations
(i.e., an adjustment to an actuarial assumption to reflect the
uncertainty in the variable) to the extent required by law or the
terms of engagement.
In a recent newsletter, however, the Régie des
rentes du Québec expressed the view that since pension
committees of defined benefit plans registered in Québec are
responsible for determining the terms of engagement of plan
actuaries, they should be the ones providing instructions regarding
the inclusion of margins for adverse deviations. The Régie
reminded pension committees and their agents (e.g., employers with
the delegated authority to administer the plans) that this function
must be carried out in a fiduciary capacity (i.e., in the best
interest of plan members and beneficiaries).
While it has been clear since the adoption of the Quebec
Supplemental Pension Plans Act that pension committees are
responsible for retaining the services of plan actuaries and filing
reports with the Régie, funding decisions have traditionally
been understood as a "plan sponsor function" and
employers have typically been the ones providing guidance to the
plan actuary in selecting assumptions and margins. Such guidance
would be provided in a corporate capacity and employers likely
expected that they would be able to act in their own best interests
(subject to a duty of good faith).
While the newsletter does not mention it expressly, the
Régie now appears to be calling this practice into question.
This position is unfortunate as it further blurs the line between
plan sponsor and plan administrator functions in Québec.
The Régie's position is particularly surprising in
light of the clear acknowledgement by the Canadian Association of
Pension Supervisory Authorities (CAPSA) that the inclusion of
margins is to be subject to the discretion of the plan sponsor. In
its recently released Guideline No. 7 – Pension Plan
Funding Policy Guideline (see our
earlier post), CAPSA states:
"The plan sponsor can provide useful guidance to the
plan actuary in selecting actuarial methods and assumptions that
are appropriate for the plan sponsor's risk management
approach. This guidance can include the going concern actuarial
cost method, desired margins or provision for adverse deviations
and acceptable asset valuation methods and ranges."
It seems rather odd for the Régie to sign off on
Guideline No. 7 on the one hand (and thus acknowledging that
funding decisions should be a plan sponsor function) and then to
release a newsletter stating the contrary a few months later.
While the new policy is questionable, it does create additional
legal risks for plan sponsors of Quebec-registered plans. These
sponsors should now tread very carefully when providing guidance to
their plan actuary in selecting actuarial assumptions, and be
mindful that they may arguably be held to a higher standard than in
the past. Plan sponsors would be well advised to consult legal
experts (especially if margins are not to be included) and clearly
document the rationale for decisions made in respect of actuarial
assumptions and margins.
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