Updates on timing and contents of revised pension commuted value standards
The Actuarial Standards Board (ASB) of the Canadian Institute of Actuaries recently announced that it would not move forward with an updated mortality improvement scale in its upcoming revised pension Commuted Value Standards (the Revised Standards). The ASB also provided an update on the timing of the release of the Revised Standards. These changes will be of interested to defined benefit pension plan sponsors and participating employers.
Mortality improvement scale changes cancelled
A mortality improvement scale sets out assumptions on how quickly future life expectancies are expected to improve, which is an important factor in calculating liabilities for defined benefit pension plans.
In January 2019, the ASB released an initial communication which proposed to adopt the MI-2017 mortality improvement scale (the MI-2017 scale) for pension commuted value calculations under the upcoming Revised Standards. The MI-2017 scale would have been combined with the base mortality table, the 2014 Canadian Pensioner Mortality table (the CPM 2014), instead of the current CPM-B mortality improvement scale, which was released in 2007. The key features of the MI-2017 scale were discussed in the May 2017 News & Views.
On June 20, 2019, the ASB announced that it will no longer be moving forward with its promulgation of the MI-2017 scale along with the forthcoming Revised Standards.
The ASB’s decision is the result of comments it has received since its January 2019 announcement. In general, the submitted comments did not support the promulgation. A common question raised by commenters was how to appropriately implement the MI-2017 scale in conjunction with CPM 2014, given that CPM 2014 already incorporates several years of mortality projections. In addition, the ASB also considered that the differences between the MI-2017 scale and the current CPM-B scale are insufficient to justify a change.
Timing for release of the Revised Standards
On July 3, 2019, the ASB provided an update on the expected timing of the Revised Standards. The ASB anticipates that the Revised Standards will be released in the early fall of 2019, and that they will not be required to come into effect before the end of 2019. However, it is possible that early adoption of the Revised Standards will be allowed at the discretion of pension plan sponsors, as long as early adoption is permitted under pension regulations.
The MI-2017 scale was expected to increase commuted values by approximately 0.5% on average and, with this decision, commuted values will no longer be subject to the increase.
The timing of the Revised Standards has been delayed a number of times, which has been viewed as a disappointment for some defined benefit plan sponsors. The delays are likely the result of the substantive changes involved, as well as the number of comments that the ASB received regarding the changes.