caat pension plan

Ontario Universities Pension Symposium
Exploring Alternative Pension Solutions
Derek Dobson
CEO and Plan Manager
May 6, 2014
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As at January 1, 2014
 31 PSE employers, 37,000 members
 $7.1 Billion in assets
 105% funded on a going concern basis
 Mortality improvements fully reflected
 Assumptions reflect desire for benefit security and
contribution stability (low volatility in a narrow range)
 Forecasts show reduction in contributions likely
 Operating as not-for-profit JSPP for 19 years
 50/50 joint governance with risk/reward sharing
 Board of Trustees – administration and investments
 Sponsors’ Committee – Plan design and contributions
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What we have heard –
practical solutions being sought to address:
 The cost and risk of solvency funding
 Sharing of costs, risks, and governance
 Offering/retaining a competitive, sustainable, and
secure pension with predictable costs
 Eliminating balance sheet risk and volatility
 Reducing time and cost of non-core activities
(governing a single employer pension plan)
 Removing the complexities of pensions from the
collective bargaining process
 Improved transparency of pension plan management
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A JSPP option for the PSE Sector
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The proposed solution
 Voluntary merger with PSE employers and members
 Members
 accrue pension on a future service basis
 past service pension transferred and replicated in the Plan
on cost-effective basis
 Employers exit pension management business to
join an established postsecondary sector multiemployer plan with solvency exemption
 Universities and members are added to governance
structure
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A key feature: Discharging past liabilities
 Solvency funding is eliminated
 Past service transfer may be less than funding of
current going concern payments
 Shortfalls at merger date amortized up to 30 years
 Excess transfer amounts could be used to pre-fund
contributions
 Substantially less cost than purchasing annuities and
other de-risking options
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Funding Policy manages risk and limits unknowns
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How employers benefit
 Lowers cost and risks associated with running
single employer pension administration, investments,
governance and compliance
 Stable “all in” contribution rates
 More of total compensation budget going to valuable
benefits (due to lack solvency funding, PBGF and
overhead) – increase in value per dollar
 Ready-made viable solution that preserves valuable
defined benefit for members and related attraction,
retention, and workforce management benefits
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For members
– valuable, secure and sustainable retirement income
 Lifetime benefits based on pensionable earnings and
pensionable service
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2% formula (pre-age 65)
1.3% up to AYMPE, 2% (65 and later)
No service maximum
Best 60 consecutive months of earnings
 Flexible retirement dates
 Survivor benefits
 Including post-retirement addition
 Conditional inflation protection
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Flexible retirement dates
 Retire and collect a pension
 as early as 50 & 20 or 55 & 2
 as late as 71 – even if still working
 Permanent early retirement provisions
 Unreduced dates (earliest)
 85 factor (age plus service)
 60 years of age and 20 years of service
 65 – Normal Retirement Age
 Reduction of only 3% per year from earliest
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Circumstances change - retirement flexibility needed/used
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Conditional inflation protection is valuable
 Inflation protection at 75% of the CPI, conditional on
the funding status
 Highest priority
 First dollar of surplus
 First priority for reserves
 Perfect record
 With improving longevity, inflation protection is
critical to maintaining purchasing power
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Predictable and valuable inflation protection
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Contributions in two parts
Basic (8.2% up to YMPE, 11.8% over)
Covers cost of benefits being earned
 At desired level of security
 Reflects longevity and reasonable assumptions
Stability (0 – 3%)
 Supplementary to secure/fund:
 conditional indexing
 future mortality improvements
 withstand market volatility
 Are projected to decrease at next valuation
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Blended Contribution rate - 2014
Basic (8.2 / 11.8)
9.2%
Stability*
3.0%
Total rate
12.2%
*Stability rates determined by the
Funding Policy.
**Employers may fund all or part
of member’s stability
contributions.
Tax deductible
and matched by
the employer**
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How members benefit
 Secure, well-funded, sustainable pension benefit
 More of contributions go to benefits than to overhead
– high benefit/contribution ratio
 Members derive high value from their participation
 Comprehensive portability and past service purchase
options
 Removes complexity of pensions from the collective
bargaining process
 Members have an equal voice in all pension plan
decisions
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Why are we opening up the Plan –
Growth in membership improves outcomes
 Probability and timing of contribution reductions
(Level 4+)
 Probability of remaining fully funded in more adverse
economic scenarios (Level 2+)
 Probability of conditional indexation (Level 2+)
 Contribution stability
 Lowers risk and amount of potential contribution
changes (Level 1-6)
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Guiding principles show flexibility
 Mergers must be in the best interest of the Plan and
its members
 Will not assume any deficit from prior pension plan
 Colleges and members who work at colleges, retain
at least 50% of the governance roles, regardless of
how many universities join
Beyond these principles, there is flexibility to meet
employer and member needs.
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Next steps
 Future service solution already in place
 Awaiting changes to Ontario legislation allowing
transfer of assets and past liabilities
 Working with government and other parties
 High priority and good support for OCUPP solution
 Continue to work with various interested employers,
member groups, and Boards
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Decision support for all stakeholders
Education sessions and evaluation tools
Memorandum of Understanding
Past service transfer pricing
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Summary: OCUPP is a viable alternative
 Well defined, open, viable merger process supported by all Plan
Sponsors
 Not for profit high-performing professional pension and
investment organization
 Focus on delivering sustainable pensions with stable and
appropriate “all-in” contributions within a transparent
prescriptive Funding Policy
 Support for evaluation and mergers at each step of the process
with award winning communications and decision support
 Solves the pension funding, risk, and sustainability issues
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Conclusion – an alignment of interests
 We believe the merger of interested PSE pension
plans with the CAAT Plan solves the issues being
faced by all stakeholders by creating stable,
predictable costs and more secure benefits at a
lower risk
 The merger option is a viable solution leveraging
economies of scale and a proven JSPP structure
“Provides secure, valuable, and sustainable defined
benefits for members while acting like a DC plan for
employers.”
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OCUPP JSPP alternative addresses:
 The cost and risk of solvency funding
 Sharing of costs, risks, and governance
 Offering/retaining a competitive, sustainable, and
secure pension with predictable costs
 Eliminating balance sheet risk and volatility
 Reducing time and cost of non-core activities
(governing a single employer pension plan)
 Removing the complexities of pensions from the
collective bargaining process
 Improved transparency of pension plan management