New funding framework

Under the new regulations, NCPs are no longer required to fund for solvency but are subject to enhanced going concern funding requirements.

On a going concern basis, plans are now required to add a margin to their normal cost and liabilities. This margin is called a Provision for Adverse Deviations (PfAD).

The minimum PfAD on the normal cost is 5 percent. The PfAD on going concern liabilities should be set by the administrator based on plan characteristics and actuarial considerations. 

Plans are still required to disclose the plan’s solvency ratio and its implications to plan members and retirees.

The Office of the Superintendent of Financial Institutions (OSFI), the federal regulator, has indicated that actuarial valuations filed by June 30, 2024 may file under the old framework provided that the report:

• References the new rules as a subsequent event
• Confirms that the current negotiated contribution rates are sufficient to meet the requirements of the new funding framework and indicates that the next actuarial report will include a recalculation of the valuation results under the new rules

Funding and governance policies

The Regulations prescribe the elements required to be included in an NCP’s governance and funding policies.

The NCP’s funding policy are required to include:

• The funding objectives as they relate to benefit security, benefit levels and contribution levels
• The material risks that affect the plan’s funding requirements
• The objectives and expectations for reducing benefits, if required
• The procedure for the use of surplus

The governance policy is required to include:

• The roles and responsibilities of all governance participants and who has authority to make decisions
• Performance measures and monitoring
• A code of conduct
• Material risks that apply to the plan
• Processes for dispute resolution
• Education and skills requirements for the administrator

Additionally, plan sponsors are required to make the funding and governance policy documents available for members.

Action item

Each plan will need to develop the methodology for determining the PfAD and determine the impact on the plan’s long-term funding objectives. 

Trustees should also ensure that their funding and governance policy documents are in compliance with the legislated requirements.