CIA Pension Seminar 15 April 2009 The Dos and Don’ts of Applying the Funding Relief Rules Mario...
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Transcript of CIA Pension Seminar 15 April 2009 The Dos and Don’ts of Applying the Funding Relief Rules Mario...
CIA Pension Seminar15 April 2009
The Dos and Don’ts of Applyingthe Funding Relief Rules
Mario Marchand, Senior ActuaryRégie des rentes du Québec
Why do we need measures to lessen the impact of the financial crisis? The scope of the financial crisis raging
since the middle of 2008 has never been seen before in recent history
The contributions that many employers will have to pay for the funding of their pension plans could severely impact their financial position
For many employers, the obligation to fund a deficit resulting from the financial crisis will appear at the end of fiscal year 2008
CIA Pension Seminar/Régimes de retraite de l’ICA
Some statistics
950 defined benefit pension plans are supervised by the Régie des rentes
Those plans cover a million plan members and beneficiaries (including retirees)
Rapid decline of the median solvency ratio from 93% at the beginning of year 2008 to 70% at the end
About 160 of those 950 plans will have to prepare an actuarial valuation as at 31 December 2008
CIA Pension Seminar/Régimes de retraite de l’ICA
Funding relief measures resulting from a consensus An advisory committee, chaired by the Québec
Minister of Employment and Social Solidarity, was established in November 2008
That committee included members from the following organizations: CPQ, FCCQ, CSN, FTQ and the Régie des rentes du Québec
That committee reached a consensus concerning the measures to lessen the impact of the financial crisis on businesses, workers and retirees
CPQ :Conseil du patronat du Québec
FCCQ : Fédération des chambres de commerce du Québec
CSN : Confédération des syndicats nationaux
FTQ : Fédération des travailleurs et des travailleuses du Québec
CIA Pension Seminar/Régimes de retraite de l’ICA
Description of the funding relief measures All funding relief measures described here
are aimed at solvency Application as of 31 December 2008 of the
revised Standards of Practice for Pension Commuted Values That measure came into effect on 31 December 2008
following the adoption of Bill 1 on 15 January 2009 From 31 December 2008 to 31 March 2009, the revised
Standards of Practice may be used only for solvency valuation purposes
CIA Pension Seminar/Régimes de retraite de l’ICA
Description of the funding relief measures Three other funding relief measures will be
defined in a draft regulation to be published in the coming weeks Assets smoothing Consolidation of deficiencies determined in
previous actuarial valuations Extension of the amortization period for
deficiencies to a maximum of 10 years
A plan may use only one measure, two of them or all three
CIA Pension Seminar/Régimes de retraite de l’ICA
Description of the funding relief measures Funding relief measures may not reduce
the contributions to be paid to the plan below those that would have been paid in the absence of financial crisis
Plans using the funding relief measures will be immediately subject to the new funding rules defined in Bill 30 Annual actuarial valuation 90% rule
CIA Pension Seminar/Régimes de retraite de l’ICA
Description of the funding relief measures
CIA Pension Seminar/Régimes de retraite de l’ICA
Solvency assets, market value 2 512 000Solvency assets, projected value 3 118 000Solvency assets, smoothed value 2 940 000
Solvency liabilities 3 294 000
Difference between liabilities and market value of assets 782 000Difference between liabilities and smoothed value of assets 354 000Difference between projected value of assets and market value of assets (financial crisis deficiency)
606 000
Actuarial valuation as at 2008-12-31
Description of the funding relief measures
CIA Pension Seminar/Régimes de retraite de l’ICA
Deficiency as at
2008/12/31
Amortization payments
2009
Amortization payments
2010
Amortization payments
2011
Deficiency - 2004/12/31 11 014 11 014 Deficiency - 2005/12/31 164 132 82 066 82 066 Deficiency - 2006/12/31 492 164 164 164 Deficiency related to the financial crisis 606 000 - - - Technical Deficiency - 2008/12/31 362 72 72 72
Required amortization payments 93 316 82 302 236
Deficiency as at
2008/12/31
Amortization payments
2009
Amortization payments
2010
Amortization payments
2011
Consolidated deficiency as at 2008/12/31 354 000 35 400 35 400 35 400
Required amortization payments 35 400 35 400 35 400
Minimum Amortization Payments Approach
Relief Measures Approach - Smoothing, Consolidation and Amortization Over 10 Years
Other provisions related to the funding relief measures On a temporary basis, new options will be
available upon plan termination1 for the payment of benefits
Conditions to meet to be eligible for the new options: The plan termination results from the bankruptcy of the
employer The plan termination is after 30 December 2008 but before 1
January 2012 Benefits of plan members and beneficiaries cannot be paid in
full
1. In this text, “termination” also covers withdrawal of an employer from a multi-employer pension plan.
CIA Pension Seminar/Régimes de retraite de l’ICA
Other provisions related to the funding relief measures
Three options will be offered to a plan member or beneficiary to whom a pension is already being paid: Ask for his or her pension be guaranteed by an insurer Transfer the commuted value of his or her pension to an LIF Entrust the management of his or her pension assets to the
Régie des rentes du Québec
Two options will be offered to a plan member or beneficiary who would have been entitled to a pension had the member or beneficiary applied: Transfer the commuted value of his or her pension benefit to
another “pension plan” Entrust the management of his or her pension assets to the
Régie des rentes du Québec
CIA Pension Seminar/Régimes de retraite de l’ICA
Other provisions related to the funding relief measures
Main features of the option “Entrust the management of the pension assets to the Régie”: The Régie will purchase a guaranteed annuity from an insurer
no later than the end of the fifth fiscal year that follows the fiscal year during which the Régie began its management
The benefit guaranteed by an insurer may not be less than the benefit the retiree would have been entitled to in the absence of funding relief measures
Gains realized will be exclusively used to improve retirees’ benefits
If the assets available are insufficient to purchase from an insurer the minimum guaranteed annuity to which a retiree is entitled, the shortfall will be paid out of the Province’s consolidated revenue fund
CIA Pension Seminar/Régimes de retraite de l’ICA
Other provisions
A simplified procedure will now apply when amending our regulations in order to adapt them to the evolution of CIA Standards of Practice: Those amendments will no longer have to be pre-
published They may take effect retroactively, from the date of their
approval by the Actuarial Standard Board
In addition to the valuation report, a summary of the information concerning the actuarial valuation will now have to be filed with the Régie
CIA Pension Seminar/Régimes de retraite de l’ICA