2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver 2007 Annual Meeting ● Assemblée...

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

PD-2 Current Developments in Multi-Employer Pension Plans

Harry Satanove, FCIA

Canadian Institute of ActuariesVancouver, BC June 28, 2007

Satanove & Flood Consulting Ltd. 3

Negotiated Cost Pension Plans

The “Pension Deal”

Fund

Contributions

Past service benefits Current

service benefits

Early retirement benefits

Survivor’s benefits

Inflation adjustments

Collective agreemen

t

Trustees

200

7 A

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ual M

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nn

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2

00

7


Negotiated Cost Pension Plans

The Pension Deal• Target benefit plan or defined

benefit plan?• Does the solution to the solvency

problem depend on the nature of the deal?

200

7 A

nn

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Ass

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2

00

7


Consequences of the Solvency Rules

Target Benefit Plan• Current service: the price of each

unit of benefit increases as interest rates go down

• Past service: if accumulated assets are no longer sufficient, benefits may have to be reduced200

7 A

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7


Consequences of the Solvency Rules – Defined

Benefit Plan• Increase contributions at the

next collective agreement• Revise existing collective

agreements• Strip out ancillary benefits• Reduce benefits as a last resort

200

7 A

nn

ual M

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Ass

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blé

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nn

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2

00

7


So why do the policy makers like the solvency

rules?• Members appear to be protected• Prescribed valuation basis• Minimize abuses• Solves the problem of employer

withdrawal

200

7 A

nn

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2

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7


What are governments doing?• Temporary measures

– Federal– Quebec (up to the end of 2009)– Alberta

• Permanent measures– Quebec (from 2010)

• Studying the issue– B.C.– Alberta– Ontario

200

7 A

nn

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Temporary measuresQuebec (2005)

• Rules expire in December 2009• Applicable to the first valuation after

December 30, 2004

200

7 A

nn

ual M

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2

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7


Temporary measuresQuebec (2005)

• Combine solvency deficiencies• Extend the solvency deficiency payment

period to 10 years from 5 years with buy-in from members

• Allow employers in MEPs to use letter of credit relief measures through apportioning

• Benefit improvements for the next 5 years must be funded on the greater of the values on a solvency and funding bases 2

00

7 A

nn

ual M

eeti

ng

Ass

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blé

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nn

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2

00

7


Temporary measuresFederal (2006)

• Application in respect of an actuarial valuation report filed after December 30, 2005, but not beyond 2007

• Substantial information to plan members required

200

7 A

nn

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ng

Ass

em

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2

00

7


Temporary measuresFederal (2006)

• Consolidate previously solvency payment schedules, and amortize the consolidated solvency deficiency over 5 years

• Extend the solvency funding period from 5 years to 10 years provided no more than 1/3 of active members and 1/3 of non-active members and beneficiaries object

• No plan improvements allowed in the first 5 years unless the improvements are pre-funded to avoid worsening the solvency deficiency

200

7 A

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Temporary measuresAlberta (2006)

• MEPs may apply to the Superintendent for permission to suspend the solvency deficiency payments for a period no longer than three years

• Maximum one application• Requires a valuation report with a

valuation date not earlier than December 31, 2005

200

7 A

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Temporary measuresAlberta (2006)

• Superintendent consent subject to:– No asset smoothing– Going concern unfunded liabilities

funded over no more than 10 years– No benefit improvements allowed while

there is a solvency deficiency

• After the suspension, revert to the old rules, but the entire solvency deficiency may be funded over 5 years

200

7 A

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Permanent MeasuresQuebec (2006)

• Effective January 1, 2010• Solvency focus is maintained• Annual actuarial valuations required• Substantial information required to

be sent to the members

200

7 A

nn

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2

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7


Permanent MeasuresQuebec (2006)

• Must be funded on a solvency basis plus Provision for Adverse Deviation that depends on investment policy

• Solvency deficiency amortization period – 5 years

• PfAD to be funded from experience gains• Contribution holidays not allowed as long as

the PfAD is not full• Plan improvements must be amortized over

no more than 5 years, even if solvent, until the PfAD is fully funded

• If a plan improvement would otherwise cause the solvency ratio to fall below 90%, the difference between 90% and the solvency ratio must be funded immediately

200

7 A

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Studying the Issue

• B.C.– Announced a review in February 2007– Review limited specifically to solvency– Staff to consult with “a range of

experts, stakeholders and other jurisdictions over the next few months”

– Working closely with Alberta

• Ontario– Expert Commission

• Alberta

200

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Are there alternatives to the current solvency

rules?

200

7 A

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2

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7


What About Risk-Based Rules?

• Keep the current solvency valuation– But allow the solvency deficiency

amortization period to vary according to the risk of the pension plan

– Will require the development of risk factors and risk scores

200

7 A

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2

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7


Risk Factors

• Going concern surplus / deficit• Contribution margin• Changes in hours / contributions• Number of employers in plan• Investment policy

200

7 A

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Challenges of a Risk-Based Approach

• Administratively complex– Potentially subjective– Regulators already stretched for

resources

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