Canadian
Institute
of
Actuaries
L’Institut
canadien
des
actuaires
2007 Annual Meeting ● Assemblée annuelle 2007
Vancouver
Canadian Institute of Actuaries
Vancouver, BC
June 28, 2007
PD-2 Current Developments
in Multi-Employer Pension
Plans
Harry Satanove, FCIA
2007 Annual Meeting
Assemblée annuelle 2007
Negotiated Cost Pension Plans
The “Pension Deal”
Contributions
Collective
agreement
Fund
Past
service
benefits
Inflation
adjustments
Current
service
benefits
Early
retirement
benefits
Survivor’s
benefits
Satanove & Flood Consulting Ltd.
Trustees
2
2007 Annual Meeting
Assemblée annuelle 2007
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?
Satanove & Flood Consulting Ltd.
3
2007 Annual Meeting
Assemblée annuelle 2007
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 reduced
Satanove & Flood Consulting Ltd.
4
2007 Annual Meeting
Assemblée annuelle 2007
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
Satanove & Flood Consulting Ltd.
5
2007 Annual Meeting
Assemblée annuelle 2007
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
Satanove & Flood Consulting Ltd.
6
2007 Annual Meeting
Assemblée annuelle 2007
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
Satanove & Flood Consulting Ltd.
7
2007 Annual Meeting
Assemblée annuelle 2007
Temporary measures
Quebec (2005)
• Rules expire in December 2009
• Applicable to the first valuation after
December 30, 2004
Satanove & Flood Consulting Ltd.
8
2007 Annual Meeting
Assemblée annuelle 2007
Temporary measures
Quebec (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
Satanove & Flood Consulting Ltd.
9
2007 Annual Meeting
Assemblée annuelle 2007
Temporary measures
Federal (2006)
• Application in respect of an actuarial
valuation report filed after December 30,
2005, but not beyond 2007
• Substantial information to plan members
required
Satanove & Flood Consulting Ltd.
10
2007 Annual Meeting
Assemblée annuelle 2007
Temporary measures
Federal (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 prefunded to avoid worsening the solvency
deficiency
Satanove & Flood Consulting Ltd.
11
2007 Annual Meeting
Assemblée annuelle 2007
Temporary measures
Alberta (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
Satanove & Flood Consulting Ltd.
12
2007 Annual Meeting
Assemblée annuelle 2007
Temporary measures
Alberta (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
Satanove & Flood Consulting Ltd.
13
2007 Annual Meeting
Assemblée annuelle 2007
Permanent Measures
Quebec (2006)
•
•
•
•
Effective January 1, 2010
Solvency focus is maintained
Annual actuarial valuations required
Substantial information required to be
sent to the members
Satanove & Flood Consulting Ltd.
14
2007 Annual Meeting
Assemblée annuelle 2007
Permanent Measures
Quebec (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
Satanove & Flood Consulting Ltd.
15
2007 Annual Meeting
Assemblée annuelle 2007
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
Satanove & Flood Consulting Ltd.
16
2007 Annual Meeting
Assemblée annuelle 2007
Are there alternatives to
the current solvency rules?
Satanove & Flood Consulting Ltd.
17
2007 Annual Meeting
Assemblée annuelle 2007
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
Satanove & Flood Consulting Ltd.
18
2007 Annual Meeting
Assemblée annuelle 2007
Risk Factors
•
•
•
•
•
Going concern surplus / deficit
Contribution margin
Changes in hours / contributions
Number of employers in plan
Investment policy
Satanove & Flood Consulting Ltd.
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Challenges of a Risk-Based
Approach
• Administratively complex
– Potentially subjective
– Regulators already stretched for resources
Satanove & Flood Consulting Ltd.
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