The Board of Trustees is committed to delivering benefit security at stable contribution rates. In a Jointly-Sponsored Pension Plan, members and employers together share the risks to the Plan. This means members and employers, through their representatives on the Board of Trustees and Sponsors’ Committee, must ensure that the Plan is sufficiently funded to pay benefits now and in the future.
The Funding Policy, launched in 2006, is a fundamental decision-making tool the Plan governors use to meet the goals of the Plan. It shapes the decisions that focus on benefit security for members now, and in the future. The Policy uses three funding controls: reserves, contributions, and conditional benefits, and sets guidelines for the use of these controls within each of the six funding levels.
The filed Actuarial Valuation determines the Plan’s funded status, based on an analysis of the Plan’s liabilities and assets. The funded status determines in what level of the Funding Policy the Plan sits. As the Plan moves through the various levels, different options become available to the Board. Within levels where multiple options exist (e.g. level 4) , the priority and timing of the various funding decisions is not pre-determined: the Plan governors may balance the timing of the changes that are possible within each band to ensure ongoing benefit security and reflect the conditions that exist at that time. This allows decisions to reflect the evolving needs of the stakeholders or the emerging risks to the pension plan.
Why continue to build reserves?
Reserves are a key tool for the Board in delivering benefit security with stable contribution rates. In a jointly-sponsored plan members and employers share the funding risks of the ongoing Plan. This means that should there be a deficit, members and employers together would be required to make up the shortfall through increases in future contributions or through reductions in future benefit accruals. Both members and employers have expressed a strong desire to avoid benefit reductions and retain contribution stability. With appropriate reserves the Plan enhances its resilience against economic and demographic shocks and reduces the probability of a deficit.
Everyone benefits from stable, predictable contribution rates. They make it easier for employers to plan their budgets, and they eliminate volatility in take-home pay for members, while keeping the Plan on a sustainable course.