After months of consultations, the Actuarial Standards Board passed controversial changes to actuarial pension standards this week that will see pension holders receive a lesser amount of their holdings when they terminate employment.

The new standards for pension commuted values, outlined at the second annual meeting of the Actuarial Standards Oversight Council, will take effect April 1, 2009, replacing those brought into place in 2005 that will expire next year.

The new rules mean defined benefit pension holders that terminate membership and transfer the assets to another pension or retirement plan will receive a value of holdings calculated with a discount rate 40 basis points greater than it was previously, according to Charles McLeod, chair of the ASB.

The change has its fair share of critics, including those who argue that the new discount rate is too high, and others who argue it is not high enough.

“Opinion was divided on this,” said McLeod. “What we tried to do was to come up with a basis that was fair to plan members who are leaving, but also to plan members who are not leaving. We have to look at all stakeholders.”

The implications of the new rules vary for pension holders significantly, depending on their age, type of plan, and interest rates. For a pension holder about to retire at age 60, for instance, the new rate would mean a reduction in value of roughly 4% than under the prior standards, while a 40-year-old would see about 11% less value, according to McLeod.

The ASB consulted with industry members and groups on the changes, and invited comments and criticism on two drafts it released this year. It received input from actuaries, regulators, pension plans, plan members, and others.

Still, some critics argue that the board generally fails to engage sufficient public consultation on the decisions it makes.

The Actuarial Standards Oversight Council was established last year, partially for this reason, by the Canadian Institute of Actuaries.

“Its role is to serve the public interest by overseeing and providing input to the activities of the Actuary Standards Board,” said John Solursh, chairperson of the Oversight Council.

“We also are charged with informing ASB of the views represented on the ASOC, as well as the views of others, including individuals or groups who have an interest in actuarial standards of practice,” he added. “We also periodically try to seek out those views as well.”

But some industry members at the meeting hinted that the council lacks sufficient insight into the key issues facing the industry, and has so far failed to engage itself as an effective public conduit.

Solursh said this past year, the council has met with regulators and other stakeholders to gain background information on the relevant issues. He added that the council is working hard to heighten its role in the public eye as an accessible intermediary that communicates public concerns to the ASB.

“The more input we can get, the better,” Solursh said. “We have really gone out of our way, and we want to do a lot more to get more input.”

More pension changes to come

In the year ahead, actuaries can expect more changes to pension standards as the ASB moves forward on revamping pension funding standards. The changes will represent the “biggest revision for at least 15 years,” according to McLeod.

In particular, new standards are likely to demand more disclosure from pension plans as recent market turmoil has put the spotlight on the risks involved in plans.

“Investors would like more disclosure, and particularly more relevant disclosure,” said Malcolm Hamilton, a member of the ASB. “Everyone seems to agree on that.”

The ASB released a notice of intent on the changes this fall and received a number of comments. It plans to issue a draft of the proposed changes in the months to come.

IE