Revised standards of practice of the Canadian Institute of Actuaries

In January 2020, the Canadian Institute of Actuaries' (CIA) made changes to its standards of practice that describe how commuted values of pension plans are calculated (section 3500). These revised standards will take effect on December 1, 2020.

Subsection 18(1) of the Pensions Benefits Standards Regulations, 1985 (PBSR) provides that a pension benefit credit (the commuted value of a pension benefit) must be determined in accordance with the recommendations issued by the CIA as amended from time to time. The revised standards therefore automatically apply to the calculation of a pension benefit credit under the PBSR.

Key changes to the revised standards for calculating commuted values include the following:

• changes to the interest rate assumption
• changes to the assumed pension commencement age
• the addition of specific standards for target pension arrangements including the ability to use a pension plan's going concern funding assumptions with certain adjustments to calculate the commuted value under these types of pension plans

The CIA revised standards define a target pension arrangement as
"a pension plan for which applicable legislation contemplates the reduction to the accrued pensions of plan members and beneficiaries while the pension plan is ongoing as one of the available options for maintaining the funded status of the pension plan, and where the reduction in accrued pensions is not necessarily caused by the financial distress of the plan sponsor or sponsors"

A negotiated contribution plan as defined in the Pension Benefits Standards Act, 1985 (PBSA) meets the CIA's definition of a target pension arrangement. This is because section 10.11 of the PBSA provides that the administrator of a negotiated contribution plan may, subject to the Superintendent's consent and despite the terms of the pension plan, make an amendment that has the effect of reducing pension benefits or pension benefit credits.

For more information on how the CIA’s revised standards affect federally registered pension plans, please refer to OSFI’s new FAQ series, which will be posted shortly on OSFI’s website.

For information on how the CIA's revised standards may affect the preparation of actuarial reports, please refer to OSFI's Instruction Guide for the Preparation of Actuarial Reports for Defined Benefit Pension Plans.