CIA Pension Seminar 15 April 2009 The Dos and Don’ts of Applying the Funding Relief Rules Mario Marchand, Senior Actuary Régie des rentes du Québec

Why do we need measures to lessen the impact of the financial crisis?  The scope of the financial crisis raging since the middle of 2008 has never been seen before in recent history  The contributions that many employers will have to pay for the funding of their pension plans could severely impact their financial position  For many employers, the obligation to fund a deficit resulting from the financial crisis will appear at the end of fiscal year 2008 CIA Pension Seminar/Régimes de retraite de l’ICA

Some statistics  950 defined benefit pension plans are supervised by the Régie des rentes  Those plans cover a million plan members and beneficiaries (including retirees)  Rapid decline of the median solvency ratio from 93% at the beginning of year 2008 to 70% at the end  About 160 of those 950 plans will have to prepare an actuarial valuation as at 31 December 2008 CIA Pension Seminar/Régimes de retraite de l’ICA

Funding relief measures resulting from a consensus  An advisory committee, chaired by the Québec Minister of Employment and Social Solidarity, was established in November 2008  That committee included members from the following organizations: CPQ, FCCQ, CSN, FTQ and the Régie des rentes du Québec  That committee reached a consensus concerning the measures to lessen the impact of the financial crisis on businesses, workers and retirees CPQ :Conseil du patronat du Québec FCCQ : Fédération des chambres de commerce du Québec CSN : Confédération des syndicats nationaux FTQ : Fédération des travailleurs et des travailleuses du Québec CIA Pension Seminar/Régimes de retraite de l’ICA

Description of the funding relief measures  All funding relief measures described here are aimed at solvency  Application as of 31 December 2008 of the revised Standards of Practice for Pension Commuted Values  That measure came into effect on 31 December 2008 following the adoption of Bill 1 on 15 January 2009  From 31 December 2008 to 31 March 2009, the revised Standards of Practice may be used only for solvency valuation purposes CIA Pension Seminar/Régimes de retraite de l’ICA

Description of the funding relief measures  Three other funding relief measures will be defined in a draft regulation to be published in the coming weeks  Assets smoothing  Consolidation of deficiencies determined in previous actuarial valuations  Extension of the amortization period for deficiencies to a maximum of 10 years  A plan may use only one measure, two of them or all three CIA Pension Seminar/Régimes de retraite de l’ICA

Description of the funding relief measures  Funding relief measures may not reduce the contributions to be paid to the plan below those that would have been paid in the absence of financial crisis  Plans using the funding relief measures will be immediately subject to the new funding rules defined in Bill 30  Annual actuarial valuation  90% rule CIA Pension Seminar/Régimes de retraite de l’ICA

Description of the funding relief measures CIA Pension Seminar/Régimes de retraite de l’ICA

Description of the funding relief measures CIA Pension Seminar/Régimes de retraite de l’ICA

Other provisions related to the funding relief measures  On a temporary basis, new options will be available upon plan termination 1 for the payment of benefits  Conditions to meet to be eligible for the new options:  The plan termination results from the bankruptcy of the employer  The plan termination is after 30 December 2008 but before 1 January 2012  Benefits of plan members and beneficiaries cannot be paid in full 1.In this text, “termination” also covers withdrawal of an employer from a multi-employer pension plan. CIA Pension Seminar/Régimes de retraite de l’ICA

Other provisions related to the funding relief measures  Three options will be offered to a plan member or beneficiary to whom a pension is already being paid:  Ask for his or her pension be guaranteed by an insurer  Transfer the commuted value of his or her pension to an LIF  Entrust the management of his or her pension assets to the Régie des rentes du Québec  Two options will be offered to a plan member or beneficiary who would have been entitled to a pension had the member or beneficiary applied:  Transfer the commuted value of his or her pension benefit to another “pension plan”  Entrust the management of his or her pension assets to the Régie des rentes du Québec CIA Pension Seminar/Régimes de retraite de l’ICA

Other provisions related to the funding relief measures  Main features of the option “Entrust the management of the pension assets to the Régie”:  The Régie will purchase a guaranteed annuity from an insurer no later than the end of the fifth fiscal year that follows the fiscal year during which the Régie began its management  The benefit guaranteed by an insurer may not be less than the benefit the retiree would have been entitled to in the absence of funding relief measures  Gains realized will be exclusively used to improve retirees’ benefits  If the assets available are insufficient to purchase from an insurer the minimum guaranteed annuity to which a retiree is entitled, the shortfall will be paid out of the Province’s consolidated revenue fund CIA Pension Seminar/Régimes de retraite de l’ICA

Other provisions  A simplified procedure will now apply when amending our regulations in order to adapt them to the evolution of CIA Standards of Practice:  Those amendments will no longer have to be pre- published  They may take effect retroactively, from the date of their approval by the Actuarial Standard Board  In addition to the valuation report, a summary of the information concerning the actuarial valuation will now have to be filed with the Régie CIA Pension Seminar/Régimes de retraite de l’ICA