5. Accrued Pension Benefits
a. Financial Statement Valuation
The accrued pension benefits as at December 31, 2010 are based on an extrapolation of the latest actuarial valuation performed as of December 31, 2009.
The Plan annually reviews the actuarial assumptions used in the financial statement valuation to ensure that they reflect management’s best estimate of expected trends. The key assumptions used for the valuation and extrapolation are as follows:
|Rate of return on plan assets||6.75%||7.00%|
|Rate of pensionable earnings increases||3.25%||3.50%|
Experience gains of $227 million (2009- experience losses $53 million) on the Plan's accrued pension benefits are due to differences between actuarial experience and assumptions. The assumption change loss of $235 million (2009- $nil) on the Plan's accrued pension benefits is due to the actuary's recommended revision to the retirement, mortality and inflation assumptions as well as the assumed commuted value take up rate amongst terminated members.
The impact of a 0.50% change in the above assumptions on accrued pension benefits, keeping all other assumptions unchanged, is shown in the table below.
|Sensitivities to changes||2010||2009|
|Rate of return on plan assets||$||(807)||$||912||$||(723)||$||823|
|Rate of pensionable earnings increases||189||(175)||170||(159)|
b. Funding Valuation
The funding valuation is based on the aggregate method. This method considers a time horizon that includes accumulation of benefits and receipt of contributions in respect of current members in future periods. Generally, the actuarial assumptions used to determine the pension liabilities for funding purposes are more conservative than those used for the financial statement valuation. The funding valuation is used to identify gains or losses, which are allocated equally between members and the Government of Ontario. Gains are allocated at the discretion of the sponsors to fund benefit improvements, reduce contributions, reduce any existing funding deficiencies or are set aside in the form of rate stabilization funds. Funding deficiencies resulting from losses must be funded over a maximum of 15 years from either increased contributions or rate stabilization funds. Accrued pension benefits are valued using economic assumptions developed by reference to long-term market conditions.
In accordance with the Pension Benefits Act of Ontario and the Income Tax Act (Canada) and Regulations, an actuarial valuation for funding purposes is required to be filed at least every three years to estimate the Plan's gains or losses, and to determine the Plan's funding requirements. The last funding valuation filed with the Financial Services Commission of Ontario (FSCO) was prepared by Buck Consultants as at December 31, 2008. The funding deficit reported in that funding valuation was $606 million after giving effect to a 1% contribution increase to be implemented in each of 2010, 2011 and 2012. The remaining deficit will be funded by payments of $32 million per year from each of the member and the employer rate stabilization funds, starting in 2009. The key assumptions used for the funding valuation are the same as those used for the financial statement valuation, except that the assumed rate of return on plan assets is reduced by 0.25% as a margin of conservatism.