University of Saskatchewan 1999 Academic Pension Plan. November 10, 2011

Transcription

1 University of Saskatchewan 1999 Academic Pension Plan November 10, 2011

2 Agenda The 1999 Academic Plan Basics Valuation Basics Going-Concern Position Solvency Position Current Contribution Schedule Solvency Extras Plan Membership History of Plan Transfers Current Pension Landscape 1

3 The 1999 Academic Plan Basics What type of Plan do I have? The Academic Pension Plan is a defined benefit pension plan Provides a monthly pension at retirement Based on service and best average earnings at retirement What benefit am I entitled to at retirement? Monthly Pension; or Lump sum transfer equal to greater of: 1. Commuted value of pension 2. Member and University contributions with interest 2

4 The 1999 Academic Plan Basics - continued How is my pension calculated at retirement? (2% x Service x BAE4) (0.4% x Post-2005 Service x FAYMPE3) where: Service = pensionable service earned while a member of the Plan BAE4 = Best Average Earnings, based on average of highest 48 continuous months of earnings Post-2005 Service = pensionable service earned after 2005 FAYMPE3 = Average of the final 3 years of the Year s Maximum Pensionable Earnings 3

5 The 1999 Academic Plan Basics - continued What do I contribute to the Plan? Current member contribution rates are: To August 31, 2010: 6.82% of earnings After August 31, 2010: 8.50% of earnings What does the University contribute to the Plan? The University matches your contributions plus pays for any additional amounts required to meet minimum funding standards (deficit funding) Current University contribution rates are: To August 31, 2010: 10.33% of earnings After August 31, 2010: 8.65% of earnings 4

6 The 1999 Academic Plan Basics - continued When can I retire? Normal Retirement June 30 th immediately following age 67 Postponed Retirement Last day of the month following a member s normal retirement No later than end of year member turns 71 Early Retirement Last day of the month following the June 30 th after age 55 (pension subject to early retirement reductions) 5

7 The 1999 Academic Plan Basics continued Is my pension reduced at retirement? Depending on when you retire, your pension might be reduced at retirement Pre-92 service not subject to early retirement reduction Post-91 service Amount of reduction for early retirement is equal to 0.25% for each month between your early retirement date (ERD) and the earlier of: Age 60; or Rule of 80 Members with less than 10 years are subject to an actuarial equivalent reduction 6

8 The 1999 Academic Plan Basics continued How will my pension be payable? Pension is payable at the end of each month for your lifetime Normal Form = Single Life, 10 year guarantee Pension on annual statement always calculated in normal form Optional forms available: With Spouse: Joint & Survivor, reducing to 60%, 66 2/3%, 75% or paying full 100% A guarantee period of 5, 10 or 15 years can be attached Integrated options (i.e. level income option) Without Spouse Single Life, guaranteed for 15 years Integrated options (i.e. level income option) Normal form pension actuarially reduced based on which optional form chosen 7

9 The 1999 Academic Plan Basics continued Is my pension limited? The Plan limits the amount of pension you can earn in any given year Limit is set by CRA and increases each year Historical earnings limits Year Maximum Earnings Limit 2012 $142, $137, $134, $131, $125, $119, $113, $100, $91, $86, $86,111 8

10 The 1999 Academic Plan Basics Example Member Information: Member is age years of total service (15 years of pre-2006 service and 6 years of post-2005 service) Earnings and YMPE for the last 10 years are as follows: Year Annual Pensionable Earnings 9 Year s Maximum Pensionable Earnings 2011 $100,000 $48, $95,000 $47, $92,000 $46, $90,000 $44, $85,000 $43, $84,000 $42, $82,000 $41, $80,000 $40, $76,000 $39, $75,000 $38,300

11 The 1999 Academic Plan Basics Example Calculation of BAE4 and FAYMPE3: BAE4 is based on average of highest 48 continuous months of earnings FAYMPE3 is based on average of final 3 years of YMPE Year Annual Pensionable Earnings Year s Maximum Pensionable Earnings 2011 $100,000 $48, $95,000 $47, $92,000 $46, $90,000 $44, $85,000 $43, $84,000 $42, $82,000 $41, $80,000 $40, $76,000 $39, $75,000 $38,300 BAE4 = (100, , , ,000) / 4 = $94,250 FAYMPE3 = (48, , ,300) / 3 = $47,267 10

12 The 1999 Academic Plan Basics Example Calculation of pension: (2% x Service x BAE4) (0.4% x Post-2005 Service x FAYMPE3) Lifetime Pension = 2% x 21 x $94, % x 6 x $47,267 = $38, per year payable in the normal form 11

13 Valuation Basics Both employees and the University contribute to a separate trust to fund benefits Intent is that contributions relating to an employee together with investment returns on those contributions will fully fund the employees pension Question: how much needs to be contributed? Assess through an Actuarial Valuation Actuarial valuations must be prepared and filed with regulators at least once every three years Last filed valuation prepared as at December 31, 2009 Next required valuation is December 31,

14 Valuation Basics - continued Purpose of the actuarial valuation is to assess the plan s financial health future contribution requirements Two perspectives: Going-concern longer-term view compares current assets plus future contributions to the value of benefits for past and future service Solvency (required by regulators) shorter-term view compares current assets to the settlement value of benefits for past service (e.g. annuity purchase) 13

15 Going-Concern Position Interim Dec 31, 2008 Filed Dec 31, 2009 Interim Dec 31, 2010 Total Assets $ 135,472,000 $ 142,413,000 $ 145,841,000 Total Actuarial Liabilities 141,593, ,181, ,056,000 Surplus / (Unfunded Liability) $ (6,121,000) $ 232,000 $ 3,785,000 Funded ratio Current service cost at Dec 31, 2010: 17.72% of pensionable earnings 14

16 Current Contribution Schedule University is currently matching employee contributions per plan requirements and contributes an additional amount based on most recent valuation results and legislation: To August 31, 2010 After August 31, 2010 Member 6.82% 8.50% University matching 6.82% 8.50% University additional 3.51% 0.15% 15

17 Solvency Position Interim Dec 31, 2008 Filed Dec 31, 2009 Interim Dec 31, 2010 Total Assets $ 135,272,000 $ 142,213,000 $ 145,641,000 Total Actuarial Liabilities 160,446, ,551, ,808,000 Surplus / (Solvency Deficiency) $ (25,174,000) $ (24,338,000) $ (27,167,000) Current solvency ratio that is applicable: 85% 16

18 Solvency Extras Solvency relief University elected 3 year temporary solvency relief for the December 31, 2009 valuation Solvency funding rules uncertain at end of relief period Question: Should the University and other public sector pension plans in Saskatchewan be subject to solvency funding? Transfer deficiencies still apply during relief period 17

19 Solvency Extras - continued Transfer Deficiency Applies to individuals who terminate employment and elect to transfer the lump sum value of their entitlement out of the Plan When a Plan has a solvency deficiency, legislation requires that a portion of every lump sum (LS) payment be held back Transfer Deficiency = Portion of LS held back = (1- solvency ratio) x total lump sum entitlement Transfer Deficiency paid out, with interest, at end of five year period following the date of payout No impact on members retiring and commencing a pension from the Plan 18

20 Solvency Extras - continued Example Transfer Deficiency Date of termination = Jan 1, 2011 Total lump sum entitlement = $100,000 Solvency ratio = 0.85 LS payment on Jan 1, 2011 = 0.85 x $100,000 = $85,000 Transfer Deficiency payment on Jan. 1, 2016 = (1 0.85) x $100,000 = $15,000 (with interest) 19

21 Plan Membership Active Members Dec 31, 2009 Dec 31, 2010 Number Average age 56.9 years 57.5 years Average years of service 18.4 years 19.0 years Average annual salary $ 111,506 $ 114,487 Accumulated employee contributions with interest $ 36,917,978 $ 36,087,654 Accumulated University contributions with interest $ 39,842,957 $ 38,510,057 Expected average remaining service lifetime 7.8 years 6.6 years 20

22 Plan Membership - continued Pensioners and Survivors Dec 31, 2009 Dec 31, 2010 Number Average age 69.3 years 69.6 years Average annual pension $ 39,625 $ 39,518 Average period since retirement 6.5 years 6.7 years Temporary Pensioners Dec 31, 2009 Dec 31, 2010 Number Average monthly pension $ 3,336 $ 3,748 Average period since retirement 1.9 years 2.3 years Average total number of payments remaining 38.2 months 33.6 months 21

23 Plan Membership - continued Other Members Total Contributions with Interest Dec 31, 2009 Dec 31, 2010 Number Deferred $1,112,628 $ 1,309,611 Inactive $ 0 $ 0 Pending Terminations $ 3,718,793 $ 3,140,210 Pending Deaths $ 0 $ 276,947 Pending Retirements $ 2,006,241 $ 3,274,008 Total $ 6,837,662 $ 8,000,776 22

24 Lump Sum Transfer Option Members retiring from the Plan have the option of either taking a pension or a lump sum transfer Reserves are included in going-concern balance sheet to account for this option History of lump sum transfers vs. pensions for the last 8 years is as follows: Year # electing a pension from the Plan # electing a lump sum transfer from the Plan Total 54 (42%) 76 (58%) 23

25 Current Pension Landscape Challenges facing DB pension plans: Pensions being paid for longer Investment markets volatile and uncertain: Approximately 75% of a pension plan's funding comes from investment returns Threatens benefit security Places additional funding strain on the current system Pension plans have grown to a size that is often a multiple of the operating budget of the sponsoring organization Hiccup with the pension plan means significant burden for the sponsor and its employees 24

26 Current Pension Landscape - continued Concerns: The pension plan may result in serious funding challenges for sponsors Safety margins in plans may not be adequate requires increased funding relative to benefits provided General consensus in the industry is that the way in which benefits are funded and promised needs to be reviewed: Want to avoid future generations paying for the promises made to past generations Want to deliver on promises that have been made 25

27 Questions 26