Draft guidelines for pension apportionment cause concern

  • August 19, 2020

The CBA’s Pensions and Benefits Section has a number of issues with the Draft Actuarial Bulletin No. 4 – Reasonable Methods to Apportion Assets and Actuarial Liabilities published in March by the Canada Revenue Agency.

While guidelines can often be instructive, by communicating underlying principles, these guidelines raise some concerns about how assets and liabilities should be apportioned in registered plans with more than one participating employer.

“We are troubled by statements in the draft bulletin appearing to require separate balance sheets for each participating employer in a plan with more than one employer and appearing to declare two recommended apportionment methods reasonable and differing results unreasonable, apparently without regard to the circumstances,” the Section says in a letter to the CRA.

“Reasonable” apportionment methods can vary depending on the type of plan under review, it says, but the draft bulletin appears to apply broadly even though the differences are explicitly recognized in the Income Tax Act, and the differences inform the reasonableness of the apportionment method.

The Section also notes that the actuarial valuation reporting requirements in the final section of the draft bulletin are not widely followed and imposing those requirements would depart from industry standards.

“We recommend the draft bulletin further particularize (a) the type of plan and the other circumstances when the Registered Plan Directorate’s preferred methods of apportionment and other guidelines are meant to apply, and (b) the scope of the draft bulletin in general.”

While the Section has no concerns with the two apportionment methods mentioned in the draft bulletin, it questions the proposed requirement to separately track and record the benefit accrued by a member who works for more than one participating employer and to prorate the benefit accrual between these employers. This kind of tracking would increase both administrative costs and the cost of preparing the actuarial valuation report.

The Section proposes a simpler alternative: when an employee moves from one participating employer from another, all the member’s liabilities are allocated to the current employer.

“For plans other than individual or small pension plans, we believe this suggested apportionment method will not cause any material difference in the funding between different participating employers. It will, however, be less costly.”

The Section also warns that the proposed treatment of employers withdrawing from a pension “will have punitive results for many plans and members.”

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