Check the box Include Provision for Adverse Deviations (PfAD) if you wish to calculate the PfAD for each trial and forecast year.  Select the appropriate provincial law from the drop down box. Currently stochastic PfAD calculations are only supported for Ontario, British Columbia, and Manitoba.  If unchecked, the PfAD entered in the Asset & Funding Policy will be used for each trial and forecast year.

Note that when dynamic asset allocation is used, the asset mix reflected in the calculation is the asset mix determined at the prior valuation date.  For example, let's assume that the glide path is based on funded status. At each future valuation date, the funded status is calculated and the asset mix corresponding with that funded status is identified.  Assuming that the asset mix should change, the new asset mix will not affect the current valuation year's calculation of the PfAD, it will only affect the following valuation year's PfAD.  In other words, the PfAD calculation reflects the actual mix of the plan on the valuation date.  The results of the valuation may indeed show that the asset mix needs to change, however, that change is assumed to occur sometime over the next year and will not impact the PfAD calculation until the next valuation.

Ontario

You must specify whether the Plan is Open, Closed, or Open but will become closed in a specified year. To derive the gross going concern interest rate, enter any adjustment necessary to be added to the going concern interest rate.  This adjustment will be added to the going concern interest rate for each forecast year and trial.

The Ontario PfAD is derived as the sum of A+B+C.  Note that parts A, B, and C are each available in stochastic trial detail output.

Part A is .04 for years in which the plan is open and .05 for years in which the plan is closed.

Part B is determined by looking up the plan's combined target asset allocation for non-fixed income (i.e., "J") in the table specified in the regulations.  Each asset class is identified as Equity, Fixed Income, or Alternative in the underlying Capital Market Simulation.  Asset classes identified as "alternative" contribute a 50% weight to the determination of the non-fixed income allocation.

Part C is determined as (duration x  gross going concern interest rate - benchmark discount rate), not less than zero where;

• duration is estimated upon the interest rate sensitivities in the underlying core projection. Specifically [(1)-(2)}/((2)x(3) where:

  (1) the ongoing liability at the low sensitivity interest rate

  (2) is the ongoing liability at the baseline sensitivity interest rate

  (3) is the baseline interest rate - low sensitivity interest rate

• benchmark discount rate is determined as .005 + benchmark yield on long term Government of Canada bonds + (.015 x J) + (.05 x (1-J)) where the benchmark yield on long term Government of Canada bonds is assumed to be the same rate used for the annuity purchase portion of solvency liability.

British Columbia

The British Columbia PfAD is derived based on the following:

• If the non-fixed income allocation is 30% or greater (based on the asset classifications entered in the underlying Capital Market Simulation)
  • Maximum of:
    • 5%
    • Long-term bond rate x 5
• If the non-fixed income allocation is less than 30%
  • Maximum of:
    • 5%
    • Long-term bond rate x 5 x non-fixed income allocation/30%

Where the long-term bond rate is assumed to be the same rate used for the annuity purchase portion of solvency liability.

Manitoba

The Manitoba PfAD is derived based on the following:

.05+B, where B is derived from section 4.18.0.1(3) of the regs based the value of C.

where;

C = 1-D.

D =  [E + (0.5 × F) + (G × H) + (0.5 × G × I)]

E is the proportion of assets invested in an Asset Class specified as Fixed Income in the Capital Market Simulation (reflects the fraction of assets not invested in mutual funds)

F is the proportion of assets invested in an Asset Class specified as Alternative in the Capital Market Simulation (reflects the fraction of assets not invested in mutual funds)

G is the portion of assets invested in pooled funds.

H is the portion of G invested fixed income.

I is the portion G invested in alternatives.

Since ProVal doesn't track pooled funds separately, D is derived in ProVal as follows:

D = E + (0.5 × F) where E is the portion of the total portfolio invested in Fixed Income and F is the portion of the total portfolio invested in Alternatives.