Quebec amends pension solvency regulation

The revised regulation does not address temporary solvency relief, a regulation of which is expected this fall. However, plans that avail themselves of temporary solvency relief will be subject to the immediate application of the funding and solvency rules in Bill 30, including those set out in the revised regulation.

Watson Wyatt explains that the revised regulation contains several changes from the April regulation.

Actuarial Valuations
The information that needs to be disclosed in actuarial valuation reports has been modified. The report must now disclose the maximum reduction of a letter of credit amount to which the pension committee may agree. Also, the revised regulation clarifies the calculation of the penalty for late filing of actuarial valuation and how actuarial liabilities should be broken down when being disclosed.

A new provision regarding actuarial certifications in the case of a partial actuarial valuation is also included. However, while the French text states that the actuary’s certification must be based on a “prudent” estimate, the English text refers to a “conservative” estimate, Watson Wyatt explains, adding that the use of different terms could create confusion for actuaries and administrators. The firm hopes that clarification of this issue will be forthcoming.

Letters of Credit (LOCs)
While the April regulation introduced provisions for plan sponsors to utilize an irrevocable LOC for up to 15% of solvency funding liabilities, the revised regulation:
• provides additional details on LOCs,
• permits the LOC to be reduced over time, and
• requires the pension committee to agree to reduce the amount of the LOC if the employer pays an amount “at least equal to” the amount of reduction requested or if it exceeds a minimum surplus as defined in the revised regulation.

“The ability to reduce the LOC may provide greater flexibility to plan sponsors to modify the amount of the LOC from time to time,” says the Infoflash. “Also, the revised regulation clarifies that the pension committee must agree to cancel a non-compliant LOC where the employer provides a new LOC or pays an amount equivalent to the LOC.”

Reserve and provision for adverse deviation (PfAD)
The revised regulation adds further details and revises, to some extent, the PfAD formula by eliminating the duplication of the required PfAD in respect of retired members’ liabilities. The revised regulation also requires the pension committee to establish a policy to determine the level of PfAD applicable to the liabilities of members eligible to retire, instead of simply deciding on this issue from time to time as stipulated in the April regulation. It also modifies the meaning of fixed-income securities and requires additional information to be disclosed in the valuation report if (and only if) a PfAD is calculated.

What it means for plan sponsors
Plan sponsors with Québec-registered plans will need to amend their actuarial valuation processes, implement PfAD calculations and determine their interest and/or need in acquiring an LOC, explains Watson Wyatt. Also, pension committees will need to establish a policy on the desired PfAD level in respect to the liabilities of plan members eligible to retire.

The revised regulation is not effective immediately in theory, but must be applied immediately for those sponsors that utilize the temporary solvency relief measures. According to Watson Wyatt, this means plan sponsors will be required to apply various elements earlier, such as the new valuation rules, the new immediate funding of amendments for insolvent plans (below 90%) as well as requirements for annual valuations and PfADs.

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