Financial ratios as at December 31, 2018
Thanks to the innovative strategies put in place in recent years, the Plan remained strong in 2018 despite an annual return that fell short of the 6.1% actuarial assumption. These innovative strategies provide prudent long-term Plan funding in order to pay member benefits as promised. The efforts made by employers, members and the excellent past returns have also helped in a significative way to keep the Plan sound.
According to the most recent actuarial valuation as at December 31, 2018, the funding ratio - a measure of the Plan's ability to meet its long-term commitments - stands at 112.2%. This is slightly below last year's ratio of 113.8%, but is still in line with the 110.6% stabilization target required under Québec law. The Plan is therefore well positioned to meet its future obligations.
The stabilization target is important because additional funding would be needed if the funding ratio fell to 5% below target, i.e., 105.6%. Conversely, Plan's surplus assets can be used only if the stabilization provision is 5% higher than the target, i.e., 115.6%, and that the solvency ratio is at least 105%.
Regarding the solvency, which measures the Plan's ability to meet its obligations if the Plan were liquidated on a given date, the ratio is 87.6%, almost the same as it was at the end of 2017 (88.5%). Though the Plan has a solvency deficit, pension plans no longer have to be funded on a solvency basis because going concern funding now includes a stabilization provision.
Plan funding for 2019
In terms of the Plan's funding for 2019, current service contributions in addition to the stabilization provision and the administrative fees will be $367.6M, which corresponds to 15.1% of total payroll eligible for the DGPP. As a reminder, under the DGPP funding policy, all costs are shared between employers (65%) and employees (35%).
Based on the current contribution formula, employers and employees will contribute a total of almost $580.6M to the DGPP in 2019. The difference between actual contributions made and the minimum contributions required by Retraite Québec will give the DGPP the opportunity to consolidate its financial position on a going concern basis and to strengthen its financial position on a solvency basis.
The various types of actuarial valuation
Valuation on the going concern and solvency basis
Requirement by the regulatory (Retraite Québec) and fiscal (Canada Revenue Agency) authorities.
Payment, in trust, on behalf of the salary and employer contribution plan to finance benefits pursuant
to these valuations only.
Valuation on the going concern basis
According to this scenario, the Plan will last over time.
The actuarial scenarios used are aimed at maintaining a constant level of employee and employer
contributions in terms of percentage of salary.
The annual interest rate used is constant.
Valuation on the solvency basis
The Plan will end at the valuation date, according to this scenario. All employees will end their
employment. No scenario for salary increases is used.
The scenarios used are prescribed by law and reproduce the market scenarios (purchase of insured
Valuation on the accounting basis [Canadian Institute of Chartered Accountants (CICA), chapter 3461]
Production for employers’ financial statements.
Use of the scenarios prescribed by the CICA (Canadian Institute of Chartered Accountants), even if
produced by an actuary.
Recognition of retirement costs that, in the long term, will be aligned with the required contributions in
the valuation on the going concern basis.
Valuation on a continuity basis.