Promoting long-term stability

Although keeping up with the news headlines is time consuming for those in the pension business these days - and CAAT Plan officials are making every effort to be part of the discussions - we do have to maintain our focus on our principal challenge, which is the Plan's funded status. We continue to direct our energies to responsible longterm management of the Plan's assets and liabilities.

The Plan's Board of Trustees will be reevaluating the Funding Policy in the coming months, to determine what changes may be needed. The impact of the 2008 market crash will take five years to work through our funding valuations, owing to the use of asset smoothing in the valuation. Asset smoothing is the technique of averaging investment gains and losses out over a period of five years. This helps to reduce volatility in contribution rates. However, it also means that we will be feeling the effects of the 2008-related losses for the next three or four years.

As a result, some funding action will likely be required when the Plan next files a valuation with the provincial regulators, which will be as of January 1, 2011. There are several possibilities for dealing with deficits. The typical options include contribution increases, adjustments to future benefits, or some combination of the two.

Taking a long-term approach is always necessary with our type of plan. Plan officials tend to look at five year periods or longer when evaluating the funded status. The goal is to minimize contribution rate volatility, which is important to both members and Colleges. The Board of Trustees will carefully consider the effects on all parties when evaluating the situation.

In the short term, the Plan could use some clarity from the provincial government. The Ontario Expert Commission on Pensions, which delivered a lengthy report to the government in 2008, recommended a solvency funding exemption for jointly sponsored plans such as ours. The government has yet to take any action on this issue. A solvency funding exemption would allow the Plan to abandon the use of the unrealistic solvency valuation to determine its contribution levels. This would help us greatly with the issue of unnecessary contribution volatility. Appropriate funding strategies supported by meaningful regulation are essential for the health of pension plans across the province. These are issues for all plans, not just large, jointly sponsored ones like the CAAT Plan. In our case, both College and member representatives agree on the importance of maintaining our advocacy efforts on the solvency funding issue.

Our last newsletter explained the rationale for a solvency funding exemption for jointly sponsored plans. CAAT Plan officials are currently engaging in dialogue with government officials on the issue, and you can expect to hear more about any progress made in the coming months. If you did not read the article in the last newsletter, please try to do so. (It's available on our website, under newsletters, in the Publications section.)

We encourage you to be as informed as possible about your Plan and the challenges it faces, so you will be aware of the Plan's value and the importance of managing it in a stable, responsible manner.