Accounting standards applicable to future employee benefits: Assumptions used by Canadian organizations and latest updates

See the Latest Updates section for more information on the accounting standards updates since our last bulletin in June 2025.

In their financial statements, many private-sector organizations must include the recognition of their obligations toward defined benefit pension plans (DB pension plans) and other post-employment benefit plans, such as medical care plans offered to retirees (other benefits).

Similarly to last year, Normandin Beaudry’s specialists have analyzed the annual reports of Canadian organizations listed on the S&P/TSX 60 Index (the 60 largest organizations) and on the S&P/TSX Mid Index (mid-cap organizations) for which the fiscal year ended between September 30, 2025, and February 28, 2026.

This analysis included about 60 organizations from the S&P/TSX 60 Index and the S&P/TSX Mid Index that sponsor at least one DB pension plan. Of these organizations:

• more than 80% also disclose information regarding other benefits;
• more than 80% disclose their results in accordance with international accounting standards, while the others disclose them in accordance with U.S. accounting standards.

The following charts show the key economic assumptions used by the organizations analyzed for their DB pension plans and other benefits. The assumptions are those that were in effect at the end of the fiscal year considered and used to calculate the obligation at the end of the fiscal year.

Each chart shows how the assumptions have evolved over time. Medians are represented by a solid line and shaded floating bars represent the range from the fifth to the ninety-fifth percentile.

It should be noted that certain organizations offer plans in different countries. Some organizations disclose assumptions for plans in Canada separately, whereas others disclose average assumptions for all countries. While this could have an impact on the range of results, the median remains representative of Canadian assumptions.

The discount rate is one of the most important assumptions. Because it is based on market rates, it can vary from month to month. The discount rate can also vary depending on the methodology used to determine the market rate, the plan’s maturity profile and the duration of the benefit offered (for example, a lump sum amount upon retirement or annual payments until age 65 rather than lifetime benefits). The obligation’s sensitivity to the discount rate variation depends on its duration. For example, for the same 0.1% decrease in the discount rate:

• a plan whose obligation has a duration of 10 years will see its obligation increase by approximately 1%
• a plan whose obligation has a duration of 20 years will see its obligation increase by approximately 2%

The following chart illustrates how the discount rates for DB pension plans and other benefits have evolved over time:

• The median discount rate increased slightly at the end of 2025 compared to the end of 2024.
• The Bank of Canada’s policy interest rate cuts since June 2024 do not seem to have had a significant impact on the discount rate assumption. This assumption is primarily influenced by long‑term interest rates, which have remained fairly elevated.
• The range of discount rates used remained relatively limited, with fewer than 60 basis points separating the 5^th and 95^th percentiles.

Many of the analyzed organizations sponsor DB pension plans and other benefits with entitlements based on salary at retirement. These organizations must therefore establish an assumption tied to the rate of increase in active members’ compensation.

The following chart illustrates how compensation growth rates have evolved over time:

• The median of assumption for the compensation growth rate has remained stable for several years, despite certain periods of higher inflation.

The growth rate of medical care costs is a very important assumption for group benefit plans offered to retirees, as it shapes future costs and its growth is higher than overall inflation.

Most organizations use an initial rate that decreases over a specified period into a final rate, to be applied to subsequent years. The initial rate can vary significantly from one organization to another compared to the final rate, which usually varies less.

The following chart illustrates how the initial and final growth rates of medical care costs have evolved over time:

• Since 2021, the median initial growth rate of medical care costs has remained relatively stable, while the median final rate has gradually decreased.
• The timeframe to reach the final rate can also vary significantly from one organization to another. About two thirds of organizations offering at least one health care plan to their retirees use decreasing rates, over a period ranging from 10 to 20 years for most organizations.

The CPA Canada Public Sector Accounting Handbook was updated in March 2026 to incorporate Section PS 3251 Employee Benefits, the new standard on employee benefits applicable to Canadian public sector entities. This standard will replace Sections PS 3250 (Retirement Benefits) and PS 3255 (Post employment Benefits, Compensated Absences and Termination Benefits). It introduces significant changes, and public sector entities that account for employee benefits will need to take action to reflect these modifications in their financial statements. Section PS 3251 applies to fiscal years beginning on or after April 1, 2029 (therefore starting in 2030 for fiscal years beginning January 1), and early adoption is permitted.

See our April 2026 bulletin for a summary of the key changes compared with the current standard.

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