Actuarial Notes

Pension Plan Funding Policy Guideline

By Canadian Association of Pension Supervisory Authorities · 2021 · Guideline No. 7

Study guide: Exam RET-201

CAPSA Guideline No. 7, in the May 2021 edition, gives guidance on the development and adoption of funding policies for pension plans that provide defined benefits or target benefits. A funding policy is a document prepared by the plan sponsor of a single employer pension plan that outlines how the benefit commitments made in the plan documents are to be achieved; for a multi-employer or target pension arrangement it is the responsibility of the administrator. Some jurisdictions require a funding policy, and where none does, CAPSA encourages sponsors or administrators to follow the practice.

On the syllabus

  • Exam RET-201 — RET201-118-25: CAPSA, Guideline No. 7, Pension Plan Funding Policy Guideline; outcome 5b.

Context

Pension Plan Funding Principles and Objectives

Purpose of a Funding Policy

Role of the Plan Sponsor

Role of the Plan Administrator

Dual Role of the Employer as Plan Sponsor and Plan Administrator

Developing a Funding Policy

Elements of a Funding Policy

    1. Plan Overview
    1. Funding Objectives
    1. Key Risks Faced by the Plan
    1. Risk Appetite
    1. Funding Volatility Factors and Management/Mitigation of Risks
    1. Funding Target Ranges
    1. Cost / Funding Sharing Mechanisms
    1. Utilization of Funding Excess
    1. Actuarial Methods, Assumptions and Reporting
    1. Frequency of Valuations and Filing of Valuations
    1. Monitoring
    1. Communication Policy

Special Considerations for Target Pension Arrangements

    1. Funding Objectives
    1. Risk Management

Sources