Changes on the Horizon For Canadian Pension Plans

The Canadian Securities Administrators (CSA), which is a coordinating body for the provincial and territorial securities regulators in Canada, is proposing substantial changes to executive compensation disclosure requirements for public companies. The existing Statement of Executive Compensation (Form 51-102F6) is being revised and expanded.

Included in the many changes under the Form is the requirement for companies to report information for executives based on a total compensation limit instead of a cash compensation limit. In addition, disclosure may be required for executives who left the company during the year.

The expanded disclosure will include a detailed tabular presentation of the change in value of each executive’s pension benefits for both defined benefit (DB) and defined contribution (DC) plans. The DB liabilities are to be determined on the same basis as the pension cost shown in the company’s financial statements.

A further new requirement is a discussion and analysis of company policies related to executive compensation during the fiscal year of reporting. The discussion should cover the objectives of the compensation program, a description of each compensation element, the company’s reasons for paying each compensation element, how the company determines the dollar amount for each element, and what the formula is, if applicable; and how each element of compensation (and the company’s decision to pay that element) fit into the company’s overall compensation objectives.

The revisions are expected to come into effect on Dec. 31, 2008 and will apply to issuers’ financial years ending on or after that date. This effective date relies on the completion of some necessary procedural steps for adoption of securities rules which, if not finalized soon, may delay the effective date.

Revised Standards of Practice for Pension Commuted Values

The Actuarial Standards Board (ASB) of the Canadian Institute of Actuaries (CIA) published an Exposure Draft on June 27, 2008 proposing changes to the current Standards of Practice for Pension Commuted Values. The CIA standards define the methodology for calculating lump sum payments from defined benefit pension plans, when a terminating member chooses to transfer the value of the vested pension to a locked-in retirement account under the portability provisions of pension standards legislation.

The proposed changes to the CIA standards include:
• increasing the discount rates for non-indexed pensions by an amount between 0.25% and 0.50%;
• increasing the discount rate for fully indexed pensions by an amount between 0.50% and 0.75%;
• strengthening the mortality table to the Uninsured Pensioner Mortality table projected to 2025 (currently the projection is to 2015); and
• rounding the discount rates used to the nearest 0.10% (currently discount rates are rounded to the nearest 0.25%)

The impact of the proposed changes is an overall decrease in commuted values payable to terminating members. Similarly, there will be a corresponding decrease in the portion of solvency liabilities that use a commuted value basis. The amount of the decrease in commuted values will depend on the member’s age, type of plan and the final basis adopted.

For a non-indexed plan, the decrease will range from 9% to 18% for a 25-year-old and from 1% to 3% for a 65-year-old. For a fully indexed plan, the decrease will range from 20% to 28% for a 25-year-old and 3% to 6% for a 65-year-old.

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