Royal Canadian Mounted Police (Dependants) Pension Fund

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Management Responsibility for Financial Statements

Responsibility for the integrity and fairness of the financial statements of the Royal Canadian Mounted Police (Dependants) Pension Fund rests with the management of the RCMP.

The financial statements of the Royal Canadian Mounted Police (Dependants) Pension Fund have been prepared in accordance with Canadian accounting standards for pension plans. The financial statements include management's best estimates and judgments where appropriate.

To fulfill its accounting and reporting responsibilities, management has developed and maintained books, records, internal controls and management practices designed to provide reasonable assurance as to the reliability of the financial information and to ensure that transactions are in accordance with the Royal Canadian Mounted Police Pension Continuation Act and regulations as well as the Financial Administration Act and regulations.

These financial statements have been audited by the Auditor General of Canada, the independent auditor for the Government of Canada.

Approved by:

Bob Paulson
Commissioner

Alain Duplantie, MBA, CPA, CGA
Deputy Commissioner
Chief Financial and Administrative Officer

July 17, 2015

Independent Auditor's Report

To the Minister of Public Safety and Emergency Preparedness

Report on the Financial Statements

I have audited the accompanying financial statements of the Royal Canadian Mounted Police (Dependants) Pension Fund, which comprise the statement of financial position as at 31 March 2015, and the statement of changes in net assets available for benefits and statement of changes in pension obligations for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for pension plans, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Royal Canadian Mounted Police (Dependants) Pension Fund as at 31 March 2015, and the changes in its net assets available for benefits and changes in its pension obligations for the year then ended in accordance with Canadian accounting standards for pension plans.

Report on Other Legal and Regulatory Requirements

In my opinion, the transactions of the Royal Canadian Mounted Police (Dependants) Pension Fund that have come to my notice during my audit of the financial statements have, in all significant respects, been in accordance with the applicable provisions of the Financial Administration Act, and the Royal Canadian Mounted Police Pension Continuation Act and regulations.

Margaret Haire, CPA, CA
Principal
for the Auditor General of Canada

17 July 2015
Ottawa, Canada

Table Summary

The table presents, to the nearest dollar, a two-year comparative of the statement of financial position. It consists of three columns: a detailed listing of components; March 31 of current year and March 31 of previous year. The first row presents the liabilities. The second row presents the Pension benefits payable, the next row presents the net assets available for benefits. The following row presents the pension obligations. The final row presents the deficit to be financed by the Government of Canada.

(in Canadian dollars)

Statement of Financial Position
as at March 31

  2015 2014
Liabilities    
Pension benefits payable (Note 3) 395,179 262,912
Net assets available for benefits (negative 395,179) (negative 262,912)
Pension obligations (Note 4) 17,710,637 19,326,360
Deficit to be financed by the Government of Canada (Note 5) (negative 18,105,816) (negative 19,589,272)

Approved by:

Bob Paulson
Commissioner

Alain Duplantie, MBA, CPA, CGA
Deputy Commissioner
Chief Financial and Administrative Officer

July 17, 2015

Table Summary

The table presents, to the nearest dollar, a two‑year comparative of the statement of changes in net assets available for benefits. It consists of three columns: a detailed listing of components; current year; previous year. The first row presents the net asset available at beginning of year. The following row presents the decrease or increase in pension benefits available. The final row presents the net assets at end of year.

(in Canadian dollars)

Statement of Changes in Net Assets Available for Benefits
Year ended March 31

  2015 2014
Net assets available for benefits, beginning of year (negative 262,912) (negative 322,571)
(Increase) Decrease in pension benefits payable (negative 132,267) 59,659
Net assets available for benefits, end of year (negative 395,179) (negative 262,912)

Table Summary

The table presents, to the nearest dollar, a two‑year comparative of the statement of changes in pension obligations. It consists of three columns: a detailed listing of components; current year; previous year. The first series of rows present the pension obligations at beginning of year. The final row presents the pension obligations at end of year.

(in Canadian dollars)

Statement of Changes in Pension Obligations
Year ended March 31

  2015 2014
Pension obligations, beginning of year 19,326,360 20,443,534
Net interest accrued on benefits 925,313 1,100,421
Changes in actuarial assumptions (Note 6)   1,413,000
Benefit increases   557,785
Past service contributions from participants 3,487 3,697
Valuation data updates   (negative 128,490)
Experience gains (negative 145,307) (negative 200,909)
Changes in provision for adverse mortality deviation (Note 7)   (negative 1,114,000)
Survivor benefit payments (negative 2,399,216) (negative 2,748,678)
Pension obligations, end of year 17,710,637 19,326,360

Notes to the Financial Statements Year ended March 31, 2015

1. Description of the Fund

The following is a summary description of the Royal Canadian Mounted Police (Dependants) Pension Fund.

a. General

The Royal Canadian Mounted Police (Dependants) Pension Fund (the Fund) was established in 1934 pursuant to the Royal Canadian Mounted Police Act and is currently operated under Part IV of the Royal Canadian Mounted Police Pension Continuation Act (the Act) (effective 1959) and the related Regulations.

The Act provides for members of the Force, other than commissioned officers, appointed before March 1, 1949, the right to purchase certain survivorship benefits for their dependants by payment of specified contributions.

The RCMP is responsible for the management of the Fund. Responsibility for the day‑to‑day administration of the Fund was outsourced to Morneau Shepell in 2003. Effective July 2, 2014, the day‑to‑day administration of the Fund was transferred to Public Works and Government Services Canada (PWGSC). The Office of the Chief Actuary (OCA) of the Office of the Superintendent of Financial Institutions (OSFI) performs periodic actuarial valuations of the Fund.

All monetary transactions of the Fund are made through a specified purpose account in the Consolidated Revenue Fund (CRF).

The Fund is accounted for using the standards applicable to a defined benefit pension plan as described in Notes to the Financial Statements - RCMP - Note 2(a).

b. Funding policy

All eligible members have now retired and, as such, there are no more active members contributing to the Fund; however, retired members may continue to make instalment payments in respect of previous elections made before their retirement.

The Act directs the Minister of Finance to have an actuarial valuation for funding purposes prepared at least every five years. If the actuarial valuation discloses a surplus, the Governor in Council may, by order, increase the benefit payments. If there is an actuarial deficiency, the Governor in Council may direct that there be amounts transferred to the Fund, out of any unappropriated moneys in the CRF, as may be required to re‑establish the solvency of the Fund.

c. Survivor benefit payments

The following benefits, as applicable, are payable on the death of a member who has made the scheduled contributions and has left them in the Fund.

i. Widow's pension benefit

The widow is entitled to the pension purchased by the member. In many cases the pension benefit equals approximately 1.5 percent of the member's final pension benefit payment multiplied by his years of credited service.

The pension benefit is payable for life with a guarantee that the total payments shall be no less than the member's contributions.

ii. Lump sum benefits

If a member is not survived by a widow, a lump sum payment is made to the dependants and relatives of the member who are, in the opinion of the Minister, best entitled to share the benefit.

iii. Benefit limitations

Under certain circumstances, the basic death benefits payable to a surviving widow are reduced. This can occur when a member marries after age 60; in that case, the value of the pension to the widow cannot exceed the lump sum payable if he were not survived by a widow.

d. Dividends on survivor benefit payments

The Act provides that if the Fund is substantially in excess of the amount required to make adequate provision for the prospective payments, the Governor in Council may, by order, increase the benefits provided under Part IV of the Act in such manner as may appear equitable and expedient. The authority of the Governor in Council is delegated to the Treasury Board under section 7(2) of the Financial Administration Act.

To date, most of these benefit increases have taken the form of proportionate dividends applied to all basic death benefits, both accrued and prospective.

e. Withdrawal of contributions

A retired member who did not elect to withdraw his contributions from the Fund upon retirement retains the right to do so at any time thereafter; however, all his rights under Part IV of the Act and those of his dependants shall cease upon such election. All returns of contributions are made without interest.

2. Significant accounting policies

a. Basis of presentation

The financial statements present the aggregate financial position of the Fund as a separate financial reporting entity independent of the sponsor and Fund members, on an ongoing basis. They are prepared to assist Fund members and others in reviewing the activities of the Fund for the fiscal period but they do not portray the funding requirements of the Fund.

These financial statements are prepared in Canadian dollars, the Fund's functional currency, in accordance with Canadian accounting standards for pension plans in Part IV of the Chartered Professional Accountants (CPA) Canada Handbook, Section 4600. Section 4600 provides specific accounting guidance on investments and pension obligations. For accounting policies that do not relate to either investments or pension obligations, the Fund complies with International Financial Reporting Standards (IFRS) in Part I of the CPA Canada Handbook. To the extent that IFRS in Part I is inconsistent with Section 4600, Section 4600 takes precedence.

The financial statements for the year ended March 31, 2015 were authorized for issue by the signatories on July 17, 2015.

b. Significant accounting policies

The significant accounting policies are as follows:

i. Survivor benefit payments

Benefits are recognized on an accrual basis as a reduction of Pension Obligations and Net Assets Available for Benefits upon the death of a member who has made the scheduled contributions and has left them in the Fund or upon the death of a widow.

ii. Pension obligations

The present value of pension obligations is calculated using the projected benefit method prorated on pensionable service, based on management's best estimate assumptions.

iii. Services provided without charge and related party transactions

The Fund does not record the value of administrative services it receives without charge from various government departments and agencies as they are insignificant in the context of the financial statements taken as a whole. These services include the following:

  • Financial management and other support services from the Royal Canadian Mounted Police;
  • Actuarial valuation and other services from the Office of the Chief Actuary;
  • Office of the Auditor General of Canada audit costs.

c. Sources of estimation uncertainty

In preparing these financial statements, management uses estimates and assumptions that primarily affect the reported amounts of liabilities and related disclosures.

In making estimates and using assumptions, management relies on external information and observable conditions where possible. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ significantly from the estimates and assumptions. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The Pension Obligations are the most significant item where estimates and assumptions are used. The Pension Obligations depend on a number of factors that are determined on an actuarial basis using a number of estimates and assumptions, such as discount rates (future Fund yields), mortality rates, proportion of members married, and age of new widows. The Fund consults with external actuaries from the OCA regarding these estimates and assumptions annually. Any changes will impact the carrying amount of the Pension Obligations. Details of these estimates and assumptions have been disclosed in Notes to the Financial Statements - RCMP - Note 4.

3. Pension benefits payable

Pension Benefits Payable represent the lump sum benefits that became payable upon the death of members or widows during the year but had not yet been approved by the Minister for payment. At March 31, 2015, the Pension Benefits Payable were $395,179 (2014 — $262,912).

4. Pension obligations

The present value of Pension Obligations is calculated actuarially by the OCA using the projected benefit method prorated on pensionable service and management's best estimate assumptions. Actuarial valuations for funding purposes are to be performed not more than five years apart. The most recent actuarial valuation for funding purposes was conducted as at March 31, 2013 and tabled in Parliament on January 22, 2014. The next actuarial valuation for funding purposes is scheduled to occur as at March 31, 2016.

The most recent actuarial valuation for funding purposes disclosed an actuarial surplus of $1,343,000. On March 28, 2014, an Order in Council approved that a portion of this surplus will be distributed by annual effective increases in the pension amount of 1.2 percent as at April 1, 2014, 1.2 percent as at April 1, 2015 and 1.2 percent as at April 1, 2016 and by increases to lump sum death benefits and residual payments.

The remaining balance of the actuarial surplus is intended to be used over the remaining life of the Fund for the payment of increases in the pension benefits. At March 31, 2015, the average age of members was estimated to be 90.4 years and the average age of widows was estimated to be 88.2 years. The remaining life of the Fund was estimated at 31 years based on the statutory actuarial valuation as at March 31, 2013.

An actuarial valuation for accounting purposes is conducted annually by the OCA using the projected benefit method prorated on pensionable service and management's best estimate economic and non-economic assumptions.

The non‑economic assumptions include considerations such as mortality rates, proportion of members married, and age of new widows. Mortality rates are based on mortality improvement assumptions made for the Actuarial Report on the Canada Pension Plan as at the date of the actuarial valuation for funding purposes. The primary economic assumptions relate to Fund yields. The yields are based on the rate applicable to a portfolio of notional 20 year Government of Canada bonds as at the date of the actuarial valuation for funding purposes. The assumptions used in the actuarial valuation for funding purposes are evaluated for continued relevancy and the valuation for accounting purposes is adjusted by the actuary for transactions occurring during the period, including experience gains due to changes in the Fund's member and widow population. The information in these financial statements is based on this annual valuation conducted as at March 31, 2015. At that date, the present value of Pension Obligations was $17,710,637 (2014 — $19,326,360)

The expected Fund yield for the year-ended March 31, 2015 is 5.1 percent per annum. The expected long‑term Fund yield is estimated to decline to 4.1 percent per annum by the year 2024 and to rise to an ultimate level of 5.0 percent. Variations in any of these assumptions can result in a significantly higher, or lower, estimate of the liability.

During the year, no amendments were made to the Fund (2014 – nil).

5. Deficit to be Financed by the Government of Canada

All transactions of the Fund are made through a specified purpose account in the Consolidated Revenue Fund (CRF) and are reported in the Public Accounts of Canada. This includes receiving contributions, recording interest earned on the Fund and paying survivor benefits.

The government has a statutory obligation to pay benefits relating to the Fund. This pension obligation is to the survivors of the participants who contributed to the Fund over the years. However, if the Fund is substantially in excess of the amount required to make adequate provision for the prospective payments, the Governor in Council may increase benefits in order to disburse the surplus to the survivors. As a result, the government has an obligation to the beneficiaries for the balance of the Fund as reported in the specified purpose account. The following table illustrates these obligations as at March 31:

Table Summary

The table presents in Canadian dollars, a two-year comparative of the obligations to the beneficiaries for the balance of the Fund as reported in the specified purpose account. It consists of three columns: a detailed listing of components; current year and previous year. The first row presents the opening balance of the specified purpose account. The second row presents the receipts and other credits followed by the payments and other charges. The fourth row presents the closing balance of the specified purpose account followed by the deficit to be financed by the Government of Canada. The final row presents the Excess owed to beneficiaries.

(in Canadian dollars)

  2015 2014
Opening balance, specified purpose account 20,758,261 22,676,882
Receipts and other credits 1,011,463 1,152,624
Payments and other charges (negative 2,399,214) (negative 3,071,245)
Closing balance, specified purpose account 19,370,510 20,758,261
Deficit to be financed by the Government of Canada (negative 18,105,816) (negative 19,589,272)
Excess owed to beneficiaries 1,264,694 1,168,989

6. Changes in actuarial assumptions

Changes in actuarial assumptions include changes to widow mortality, long term fund yield and member mortality assumptions. There were no changes in actuarial assumptions as at March 31, 2015 (2014 — $1,413,000).

7. Changes in provision for adverse mortality deviation

The provision for adverse mortality deviation was an additional actuarial liability that was added during the actuarial valuation for funding purposes as at March 31, 2010 to absorb the financial impact of random adverse mortality deviations. This provision was removed in the March 31, 2013 actuarial valuation for funding purposes due to the average age of members and widows being close to 90. The result was a decrease in Pension Obligations of $1,114,000 as at March 31, 2014. At March 31, 2015, there were no changes to the provision for adverse mortality deviation.

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