Registered Plans Directorate Newsletter, no. 94-3
November 17, 1994

Using Assumptions to Compute the Present Value of Benefits

Introduction

Paragraph 8502(j) of the Income Tax Regulations requires that when you use assumptions to determine amounts under a registered pension plan (RPP), the assumptions used must be reasonable and acceptable to the Minister of National Revenue.

The determination of whether an assumption or a set of assumptions is reasonable can only be made on the merits of each case and within the scope of the professional guidelines issued by the Canadian Institute of Actuaries (CIA). In this newsletter we do not comment on what is reasonable. However, what we accept in each case can be assumed to be reasonable. What we accept as reasonable in one case may not be reasonable for a similar case at another point in time.

In this newsletter we provide some guidelines on the assumptions that are acceptable to Revenue Canada when computing the present value of benefits in connection with a defined benefit provision of an RPP. These guidelines apply to computations made on or after the date of this newsletter.

The information we are providing applies only to situations when a single lump-sum amount is to be paid in lieu of a pension under a defined benefit provision of an RPP.

The information does not apply:

• when using assumptions to recommend the eligible contributions to be made by an employer under a defined benefit provision;
• when using assumptions to compute the amount to be transferred from one defined benefit provision to another defined benefit provision; or
• when using assumptions to commute benefits on the replacement of a defined benefit provision with a money purchase provision.

What is acceptable

We accept:

• the assumptions set out in section 3 of the CIA Recommendations for the Computation of Transfer Values from Registered Pension Plans dated September 1, 1993 (1993 Transfer Value Basis);
• where mandated under the federal Pension Benefits Standards Act, 1985, or a similar law of a province, the assumptions set out in Part One, section 1.03 of the CIA Recommendations for the Minimum Transfer Values of Pensions dated November 14, 1988 (1988 Transfer Value Basis); or
• the use of other assumptions that are reasonable at the time they are used and that produce present values that do not exceed the present values produced using the assumptions set out in section 3 of the CIA 1993 Transfer Value Basis.

Accepting the use of other assumptions

We recommend you write to get our acceptance if you want to use assumptions that produce present values that exceed the present values produced using the assumptions set out in section 3 of the CIA 1993 Transfer Values Basis. However, if you are required to use the assumptions set out in section 1.03 of the CIA 1988 Transfer Value Basis, you do not need to write to us for acceptance. You should provide the actuarial reasoning to justify the use of your assumptions. Our mailing address is given on the last page of this newsletter.

If you wish to discuss the use of your assumptions before writing to us, you can call the Pension Advice Section of the Office of the Superintendent of Financial Institutions (OSFI). The Pension Advice Section will provide advice on the assumptions you wish to use. We caution that the advice provided by telephone is not binding on Revenue Canada and we recommend that after you call OSFI you write to us to get our acceptance. By obtaining our written acceptance you can be assured that the Department has accepted the use of your assumptions.

If you need more information, please write to:

Registered Plans Division
Revenue Canada
700 Industrial Road
Ottawa ON K1A 0L8

or call:

(613) 954-0419 (English)
(613) 954-0930 (French)

Pension Advice Section (OSFI):

Pension Advice Section
Pension Benefits Division
Office of the Superintendent
of Financial Institutions, Canada
12th Floor, 255 Albert Street
Ottawa ON K1A 0H2

or call:

(613) 990-8089 (English)
(613) 990-9267 (English)
(613) 990-8430 (French)