At Mondelis Actuarial, we are encouraged by the recent changes in Quebec and hope that other jurisdictions will take note of this new approach.

 

Significant changes have occurred with respect to defined benefit pension plan actuarial valuations and plan funding. Quebec has signalled a significant shift in philosophy towards ongoing defined benefit pension plans. They have emphasized the role of the ongoing funding valuation over the solvency basis. Plans and plan sponsors that have been dealing with almost overwhelming solvency funding requirements will want to review the new rules to see how they will be affected.

 

Prior to the new rules, funding of the plan was based on the current service costs and systematically funding any emerging ongoing funding basis deficits and any emerging solvency basis deficits. With the change, the requirement to fund emerging solvency deficits is eliminated. The plan is to be funded solely on an ongoing funding basis with a modification that introduces an additional ongoing funding contribution (stabilization provision) that is dependent on the level of funding in the plan and the nature of the plan’s investments.

 

Plan sponsors must ensure that they have a Funding Policy and Investment Policy in place. These will cover such items as the target level of funding and the make-up of the investments the plan assets will be invested in.

 

Calculations in the actuarial valuation report will be dependent on fixed-income duration calculations as provided by the entities responsible for the plan’s investments.

 

A solvency valuation will still be performed and included in the actuarial valuation which will allow the regulator and plan sponsor to still assess the plan on a hypothetical wind-up basis.

 

Instead of the current annual valuation cycle, plans will require a valuation every three years unless the funded ratio (ratio of assets to ongoing funding liabilities) is less than 90% in which case annual valuations will be required. In non-valuation years, notice concerning the plan’s financial situation (i.e. the funded ratio and other specified information) must be sent to the regulator within four months of the plan’s fiscal year end.

 

The provisions regarding requirements in the event of an actual wind-up of the plan have not changed.