CAAT Plan funding improves to 113.3%

The CAAT Plan’s most recent actuarial valuation (January 1, 2017) shows that the Plan is 113.3% funded, with a funding reserve of $1.6 billion.

This improves upon last year’s valuation, which showed the Plan was 110.4% with a funding reserve of $1.2 billion. 

The size of the 2017 reserve keeps the Plan within Funding Level 4 of its Funding Policy, a broad band that allows Plan governors to determine how to best use reserves. The options available are a mix of: building additional reserves, prefunding conditional inflation protection, and reducing stability contributions. At this stage, the governors determined that continued building of additional reserves was the most prudent option at this time to further strengthen benefit security and stability.

The valuation will be filed with the regulators in the coming weeks. By filing now, the Plan is not required to file another valuation until 2020 – ensuring that contribution rates can remain unchanged until at least through 2021 providing contribution stability for the Plan’s 45,000 members and 38 employers. Conditional inflation protection (on service after 2007) will be paid on pensions in payment until at least 2020.

Graphic of the Funding Policy showing the Plan in Level 4 with 113.3% funded status.

Realistic assumptions foster benefit security, contribution stability, and intergenerational equity

Each funding valuation includes a review of the economic and demographic assumptions used to ensure they continue to be realistic and appropriate for the Plan’s risk tolerance.

Discount Rate

The discount rate represents an estimate of long-term future returns on the Plan’s investment portfolio. For the January 1, 2017, valuation the discount rate was lowered to 5.6% from 5.7%, to recognize that expected market returns on a global basis remain low.

Longevity

The valuation continues to assume that members currently retiring will live to 89 years on average while collecting their pensions.

What is a valuation?

  • The actuarial valuation compares the CAAT 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 fully funded. When the Plan is more than 100% funded, it means the Plan has funding reserves further backing the promised pensions.
  • 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 robust Funding Policy.
  • The Funding Policy defines six levels of Plan financial health and prescribes the use of reserves, stability contributions, and conditional benefits at each level.

Valuations over the years (January 1)

 

2017

2016

2015

2014

2013

Funding reserve

$1.6 billion

$1.2 billion

$0.8 billion

$0.5 billion

$0.3 billion

Membership

44,700

41,900

40,000

36,800

35,300

Discount rate

5.6%

5.7%

5.8%

5.8%

5.8%

 

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 113.3% funded on a going-concern basis, which means it is within funding Level 4 of the Funding Policy.

The Plan is also required to conduct a wind up valuation to determine the wind up ratio (also known as the transfer ratio). It is the ratio of wind up assets to wind up liabilities assuming the pension plan was terminated as of the day of the calculation. For the CAAT Pension Plan, the wind-up or transfer ratio as of January 1, 2017 was 0.74. As a result of government recognition that this jointly sponsored Plan is unlikely to ever be wound up, this ratio has no impact on current Plan funding.

Download the valuation report (PDF)