Funding Task Force completes review

Plan is secure over long term with only small changes -
Active members will contribute more to help secure benefits

At their March 2011 meetings the CAAT Pension Plan’s governors accepted the recommendations of the Funding Task Force created to examine all means to eliminate the Plan’s funding deficit.

After reviewing the Plan’s actuarial assumptions and updating its funding projections, the task force concluded that the Plan is secure over the long term with only small changes to contribution rates. The task force chose to recommend an increase in contributions over any reduction to benefits that active members would build in future because it was highly aware of the value members place on their benefits. (Reductions to pensions in pay and other already-earned benefits were not under consideration because these benefits are protected under law.)

Active members and their employers will contribute more to the Plan beginning in 2012 with a 0.8% rate increase that will be followed by 0.4% increases in each of 2013 and 2014.The contribution increases are needed to help fund the increased number of pension payments based on improving life expectancy. The task force’s review of actuarial assumptions showed that members are expected to live to 87.7 years on average, up 2.4 years from the last actuarial valuation. This increase in life expectancy means the Plan must set aside more funds because members will receive more monthly pension payments. The ongoing cost of funding these increased lifetime pensions for our members is $447 million.Other changes made to actuarial assumptions to align them with updated actuarial standards partially offset this increase in ongoing costs.

Plan financially stronger with changes

“The Plan is financially stronger as a result of the task force recommendations,” says Derek Dobson, Plan Manager and Chief Executive Officer. “The task force’s work builds on the actions already taken by the Plan to manage the deficit and keep the Plan financially healthy over the long term,” he says.

Active members and their employers continue to pay additional contributions to help manage the Plan’s deficit, caused by recent investment market losses and low interest rates. Changes to investment strategy are also helping to improve the financial health of the Plan. The Plan’s financial health continues to be monitored to ensure long-term security of benefits.

Ad hoc inflation protection increases will be paid through 2014

The Plan will be in a position to grant inflation protection increases through 2014, including on the portion of pensions based on pre-1992 service, as previously committed

After 2014, inflation protection on pre-1992 service will return to being granted on an ad hoc basis, when the Plan has sufficient surplus. This is consistent with the terms of the Plan in effect when these members worked, and has not changed. What has changed is the financial position of the Plan. Past Plan surpluses allowed ad hoc inflation protection to be funded through 2014. Financial projections now show that  the Plan will not be in a position to make ad hoc increases on the portion of pensions based on pre-1992 service beyond 2014.

Periods of service after 1992 differ in terms of when inflation protection increases are applied.

1992-2007 service

Service between 1992 and 2007 has guaranteed inflation protection because it is pre-funded through specific contributions made during those years. When this benefit was introduced, contributions were increased to reflect the increased cost of providing inflation protection.

Post-2007 service

Inflation protection for service after 2007 is not guaranteed. It depends on the Plan’s funding status which is reviewed with each valuation, at least every three years.

Further increases for pre-1992 service after 2014 would be Plan enhancements -- They are not possible until Plan has sufficient surplus

The Funding Task Force considered a request from some pensioners that additional inflation protection be provided for service earned before 1992.

Under the Plan’s Funding Policy, inflation protection that is not guaranteed can only be paid when the Plan has sufficient surplus.  The Plan’s governors cannot, under the policy, grant further ad hoc increases to pensions at this time.

Active members are making additional contributions to help stabilize the Plan’s financial health during investment market volatility. Beginning in 2012 they will also be paying more contributions to help fund the extra pension payments needed because members are living longer.

“The Plan’s governors understand the importance of inflation protection to pensioners. When the Plan is in a financial position to do so it will look at granting more ad hoc inflation protection increases on pre-1992 service,” says Derek Dobson, Chief Executive Officer and Plan Manager.

The Plan’s Funding Policy, which guides decisions about contribution rates and conditional benefits, seeks to achieve equity amongst the Plan’s generations of members, in terms of what they paid into and will receive from the Plan.

The history of the Plan’s inflation protection is summarized in an earlier newsletter article published in November 2010. You can find it online here.

The work of the Funding Task Force

Read about how the funding task force conducted its review here.