Just as the outlook started to improve for DB plans, new guidance from the Canadian Institute of Actuaries (CIA) could increase the solvency liabilities of indexed DB plans by up to 15%, according to Eckler’s latest analysis.

Non-indexed plans will also feel the impact of the new guidance, although it will be much less significant.

Hardest hit by the new guidance are plans that provide automatic, full inflation-indexation protection and are required to fund the cost of this inflation protection on a solvency basis, says Ian Edelist, principal and Toronto pension practice leader with Eckler.

“In fact, these plans would be required to use a negative interest rate if they had to do a valuation at June 30, 2013,” he adds. “We have estimated the increase in solvency liabilities to the average fully indexed plan is up to 15%, while the increase seen by non-indexed plans is expected to be up to 3%.”

The new guidance is based on the results of an extensive review of group annuity purchase pricing conducted by a CIA committee and affects the calculation of a DB plan’s solvency and windup liabilities for funding valuation purposes.

The ultimate impact of the new guidance on a plan’s funding will depend on a wide range of factors, including the terms of the pension plan, the makeup of its membership, the jurisdiction in which it is registered and whether it is exempt from solvency funding.

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Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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