Your pension promise is 110% secure

Your Pension Plan delivers benefit security for members, with a 110% funding level. 

Results of the January 1, 2016 actuarial valuation, which will be filed with the regulators, show the Plan is 110.4% funded, (up from 107.2% in 2015). That means that for every dollar of pension promised to members, the Plan has $1.10 dedicated to stand behind it.

The Plan’s reserves have increased to $1.2 billion (up from $773 million in 2015).

What is an actuarial valuation?

The actuarial valuation compares the Plan’s liabilities – the pensions earned by members, and the estimated pensions that will be earned in the future – to the assets of the pension fund and estimated contributions to be received.

When the value of the fund, and the value of the liabilities match, the Plan is 100% funded. When the Plan is more than 100% funded, it means the Plan has additional reserves backing the promised pensions.

How did we get here?

The Plan’s ongoing stability is the result of strong investment performance and setting contribution rates at a level that reflects the desire for a secure and sustainable pension plan. These factors have been built on the solid foundations of joint sponsorship, prudent and realistic assumptions, and a well-thought out funding policy.

This valuation demonstrates the Plan’s progress in meeting the goals of providing benefit security at stable and appropriate contribution rates. As a result of the Plan’s 110% funded status:

  • Conditional inflation protection (on service after 2007) will be paid on pensions in payment until at least 2019.
  • Contribution rates can remain stable, until at least 2020.

The next required valuation is not due to be filed with the regulator until January 1, 2019. The Plan’s 2015 investment results will be released in April, and further details will be included in the 2015 Annual Report which will be available in May.

What benefits does the Plan provide?

  • Lifetime pension, with flexible start dates
    • You can start your pension any time from age 55, (or as early as age 50 if you have at least 20 years of service in the Plan) and your pension will be paid for the rest of your life
  • An expected 800% return on your contributions
    • The average member who retired from the Plan has received approximately 8 times their contributions back in pension payments over their lifetime.
  • Additional benefits add even more value
    • Inflation protection increases help protect the buying power of your pension
    • Survivor benefits protect your eligible spouse

Key assumptions that affect the valuation results

The actuarial valuation must take into account economic and demographic realities to ensure that risk is properly measured and managed.

Discount rate

The discount rate assumption is based on expected future investment returns on the fund. A lower discount rate is a prudent assumption, particularly in challenging economic times, as it reduces the risk of over-estimating future investment returns, which could negatively impact contributions and intergenerational equity.

For the 2016 valuation, the Plan decreased the discount rate from 5.8% to 5.7%, recognizing that long-term interest rates remain at 30-year lows and future returns will likely be impacted.

Retirement age

The Plan updated its assumptions about the frequency with which members retire early – either before or after the date when they qualify for an unreduced pension. Based on Plan experience, more members are retiring before reaching their unreduced age than was previously assumed.

Asset smoothing

Asset smoothing spreads the impact of investment gains or losses over a period of years, instead of recognizing them all at once. Smoothing out short-term volatile investment returns results in less volatile contribution rates and means that contribution rates can remain stable during volatile investment markets.

Without asset smoothing, Plan reserves would be $1.7 billion based on the market value of assets at January 1, 2016, but funding levels would also be more volatile. With smoothing, and by deferring some of the recent asset gains, the reserves are $1.2 billion, and the Plan can better withstand market downturns, should they occur. Future valuations will recognize the asset gains from recent years.

Plan enters Level 4 of Funding Policy

As a result of the January 1, 2016 actuarial valuation, the Plan now sits inside Level 4 on the Funding Policy. Plan governors decided to retain the Plan’s surplus identified in this valuation as a reserve, consistent with the desire for benefit security and contribution stability as outlined in the Funding Policy. As the Plan moves further into Level 4, governors will reassess the options outlined in the Funding Policy.

The Funding Policy is one of the key tools used by Plan governors to ensure benefit security and stable contribution rates. There are three funding controls: reserves, contributions and conditional benefits. Each control has specific application based on the Funding Level of the Plan. 

Within Level 4, the Plan Governors continue to build reserves and pay conditional inflation protection and can begin to consider reducing stability contributions, while taking into account the following: 

  • Lowering contribution rates uses reserves, so contributions can only be lowered when the Plan can do so and still remain within funding Level 4. At this point within Level 4, there are insufficient reserves to consider a 1% drop in the contribution rates paid by members and employers.
  • Level 4 represents a broad band of funding, so the Plan governors would determine the timing of contribution reductions based on the position within Level 4.
  • When considering a decision on the timing of a contribution reduction, Plan governors can be guided by their analysis of current and future economic and demographic scenarios, with a view to ensuring ongoing benefit security and contribution stability.
  • By the end of level 4, stability contributions must be reduced to 1% (currently at 3%).

Going concern funding results
(modified aggregate basis)

January 1, 2016

January 1, 2015

Asset values

($ millions)

($ millions)

Market value of net assets

$8,592

$7,965

Smoothing adjustment

(559)

(579)

Present value of future contributions

 

 

       Basic contributions

$3,264

$2,949

       Supplemental contributions

$1,229

$1,157

Total actuarial value of assets

$12,526

$11,492

Liabilities for accrued benefits

$8,369

$8,034

Present value of future benefits for active members

$2,978

$2,685*

Total actuarial liabilities

$11,347

$10,719

Funding reserve

$1,179

$773

A going-concern valuation assumes the Plan will continue indefinitely and is used to measure whether contribution rates are sufficient to keep the Plan fully funded in the long term. A valuation must be filed in accordance with pension law in Ontario and meet the standards of the actuarial profession. The Plan is 110.4% funded on a going-concern basis, which means it is within funding Level 4 of the Funding Policy.

The solvency valuation shows the status of the Plan as if it had been wound up on the valuation date. For jointly sponsored plans like ours, the results are hypothetical only, as we are not required to fund for solvency deficiencies reflecting the ultra-low probability of the cessation of all participating employers at once and, instead, base funding requirements on the going-concern valuation. The solvency status is for disclosure purposes only. The Plan’s solvency position as of the January 1, 2016 valuation shows a deficit of $2.1 billion and a solvency ratio of 0.80.

 

Download the valuation report (PDF)