PIAC responds to consultation on pension benefit security, windup valuations

The Pension Investment Association of Canada is commenting on a consultation from the Canadian Institute of Actuaries’ actuarial standards board, providing feedback on benefit security, stress testing and windup valuations.

In a letter, the PIAC said the meaning and mandated disclosures of benefit security are public policy issues for lawmakers and regulators. “While the views of the [actuarial standards board] on this issue are extremely valuable, [it] shouldn’t be put in a position where it both mandates what needs to be disclosed and how the mandated disclosure metric needs to be calculated.”

And while the association called going-concern plus funding an appropriate and adequate measure to ensure the long-term funding of defined benefit plans and protect the interests of beneficiaries, it suggested standards should allow the terms of engagement to specify whether plausible adverse scenarios be presented on a going-concern or hypothetical windup basis or both.

Read: PIAC comments on FSRA’s plan for missing plan members

Also, the PIAC agreed pension actuaries shouldn’t be required to assess or disclose the financial strength of plan sponsors and that “the trend to reducing solvency funding requirements doesn’t increase the responsibility of actuaries to stakeholders regarding pension plan funding. PIAC believes that the responsibility for funding is the plan sponsor’s in accordance with minimum funding regulations.”

The letter also suggested that stress-testing standards be conducted in accordance with a risk review by the actuary and plan sponsor or administrator. And, in regards to alternative hypothetical windup valuations, the PIAC raised concerns that disclosure of a worst-case scenario such as bankruptcy could lead to communication challenges for plan sponsors with their employees and plan members.

“There’s the potential for unintended consequences, whereby the disclosure of the scenario motivates regulators to use it as a minimum actuarial standard to calculate transfer value ratios, which would ultimately lead to higher costs for plan sponsors.”

Read: PIAC calling for changes to PfAD calculation, solvency reserve accounts in N.S.