Diversified portfolio for Plan security

The CAAT Pension Plan exists to support members in retirement by paying lifetime pensions. The value of these promised pension payments – known as “liabilities”- is affected by a number of factors. In our Plan, one factor is the longer-than-average life expectancy of our members. 

One of the keys to prudently managing Plan assets is ensuring that our liabilities are well understood. The well diversified mix of asset classes in which we invest is the result of comprehensive studies that take into account these liabilities, a variety of actuarial assumptions reflecting life expectancy and member demographics, our expected long-term rate of return and risk tolerance.

Our investment strategy must focus on prudent asset growth over the long-term, and be flexible enough to weather economic ups and downs. Our “Asset Mix” – the mix of different types of asset classes held by the Plan – is a collection of investments that vary by factors such as type of investment (e.g. stocks, bonds, real estate and infrastructure), geography (the Plan is invested around the world), and liquidity (the long-term nature of the liabilities allows us to invest in assets that are long term in nature, like infrastructure).

Some of our investments are selected because they behave similarly to our liabilities. This part of the fund, which includes the real return and long-term bond portfolios, will increase in value when interest rates go down, and vice versa. This helps to manage the Plan valuation results when inflation and interest rates change over the long term. Other asset classes, for example equities, are selected to earn a higher return so they ultimately grow faster than the liabilities over the long term, keeping contributions reasonable.

The highly diversified portfolio is key to protecting the fund from fluctuations. Although market volatility, such as we’ve seen over the past six months, can impact the fund in the short term, we are confident that our investment approach is appropriate to meet our needs for the long term.  We are committed to ongoing evaluation to ensure that our approach remains appropriate as long-term conditions change.

Last March we introduced a number of Plan changes, including slight increases to contribution rates, designed to ensure the fund remains secure over the long term. The Plan filed a valuation as of January 1, 2011 that showed a small going concern surplus of $88 million. The Plan’s next actuarial valuation is due to be filed not later than January 1, 2014 and the Plan’s governors are confident that the ongoing evaluation of the asset mix and investment strategy, along with prudent liability management will provide for stable funding of future pension benefits.