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Funding Policy revised effective December 31, 2012
The Funding Policy highlights the Plan’s long term focus of protecting promised benefits and minimizing contribution rate volatility, while recognizing the desire to achieve intergenerational equity. To deliver on these longer term goals while managing through short term volatility a blend of stability contributions, conditional benefits, and reserves are used.
At each valuation period the financial health of the Plan is measured and the actions required at each level are implemented.
At Level 1
The Plan has a deficit after using all reserves and the 3% stability contributions being paid by active members. Provincial law would require contributions to be increased temporarily and/or that benefits members build in future be reduced. Inflation protection on post-2007 service would not be paid.
At Level 1 – Temp (temporarily in effect until December 30, 2017 and applies only in respect of valuations effective on and after December 31, 2012 and filed on or before December 30, 2017)
The Plan has a deficit after using all reserves and the3% stability contributions being paid by active members. No increase in contributions (other than those previously provided for under a filed valuation report with a valuation date before December 31, 2012), but to ensure compliance with Provincial law benefits members build in future would be reduced up to the Benefit Reduction Limit.* Once the Benefit Reduction Limit is reached, Funded Level 1 shall apply in respect of any remaining deficit. Inflation protection on post-2007 service would not be paid.
At Level 2
With the 3% in stability contributions being paid by active members and the Plan’s funding reserves being fully used, the funding level exceeds provincial minimums, meaning the Plan has a small surplus. The Plan will provide the current period of inflation protection increases to pensions in pay, on the part of the pension that is based on post-2007 service. Any temporary benefit reductions made in respect of a valuation filed on or before December 30, 2017 to be restored.**
At Level 3
3% in stability contributions are required from active members. On the part of the pension in pay that is based on post-2007 service, the Plan will provide increases for the current period of inflation plus make additional increases for past years of inflation missed (if any). Surplus funds over provincial minimums will also be allocated into funding reserves to withstand up to a 0.5% change in the discount rate.
At Level 4
Stability contributions of 1% or 2% are required from active members. All periods of inflation protection increases on the part of the pension that is based on post-2007 service have been made. Surplus funds over provincial minimums will also be allocated into reserves to withstand up to a 1% change in the discount rate and build reserves to fund future inflation increases on post-2007 service.
At Level 5
Active members will be contributing at basic contribution levels only, no stability contributions are required. The Plan has the reserves required to fund future inflation protection increases on post-2007 service and withstand a 1% change in the discount rate. Additional funding reserves are being built to withstand up to a 7.5% increase in liabilities as an additional cushion for securing promised benefits.
At Level 6
Full funding reserves have been built. The Plan has sufficient surplus to consider any combination of the following changes:
- Provide ad hoc inflation protection increases on the part of pensions based on pre-1992 service
- Put additional funds into reserves – up to the federal tax limit
- Reduce contributions below basic contribution levels
- Improve benefits.
*Benefit Reduction Limit means the aggregate value of benefit reductions made after the December 31, 2011 filed valuation totaling 20% of the present value of the Plan’s future benefits measured against the level of benefits in effect on December 30, 2012. Assumption changes that directly relate to the benefit reductions may be considered in calculating the Benefit Reduction Limit.
** While Level 1 –Temp remains in effect, no benefit restoration shall occur unless the Plan can remain at least 100% funded measured on a going concern basis, without the use of asset smoothing, after such benefit restoration.
On May 31, 2011, Derek Dobson, CEO and Plan Manager hosted a webinar to update members on Plan funding. After the webinar, he answered your questions.