Funding Task Force will address challenges

When Plan officials meet to discuss the funding challenges we are currently facing, the principal document to be consulted is the Plan's Funding Policy. This document, produced by the 2006 Funding Task Force, lays out possible means of dealing with deficits and surpluses in Plan funding. It strikes a balance among contribution increases (or reductions), adjustments to future benefit accruals, and changes to the actuarial margins used to stabilize funding when actual results are different from expected results.

The 2006 Task Force also recommended amendments to the Plan to alleviate the deficit that existed at the time, and to recognize the increasing costs of pensions. These amendments included a 3% increase in contribution rates for both employers and active members, spread over 3 years, and the introduction of conditional inflation protection for years of service after 2007.

The search for a reliable and stable means of ensuring adequate funding has continued to be a focus of our activities over the four years since then. The market downturn of 2008, continuing low long term interest rates, and the increasing life expectancy of our retired members are all factors that have had major impacts on our funding status. This year, a new Funding Task Force has been established, to determine what more must be done to ensure the Plan stays healthy over both the short and the longer term.

The state of our funding

The Plan last filed an actuarial valuation - our report on our funded status - with the provincial regulator as of January 1, 2008. We are required to do this at least once every three years. Our next required filing is as of January 1, 2011.

As of January 1, 2008, the Plan had a going concern surplus of $320 million on a smoothed basis. (A going concern valuation assumes that a plan will continue on an indefinite basis."Smoothing" is the averaging out of investment gains or losses over a five year period.)

The results of the interim valuation as of January 1, 2009, showed the Plan with a going concern deficit of $256 million on a smoothed basis. As this was an interim valuation which we were not required to file, we did not do so. The results of the interim valuation as of January 1, 2010, show the Plan with a going concern deficit of $413 million on a smoothed basis. Consultations and discussions about what action if any should be taken on this valuation are ongoing. Before the required valuation as of January 1, 2011, all of the assumptions used by the Plan's actuary, Mercer Human Resource Consulting, will be reviewed to ensure they are appropriate.

The funding deterioration seen over the course of 2009 is largely the result of the smoothing, or averaging calculation - 20% of the large 2008 investment loss was included in the smoothed 2009 results. A further 20% of the loss will be included over each of the next four years.

Solvency: a meaningful measure?

The other valuation the Plan is required to file is the solvency valuation - which assumes that the Plan ceases operations on the day of the valuation. The solvency valuation as of January 1, 2010, shows the Plan with a solvency deficit of $895 million, up from last year's amount of $573 million.

This solvency valuation is an unrealistic measure for large, jointly governed plans such as ours. These plans have very long time frames for evaluation of funding, and because they are managed with both employer and employee representation, can find equitable means over time of stabilizing funding. However, the solvency funding rules dictate that these artificial deficiencies must be made up within a short time period. The only tool our Plan has to make that happen is contribution increases, and the filing of an unrealistic valuation such as this would force substantial contribution increases.

We have been working closely with the provincial government to review and change this requirement. We would like to see some change before our next valuation is due to be filed. Government understands this issue and is committed to conducting a review and exploring options to limit the impact on plans like ours that feature joint governance. As a Plan member, it is important that you understand the significance of this issue to the health of the Plan going forward. We may call on you to support our efforts to ensure any rule changes are appropriate for our plan. 

The Funding Task Force's challenge

As 2010 unfolds, the new Funding Task Force will take a comprehensive look at the Plan's situation, with a view to moving the Plan closer to the goal of full funding with stable contribution rates, while continuing to provide the great value of a well-established defined benefit plan.

The 2010 Task Force is made up of current and past members of the Board of Trustees and the Sponsors' Committee. The members' job is to determine how to use the tools at their disposal - contribution increases, adjustments to future benefits, and changes to actuarial assumptions - to resolve the funding issues while considering fair treatment for all members. The Task Force will consider intergenerational equity among current and future contributors, those close to retirement, and those who have already retired. It's important to remember that accrued pensions are protected by law - there will be no reductions to any benefits that have already been earned.

The Task Force will spend most of the rest of 2010 developing its proposals. The Plan has another year and a half before the next required valuation is due to be filed, when decisions must be made about the means of balancing our funding for the future. No changes to our Plan will be undertaken without careful consideration, and we will keep you informed of any developments.