Actuarial Bulletin No. 4 - Draft Bulletin for Industry Consultation "Reasonable Methods to Apportion Assets and Actuarial Liabilities" 8 January 2020

Purpose of participating employer requirement

A participating employer … is an employer that has made, or is required to make, contributions to a registered pension plan for its employees or former employees. Applications to register a pension plan or amend a registered pension plan will not be accepted if there is no valid participating employer. This makes sure that a plan will always meet the primary purpose condition that applies to all pension plans, which is to provide periodic payments to individuals after retirement and until death for their service as employees.

Subject of Bulletin

This bulletin gives guidelines and examples of reasonable methods to apportion assets and actuarial liabilities for the purpose of funding a defined benefit (DB) provision of a registered pension plan that has more than one participating employer.

Policy guiding review of apportionment method

Generally, we accept apportionment methods that do not create a bias towards a particular participating employer. Distorting the assets, liabilities, or qualifying transfers may lead to a participating employer making larger than appropriate contributions. Apportionment methods based on lifetime retirement benefits accrued with each participating employer are generally acceptable.

Acceptable apportionment methods

Actuarial valuation reports sent after December 31, 2020, must use apportionment methods that are consistent with this bulletin. …

The following are apportionment methods we consider to be reasonable.

Liability apportionment – prorated to earnings

This method apportions the liabilities based on each participating employer’s share of a member’s lifetime retirement benefits. If a member receives pensionable earnings (compensation) from multiple participating employers in the year, the actuary must use those pensionable earnings to prorate the accrued lifetime retirement benefit (LRB) and DB limit in the year. …

Asset apportionment – prorated to liabilities

This method apportions the assets in proportion to the liabilities allocated to each participating employer using the pensionable earnings. Generally, prorating the assets to the liabilities would result in an appropriate funding request.

However, there are cases where prorating assets based on liabilities may become inappropriate. This would be the case if one of the participating employers takes a contribution holiday and makes a lower contribution than the amount recommended in the actuarial valuation report, while the other participating employers keep making the recommended contributions.

This may result in a significant shift in assets between participating employers, which could lead to inappropriate funding requests. In these cases, the actuary must use the separate accounting method.

Asset apportionment – separate accounting

The separate accounting method divides plan assets based on each participating employer’s actual contributions, related investment income and other cash flows.

By accounting for plan assets separately, there may be an unfunded liability for employees of one participating employer at the same time as there is an actuarial surplus for employees of another employer who participates in the same plan.

Continuation of employer who ceases participating

[O]ne of the participating employers [may] stop ... participating in the plan due to bankruptcy, wind up, dissolution, sale of business, or [if] it voluntarily removes itself as a participating employer. ...

For inactive employers, assets and actuarial liabilities should continue to be apportioned to that employer.

Monitoring compliance with continuity rules

[S]ubsection 147.2(8) ... deems former employees of a vendor to be employees of a participating employer if the agreement involves an assignment of a DB plan from the vendor to the participating employer. This allows the participating employer to contribute to the plan to fund benefits provided to employees of a predecessor employer.

Amalgamated corporations and subsidiaries that are merged into their parent corporation are also considered predecessor employers for purposes of the registered pension plan rules. The assets and liabilities of the predecessor employer should be apportioned to the continuing participating employer. The continuing employer can contribute to the plan for the former employees of the predecessor employer.