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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