The original deadline for comments on the Exposure Draft of the end of August has been extended by one week to Sept. 5, 2008. The target effective date remains Feb. 1, 2009. In New Brunswick, Ontario and Quebec, a change in regulations will be needed before the new commuted value basis can take effect. If the proposed changes proceed, pension plan administrators will have to adjust their pension-related systems to use the revised assumptions for calculations on and after Feb. 1, 2009.
The Exposure Draft also includes the prospect of early adoption for solvency valuations, subject to approval by pension regulators. Early adoption may enable actuaries to use the new standard for solvency valuations as of Dec. 31, 2008.
The ASB stated in the Exposure Draft a desire to recommend the use of a “generational” mortality table based on Canadian experience data in the calculation of commuted values under future revisions to the standards. A generational mortality table builds in a projection of continuing improvements in mortality—and increases in life expectancy—for each generation of plan members separately. Newer generations of members are assumed to experience lighter mortality rates at a given age than older generations did when they were the same age, because trends suggest that mortality improvements are likely to continue for the foreseeable future. By comparison, the mortality table in the current CIA standards and in the ASB’s Exposure Draft is a “static” table, which means that the mortality rate at every age and for every generation of plan members is projected for a fixed period up to a particular calendar year (e.g., 2025 in the Exposure Draft). The ASB believes that a generational table represents the fairest and most appropriate approach to calculating commuted values. However, the adoption of a generational table would require significantly more computational resources and more extensive systems modifications than a static table. In the absence of a suitable generational table being available, the existing approach has been maintained for the time being, albeit with an extension of the projection period for improvements.
Transition to International Financial Reporting Standards
The third major change on the horizon is the requirement for all publicly accountable enterprises in Canada to report under International Financial Reporting Standards for years beginning on or after Jan. 1, 2011. This includes the International Standard IAS 19: Employee Benefits, which will replace CICA 3461. The major differences between CICA 3461 and IAS 19 are that the latter requires past service costs to be recognized over the period until they vest, which will generally lead to faster recognition under IAS 19 than under current Canadian accounting standards; the measurement date should be the year-end balance sheet date under IAS 19 (without the option to measure up to three months before the year-end), which will only lead to a difference if that approach is not being used under CICA 3461; IAS 19 requires the use of a fair value of assets in determining the 10% corridor for amortizing actuarial gains and losses and for the expected return on assets, whereas CICA 3461 also permits the use of a market-related value; and IAS 19 is more restrictive on the amount that can be recognized as an asset.
As the end of the year approaches, pension plan sponsors in Canada should ensure that they are able to accommodate these changes when they become effective.
Catherine Robertson is a consulting actuary and Principal in the Toronto office of Eckler Ltd. She consults to a range of corporate and non-profit organizations on their pension and benefit plans, specializing in pension plan design, funding, pension accounting and administration.