CRA publishes a draft Bulletin on apportionment among multiple employers for defined benefit plans

CRA has released for comment a draft Bulletin on “Reasonable Methods to Apportion Assets and Actuarial Liabilities" for multi-employer defined-benefit (DB) plans, as required under s. 147.2(2)(a)(vi). It states that actuarial valuation reports sent after December 31, 2020, must use apportionment methods that are consistent with this Bulletin. The following apportionment methods are considered 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. However, 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. In such 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. This method may result in there being an unfunded liability for employees of one participating employer at the same time as there is an actuarial surplus for employees of another participating employer.

If one of the participating employers stops participating in the plan due to bankruptcy, winding up, dissolution, sale of business, or its voluntarily removing itself as a participating employer, assets and actuarial liabilities must continue to be apportioned to that employer.

CRA also monitors compliance with the continuity rules where there is a business acquisition or a merger.

Neal Armstrong. Summaries of Actuarial Bulletin No. 4 - Draft Bulletin for Industry Consultation, "Reasonable Methods to Apportion Assets and Actuarial Liabilities" 8 January 2020 under s. 147.1(1) - participating employer, s. 147.2(2)(a)(vi) and s. 147.2(8).