Public Service Pension Plan Actuarial Valuation as at December 31, Registration number: CRA

Transcription

1 Public Service Pension Plan Actuarial Valuation as at December 31, 2016 Registration number: CRA Original Date: July 21, 2017 Revised Date: November 10, 2017

2 Table of Contents 1. Executive Summary 2 2. Introduction 4 3. Actuarial Opinion 6 4. Going Concern Valuation Results 8 5. Solvency Valuation Results Contribution Rates Funding Policy Considerations 16 Appendix A Plan Provisions 17 Appendix B Plan Membership 21 Appendix C Assets 29 Appendix D Actuarial Methods 33 Appendix E Actuarial Assumptions 36 1

3 1. Executive Summary Going Concern Funded Status Going concern assets December 31, 2014 December 31, 2016 ($ million) ($ million) Market value 9,787 11,911 Asset fluctuation adjustment (785) (565) Total assets 9,002 11,346 Going concern liabilities Best estimate liabilities 10,025 11,066 Provision for adverse deviation (PfAD) 710 1,423 Total liabilities 10,735 12,489 Actuarial excess (unfunded liability) (1,733) (1,143) Funded ratio 83.9% 90.8% Contribution Requirements December 31, 2014 December 31, 2016 % of pensionable earnings % of pensionable earnings Level Rate on All Earnings Normal actuarial cost 15.66% 15.85% Provision for adverse deviation (PfAD) 1.45% 2.48% Unfunded liability payments 7.97% 4.34% Provision for non-investment expenses 0.50% 0.50% Total required contribution rate 25.58% 23.17% Split Rates (Members and Employers, each) Earnings below YMPE 11.70% 10.47% Earnings above YMPE 16.72% 14.95% 2

4 Key Inputs December 31, 2014 December 31, 2016 Discount rate 6.05% 5.5% Margin for adverse deviation 0.55%, inherent in discount rate 1.0%, inherent in discount rate Inflation rate 2.25% 2.1% Discount rate for terminated members electing a lump sum Inflation rate for terminated members electing a lump sum Mortality Males: 2014 CPM Private Table projected with Scale CPM-B Females: 95% of 2014 CPM Private Table projected with Scale CPM-B 3.50% 2.2% for 10 years, 3.5% thereafter 2.00% 1.1% for 10 years, 2.2% thereafter Males: 2014 CPM Private Table projected with Scale CPM-B Females: 95% of 2014 CPM Private Table projected with Scale CPM-B Number of active members 41,561 41,490 Average age of active members Average PSPP service (actives) 9.7 years 9.7 years Average annualized earnings (actives) $68,697 $71,194 3

5 2. Introduction We have been retained by the Public Service Pension Board (the Board ) of the Public Service Pension Plan (the Plan ) to conduct an actuarial valuation of the Plan as at December 31, The last complete valuation that was filed with the appropriate authorities was conducted as at December 31, This report was prepared for its intended users, the Board, the Trustee (the President of Treasury Board and Minister of Finance), and the CRA, for the following purposes: to satisfy the Board s obligation to have the Plan reviewed at least every three years; to determine the funded status of the Plan as at the valuation date on a going concern basis; to determine the normal actuarial cost as at the valuation date; to determine the contribution rates that will be applicable to the Plan under the Public Sector Pension Plans Act and regulations (the Act ) for years after the valuation date; and to determine the funded status of the Plan as at the valuation date on a solvency basis. While readers of this report may extend beyond the intended users noted above, notably Plan members, we shall not communicate the terms of our engagement or results of our work with other readers unless directed to do so by the Board. This report is not intended or necessarily suitable for purposes other than those listed above. Revision to Report The original actuarial valuation report was completed and submitted to the Board on July 21, After the Board s review and ensuing discussions with the Minister of Finance, the Board instructed us to revise our report to allocate costs associated with the CPS provision equally among all participating employers and members of the Plan. In our original report, costs for the CPS provision were allocated to CPS employers only (CPS employers were determined to be PSPP employers that also participate in either MEPP or UAPP). This revised report reflects this change; all other parts of the report remain unchanged. Changes Since the Last Valuation The last actuarial valuation of the Plan in which contribution rates were recommended was prepared as at December 31, Since the last actuarial valuation, the following changes have occurred: 1. The Board adopted a revised Statement of Investment Policies and Procedures at its meeting of June 22, 2016 and the same was used to determine the discount rate. 2. The Board adopted a revised Funding Policy Statement at its meeting of July 17, 2017 and the same was used to determine the margin for adverse deviation and contribution rates. 4

6 3. The going concern economic assumptions were updated to reflect the changes in the policy documents as well as changes in expected future experience. 4. Minor changes in going concern methods were adopted at this valuation to better reflect expected future experience, including an allocation of additional costs in respect of the combined pensionable service provision. 5. The solvency basis was updated to reflect market conditions as at the valuation date and to follow the CIA s Guidance for Assumptions for Hypothetical Wind-up and Solvency Valuations with Effective Dates between December 31, 2016 and December 30, Details of the above changes which affect the funded status and/or future required contributions of the Plan are outlined in this report. Terms of Engagement This report has been prepared in accordance with the Plan s Funding Policy Statement dated November 10, Filings An actuarial valuation must be filed with the CRA as at the effective date of the Plan and not more than three years after the last actuarial valuation. Unless the Plan specifies otherwise, the date of each actuarial valuation must be at the Plan s fiscal year-end. If an amendment to the Plan or changes in Plan membership materially affect the required contribution rates, an actuarial valuation must be prepared. The last actuarial valuation filed with the CRA was prepared as at December 31, The next actuarial valuation must be prepared and filed with the CRA no later than as at December 31, We will file this report with the appropriate authorities on the Board s behalf or as otherwise instructed. 5

7 3. Actuarial Opinion This opinion is given with respect to the Public Service Pension Plan. We conducted a valuation of the Plan as at December 31, The administrator has confirmed that, between December 31, 2016 (the effective date of the data provided) and the date of this report, no subsequent events nor any extraordinary changes to the membership that would materially affect the results of this valuation have occurred, except as indicated in this report. In our opinion, for the purposes of this report: The membership data on which the valuation is based are sufficient and reliable for the purposes of the valuation. The assumptions are appropriate for the purposes of the valuation. The methods employed in the valuation are appropriate for the purposes of the valuation. We hereby certify that, in our opinion, as at December 31, 2016: 1. With respect to the purpose of determining the Plan s funded status on a going concern basis: a. The Plan has a going concern unfunded liability (excess of liabilities over assets) of $1,143 million, based on going concern assets of $11,346 million and going concern liabilities of $12,489 million. The funded ratio is 90.8%. Going concern liabilities include a provision for adverse deviation of $1,423 million. b. There is no excess surplus as defined by Section 147.2(2) of the Income Tax Act (Canada). 2. With respect to the purposes of determining the normal actuarial cost and contribution rates that are applicable to the Plan for years after the valuation date: a. The Plan s normal actuarial cost is estimated to be 18.83% of pensionable earnings. Of this cost, 15.85% is attributable to the cost of benefits accruing in the year following the valuation date,2.48% is attributable to a provision for adverse deviation and 0.50% is attributable to a provision for non-investment expenses that are paid from the fund. b. Additional contributions required to fund unfunded liabilities are summarized in the following table: Unfunded liability established Contribution Rate (% of pensionable earnings) Amortization Ending Date December 31, % December 31, 2026 c. Commencing on January 1, 2018 and continuing until the next actuarial certification, the recommended combined total member and employer contribution rate payable is 23.17% of pensionable earnings. In relation to each member and his/her employer: Contribution rate below YMPE: 10.47% member and 10.47% employer Contribution rate above YMPE: 14.95% member and 14.95% employer 6

8 3. With respect to the purpose of determining the Plan s funded status on a solvency basis: a. The Plan has a solvency deficit of $5,907 million, determined as solvency assets of $11,886 million less solvency liabilities of $17,793 million. b. The solvency ratio is 66.8%. c. The liabilities of the Plan would exceed the Plan s assets by $5,907 million if the Plan was terminated and wound-up on the valuation date. 4. We are not aware of any subsequent events, that have not already been taken into consideration, that could materially affect the results of this valuation. 5. The next valuation should be conducted no later than as at December 31, This valuation was conducted in accordance with the Public Sector Pension Plan Act (Alberta). Further, the calculations have been prepared in accordance with subsection 147.2(2)(a)(iii) and (iv) of the Income Tax Act (Canada). The content herein has been prepared exclusively from a financial viewpoint. This report does not constitute a legal opinion on the rights and duties of the administrator, the Board or the members concerning the Plan. Actuarial valuation results are estimates only and are based on assumptions and methods developed in accordance with actuarial standards of practice. Emerging experience differing from the assumptions used will result in gains or losses which will be revealed in future valuations, and which may affect future actuarial opinions. This report has been prepared, and our opinions given, in accordance with accepted actuarial practice in Canada. We would be pleased to discuss any questions the user may have regarding the valuation. Original signed by Original signed by Gregory M. Heise Fellow, Canadian Institute of Actuaries Jian Zhang Fellow, Canadian Institute of Actuaries George & Bell Consulting Inc. November 10,

9 4. Going Concern Valuation Results 4.1 Going Concern Funded Status The following table describes the Plan s funded status on a going concern basis. The going concern liabilities are based on the benefits earned up to the valuation date assuming the Plan continues indefinitely. December 31, 2014 December 31, 2016 Going Concern Funded Status ($ million) ($ million) Going concern assets Market value 9,787 11,911 Asset fluctuation adjustment (785) (565) Total assets 9,002 11,346 Going concern liabilities Active members 5,015 5,653 Retirees & beneficiaries 4,377 5,314 CPS suspended members Deferred members Hold on deposit members 9 16 Total liabilities 10,735 12,489 Actuarial excess (unfunded liability) (1,733) (1,143) Funded ratio 83.9% 90.8% 8

10 4.2 Reconciliation of Going Concern Funded Status The following table reconciles the change in the going concern funded status over the course of the inter-valuation period. Reconciliation of Going Concern Funded Status ($ million) Actuarial excess (unfunded liability) at December 31, 2014 (1,733) Expected interest (216) Special payments 355 Expected actuarial excess (unfunded liability) at December 31, 2016 (1,594) Gain / (loss) on investments 596 Asset Fluctuation Adjustment 318 Experience gains and losses Salary experience 144 Retirement experience 75 Termination experience 19 Gain from COLA 36 Interest on employee contributions 28 Total 302 Program changes and miscellaneous (87) Valuation method changes (49) Assumption changes Change in lump sum basis (43) Change in salary assumption 140 COLA and interest rate assumptions 105 Discount rate to 5.5% from 6.05% (831) Total (629) Actuarial excess (unfunded liability) at December 31, 2016 (1,143) With respect to the valuation method changes of ($49) million noted above: 1. We used actual historical salaries to calculate average pensionable salary. In the last valuation, the most recent year of salary was used and projected backwards with assumed salary increase rates. 2. We changed the valuation method for deferred members to better reflect the actual death benefit along with the pre-retirement mortality assumption. In the last valuation, death benefit liabilities calculated assumed no deaths in the deferral period and then adjusted the same with the death benefit adjustment (DBA) factor. 9

11 3. Pension offsets for Matrimonial Property Orders are now included in the valuation based on newly-available data for this valuation. 4.3 Reconciliation of Normal Actuarial Cost Rate The table below identifies the main components of the changes in the normal actuarial cost rate (the rate of pensionable earnings reflecting the cost of current service benefits accruing under the Plan) from the prior valuation to this valuation. For purposes of this reconciliation, included in the normal actuarial cost rates are the provision for adverse deviation and provision for noninvestment expenses. % of pensionable earnings Normal actuarial cost rate at December 31, % Program changes 0.09% New data and demographic changes (0.22%) Valuation method changes 0.06% Lump sum discount rate and mortality 0.15% Salary and YMPE increase rates (0.51%) COLA and interest on contributions (0.14%) Discount rate to 5.5% from 6.05% 1.49% Incorporation of CPS provision 0.30% Normal actuarial cost rate at December 31, % 4.4 Discount Rate Sensitivity As the assumed discount rate has a significant impact on the Plan s liabilities, accepted actuarial practice requires that the impact on the going concern liabilities and normal actuarial cost of a 1% decrease in the assumed discount rate be disclosed. The following table shows the effect of a 1.0% decrease in the discount rate: Funded Status and Normal Actuarial Cost December 31, % Discount Rate ($ million) 4.5% Discount Rate ($ million) Going concern assets 11,346 11,346 Going concern liabilities 12,489 14,279 Actuarial excess (unfunded liability) (1,143) (2,933) Funded ratio 90.8% 79.5% Normal actuarial cost (excluding expenses) % of pensionable earnings 18.33% 21.69% 10

12 5. Solvency Valuation Results 5.1 Solvency Funded Status A solvency valuation is required by the Act to assess the Plan s funded status should it wind up on the valuation date; however, the Act does not require the Plan to be funded on the solvency basis. A hypothetical wind-up valuation measures the same funded status, with minor differences, and is required under accepted actuarial practice. Since all benefits have been valued under this solvency valuation and assuming that the asset liquidation value would be equal to the market value of assets, the hypothetical wind-up funded status would be the same as the solvency funded status shown below. The solvency funded status of the Plan is determined by reducing the market value of the assets by an allowance for estimated wind-up expenses and comparing the result to the actuarial liability for benefits earned up to the valuation date. Liabilities are determined assuming the Plan is terminated on the valuation date, with immediate settlement of obligations. Based on the Plan s provisions, membership data, asset information, and solvency assumptions and methods described in the Appendices, in conjunction with the requirements of the Act, the solvency funded status of the Plan is shown in the table below. December 31, 2014 December 31, 2016 Solvency Funded Status ($ million) ($ million) Solvency assets Market value of assets 9,787 11,911 Expense allowance (25) (25) Total assets 9,762 11,886 Solvency liabilities Active members 9,276 8,049 Retirees & beneficiaries 6,319 7,503 CPS suspended members 1,398 1,211 Deferred members 998 1,014 Hold on deposit members 9 16 Total liabilities 18,000 17,793 Solvency excess (deficiency) (8,238) (5,907) Solvency ratio 54.2% 66.8% 11

13 5.2 Incremental Cost The incremental cost on the solvency basis represents the present value of the expected aggregate change in the solvency liabilities from the valuation date to the next valuation date, adjusted for expected benefit payments in the inter-valuation period. The present value of the incremental cost figures shown in the table below are as of the beginning of each period shown. These figures are required to be disclosed under accepted actuarial practice. Incremental Cost ($ million) January 1, 2017 to December 31, ,069 January 1, 2018 to December 31, ,093 January 1, 2019 to December 31, , Solvency Sensitivity The effect on the solvency liabilities of using discount rates 1% lower than those used for the solvency valuation would be an increase in the solvency liabilities of $3,128 million. All other assumptions and methods as used in this valuation were maintained. 12

14 6. Contribution Rates 6.1 Contribution Rate in Respect of Normal Actuarial Costs The normal actuarial cost is the cost, on the going concern basis, of benefits accruing under the Plan as a result of service after the valuation date. Based on the Plan provisions, membership data, and going concern assumptions and methods described in the Appendices, the following table provides details on the breakdown of the normal actuarial cost, provision for adverse deviation, and provision for non-investment expenses, along with the resulting total normal actuarial contribution rate. December 31, 2014 December 31, 2016 Normal actuarial cost $402,354,000 $441,123,000 Provision for adverse deviation (PfAD) $51,754,000 $69,204,000 Provision for non-investment expenses $13,270,000 $13,925,000 Next year s pensionable earnings $2,653,718,000 $2,785,000,000 Normal actuarial cost rate 15.66% 15.85% PfAD rate 1.45% 2.48% Provision for non-investment expenses 0.50% 0.50% Total normal actuarial contribution rate 17.61% 18.83% 6.2 Contribution Rate in Respect of Unfunded Liability The following table summarizes the amortization schedules that have been established prior to the valuation date along with the present value at December 31, 2016 of the additional contributions for which each schedule is expected to account over its remaining lifetime. Valuation Date at which Schedule Established Commencement of schedule Contribution Rate (% of pensionable earnings) End Date for Schedule Present Value at Dec. 31, 2016 ($ million) December 31, 2002 September 1, % December 31, December 31, 2005 January 1, % December 31, December 31, 2008 January 1, % December 31, December 31, 2010 January 1, % December 31, December 31, 2011 January 1, % December 31, Total 7.97% 1,447 Between this valuation date and the last, actuarial/experience gains amounted to $1,080 million. As a result, the unfunded liability schedules prior to the schedule established at December 31,

15 may be eliminated. Assumption changes, in particular the increase in the margin for adverse deviation to 1.0% produce an unfunded liability of $1,143 million at this valuation. Maintaining the remaining period of the last established schedule and in accordance with the Plan s funding policy, the following table illustrates the updated amortization schedule as at the valuation date. Valuation Date at which Schedule Established Commencement of schedule Contribution Rate (% of pensionable earnings) End Date for Schedule Present Value at December 31, 2016 ($ million) December 31, 2011 January 1, % December 31, , Excess Surplus The Income Tax Act (Canada) prescribes the maximum going concern surplus that may be retained by the Plan while full contributions continue. Since there is no going-concern surplus, contribution rates would not be affected by the prescribed maximum surplus limit. 6.4 Contribution Rate in Respect of Solvency Deficiency The Act does not require additional contributions to fund the solvency deficiency. 6.5 Total Required Contribution Rate The total contribution rates that are required to provide for accruing service and appropriate amortization of the unfunded liability in accordance with the schedule above are outlined in the following table. These rates have been established on the basis that total costs are shared equally between the Plan s active members and their employers. Total Contribution Rates (% of pensionable earnings) Members Employers Total Level Rate on All Earnings Normal actuarial cost rate (including provisions for adverse deviation and non-investment expenses) 9.415% 9.415% 18.83% Unfunded liability payments 2.17% 2.17% 4.34% Total contribution rate % % 23.17% Split Rate Below/Above YMPE On earnings below YMPE 10.47% 10.47% 20.94% On earnings above YMPE 14.95% 14.95% 29.90% 14

16 In accordance with the Act and the Plan s Funding Policy Statement, expected contributions must be sufficient to satisfy the minimum funding requirements over the course of the period up to the next actuarial valuation. Because the total contribution rate of 25.58% in effect at the valuation date is greater than the 23.17% required to fund the normal actuarial cost and unfunded liability payments as described above, contributions may be reduced to 23.17% and remain adequate for purposes of the Act and the Plan s Funding Policy Statement. 15

17 7. Funding Policy Considerations 7.1 Margin and Provision for Adverse Deviation A margin for adverse deviation has been built into the going concern assumptions as described in Appendix E. The effect of the margin on the resulting liabilities and normal actuarial cost results in a provision for adverse deviation. The margin and resulting provision are aimed at reducing the potential adverse effect of the uncertainty inherent in the going concern assumptions. If the future unfolds in accordance with what are considered to be best estimate assumptions (that is, assumptions without margin), then the provision for adverse deviation will be released into surplus. The amount of margin to include in the going concern assumptions is guided by the Plan s Funding Policy Statement. This Statement contemplates that the target amount of margin for adverse deviation incorporated into the actuarial assumptions will be a 1.0% reduction in the best estimate discount rate. Such a reduction should result in a target provision for adverse deviation in the Plan s going concern liabilities and normal actuarial cost of 10% to 20%. For this valuation, the amount of margin incorporated into the discount rate assumption is 1.0% per annum. In other words, the discount rate is 1.0% lower than the best estimate long-term rate of return assumption. This margin has been discussed with the Board and the Board has expressed their comfort with the margin level. The following table illustrates the effect of the 1.0% discount rate margin expressed in terms of a percentage of the going concern liabilities and normal actuarial cost determined using best estimate assumptions (i.e., the resulting provision for adverse deviation, or PfAD). Going-Concern Value ($ million) Best Estimate Value ($ million) PfAD ($ million) PfAD (as a % of Best Estimate Value) Liabilities $12,489 $11,066 $1, % Normal actuarial cost 18.83% 16.35% 2.48% 15.2% 16

18 Appendix A Plan Provisions A.1 Plan Provisions This summary contains the main provisions of the Plan as at the valuation date. For a complete description, reference should be made to the Plan text. Provision Effective date Detail May 14, 1993 (Royal Assent received Plan was implemented by Bill 68 of the Alberta legislature). Most of its provisions, including those dealing with pension and related benefits, came into effect January 1, The PSPP is a continuation of the pension plan provided under the Public Service Pension Plan Act, which was applicable prior to Schedule 2 to the Act established the Public Service Pension Board and outlines the duties of the Board and the funding disciplines. A separate regulation to the Act (the Public Service Pension Plan, Alberta Regulation 368/93) outlines the specific benefit provisions of the Plan. Eligibility Current service contributions Unfunded liability contributions Solvency contributions Purchase of service Credited interest Full-time and part-time employees of the government of Alberta, and of the agencies, boards and Provincial corporations identified in Part 2 of regulation 368/93, are eligible to participate in the Plan. With effect from January 1, 1992, the current service benefit accruals of the PSPP have been funded in equal parts by contributions from PSPP members and their employers which, in total, are equal to the normal cost of the benefit accruals attributable to the years for which the contributions are made. With effect from January 1, 2018, a higher contribution rate was paid by CPS employers. Any unfunded liability of the Plan arising after 1998 is to be funded over a period not exceeding 15 years from the applicable valuation date, in equal parts by contributions from PSPP members and their employers. The Act does not require funding of any solvency deficit. Members are entitled to contribute for the purchase of certain periods of service. The actuarial basis for determining the purchase price approximates the going-concern actuarial liability that will arise in respect of that service. Prior to 1994, Plan member contribution accounts were credited with interest at the rate of 4% per annum. Effective January 1, 1994, the interest credited to accumulated member contributions is equal to the rate of return credited on 5-year term deposits by Canadian chartered banks as reported in CANSIM series V (formerly B14045) maintained by Statistics Canada. 17

19 Provision Combined pensionable service (CPS) Detail Combined Pensionable Service ( CPS ) affects members who transfer to (or from) employment covered by the Plan from (or to) employment covered by either the Management Employees Pension Plan ( MEPP ) or the Universities Academic Pension Plan ( UAPP ). When a member of MEPP or UAPP transfers to PSPP, the member s PSPP pensionable service is the only service recognized for purposes of calculating the PSPP accrued pension. However, determination of eligibility to benefits from PSPP, such as vesting, early retirement, and the amount of early retirement reduction, is based on the member s CPS. In this case, the member s CPS is equal to his pensionable service under PSPP plus the pensionable service earned under the former plan. Similarly, when a PSPP member transfers to UAPP or to MEPP, the member s PSPP pensionable service up to the time of transfer is the only service used to calculate the PSPP accrued pension. However, the member s CPS is used to determine benefit eligibility as described above. In this case, the member s CPS is equal to the pensionable service under PSPP plus the pensionable service under the new plan. In either case, the member s accrued PSPP pension is based on the highest five-year average earnings over the member s entire CPS. The aggregate of the periods that are to be taken into account in determination the length of the CPS shall not exceed 35 years. CPS results in benefits that are higher than they otherwise would be in its absence, resulting in additional costs. Normal retirement date Unreduced early retirement Reduced early retirement Postponed retirement Normal form of pension Years of pensionable service First day of the month coincident with or following the member s 65 th birthday. A member who has attained age 55, and whose age and years of pensionable service total 85 or more, is entitled to an unreduced retirement pension commencing immediately. A member who has attained age 55, but whose age and years of pensionable service do not total 85, may elect to receive a pension commencing immediately that is reduced by an early retirement reduction. The early retirement reduction is 3% multiplied by the number of years the member is short of age 65 or 85 points, whichever is less (without recognition of potential service). A member who is eligible for immediate retirement may defer pension commencement, up to the latest age permitted under the Income Tax Act (Canada). An actuarial increase applies in the case of postponement beyond the later of termination of employment and attaining eligibility for an unreduced pension. The normal form of pension is a 5-year guaranteed life annuity. Members can select an alternative form of pension that is actuarially equivalent to the normal form of pension. The number of complete years and any fraction of a remaining year of pensionable service, up to a maximum of 35 years, less any combined pensionable service. 18

20 Provision Highest average salary Average YMPE Normal retirement benefit Maximum pensionable earnings Cost of living increases Detail The member s average annual pensionable salary in the 60 consecutive months in which such average salary was the highest (including during continuing employment after attainment of 35 years of pensionable service). The pensionable salary of part time employees is grossed up to an annual basis to determine average pensionable salary The average of the Year s Maximum Pensionable Earnings (as defined in the Canada Pension Plan) over the same period over which pensionable earnings are averaged. The benefit payable at normal retirement age is an annual pension equal to the sum of: (a) 2.0% of average pensionable salary multiplied by years of pensionable service earned or credited in respects of periods prior to January 1, 1966, plus (b) 1.4% of average pensionable salary up to the average YMPE multiplied by years of pensionable service earned or credited in respect of periods after January 1, 1966, plus (c) 2.0% of average pensionable salary in excess of average YMPE, multiplied by years of pensionable service earned or credited in respect of periods after January 1, Effective January 1, 1992, and only in respect of pensionable service after 1991, pensionable earnings for each calendar year are limited to the sum of: (a) 50 times the defined benefit annual maximum pension limit for the year under the Income Tax Act (Canada), plus (b) 30% of the YMPE for the year. Pensions payable to retired members, former members with deferred pensions and survivors will be increased annually to reflect 60% of the increase in the Consumer Price Index for Alberta. The Board may approve additional ad hoc cost-of-living increases. Vesting Benefits vest on attainment of 2 years of combined pensionable service or age 65. Termination benefits Death benefits (a) Non-vested benefit: A non-vested terminated member is entitled to payment of the member's contributions with interest. (b) Vested benefit: The vested termination benefit is a deferred pension, commencing at or after age 55 calculated to reflect the early retirement discount applicable at the actual date of retirement of the member (i.e., 3% per annum) and reflecting only pensionable service performed to the date of termination. Portability is permitted. Prior to retirement: (a) Non-vested benefit: The non-vested death benefit is a refund of the member's required contributions with interest. (b) Vested benefit: The vested death benefit is payment of the commuted value of the member's termination/retirement benefit. However, a surviving pension partner has the option to elect a monthly pension in lieu of the commuted value. Such a monthly pension is determined as the survivor s pension as if the member had retired on an unreduced pension and elected a Joint-and-Survivor 100% optional form. After retirement: The post-retirement death benefit is dependent on the form of pension selected at retirement. 19

21 Provision Disability benefits Detail A member, or a former member who remains entitled to a deferred pension, is entitled to receive an immediate unreduced pension, provided that he/she: (a) joined the Plan prior to July 1, 2007, (b) is totally disabled, (c) has completed two years of pensionable service, and (d) is not receiving benefits under an approved disability plan. A person who satisfies the above conditions, but is only partially disabled, is entitled to receive a pension commencing immediately that is reduced as for early retirement. A person who is receiving benefits from an approved disability plan is not entitled to receive, concurrently, a disability pension from the Plan. While in receipt of benefits from an approved disability plan, participation in the Plan continues. Salary, for the purpose of current service contributions or for the purpose of determining any pension to which the member may subsequently become entitled, is the salary that was being earned immediately before disability benefits commenced, increased by any subsequent general increases applicable to the pre-disability class of employment of the member. 50% Rule (excess contributions) Portability agreements other public sector plans Plan termination Upon a member's retirement, or upon commuted value transfer upon termination or death, if the member s own contributions with interest are greater than half the value of the benefit otherwise payable, then the member/spouse/beneficiary receives a refund of such excess. This does not apply to benefits/contributions for purchased service. Portability agreements have been established with other public sector pension plans, under which a member who transfers between the PSPP and such other plan has the option to transfer service credits from his former plan to his new plan, with a corresponding transfer of funds between the plans. The amounts of such service transfer and fund transfer are generally based on the estimated respective actuarial funding valuation liability for such member in each of the plans. The Act does not contemplate termination of the Plan. 20

22 Appendix B Plan Membership B.1 Source of Data Alberta Pensions Services Corporation (APSC) provides administration services to the Plan and maintains pension records of Plan members on behalf of the Board. The relevant information to carry out this valuation was provided by APSC. We have reviewed the data to ensure its sufficiency and reliability, and consistency with the data used in the last valuation. Specific tests included: 1. A member by member reconciliation of the membership group from December 31, 2014 to December 31, Tests for reasonableness of the data elements of the record of each individual entitled to or potentially entitled to a benefit under the Plan, including, but not limited to: (a) Comparison of changes in age, salaries and pensionable service (b) Comparison of the terminated and retired members with the files used for the prior valuation and the retirements, terminations, and deaths that occurred during the intervaluation period (c) Validation with APSC regarding all inconsistencies in comparison with the data used for the previous actuarial valuation, with adjustments made where necessary (d) Comparison of the data provided with information contained in the Plan s financial statements. The results of the above tests demonstrate that the membership data is substantially complete; however, the 2017 salary rate was missing for 220 active/cps members. To estimate this missing data, these members 2017 salary rates were derived using: the highest of the member s annualized pensionable earnings from the last five years; or the average 2016 annual salary rate for the active group ($70,700), if no historical pensionable earnings were available, increased with the assumed salary increase rate of 1.0% effective April 1, These estimates do not materially affect the results of the valuation. The membership data is sufficient and reliable for the purposes of this valuation. 21

23 B.2 Summary of Membership Data There were the following members as of the current and last valuation dates: Active Members Membership Summary December 31, 2014 December 31, 2016 Number of members 41,561 41,490 Male 13,440 13,512 Female 28,121 27,978 Average age Male Female Average Plan service (years) Male Female Average annualized earnings $68,697 $71,194 Male $76,304 $78,574 Female $65,061 $67,629 Retirees & Beneficiaries Membership Summary December 31, 2014 December 31, 2016 Number of members 23,799 25,422 Male 10,669 11,031 Female 13,130 14,391 Average age Male Female Average current pension (including any coordination) $14,631 $15,788 Male $16,755 $17,898 Female $12,905 $14,170 22

24 CPS Suspended Members Membership Summary December 31, 2014 December 31, 2016 Number of members 3,860 4,148 Male 1,745 1,820 Female 2,115 2,328 Average age Male Female Average Plan service (years) Male Female Average CPS service (years) Male Female Average annualized earnings $109,791 $114,177 Male $114,791 $117,758 Female $105,788 $111,377 Deferred Members Membership Summary December 31, 2014 December 31, 2016 Number of members 8,872 9,612 Male 2,890 3,086 Female 5,982 6,526 Average age Male Female Average deferred pension 1 $6,243 $6,246 Male $7,290 $7,296 Female $5,737 $5,750 1 Includes cost of living adjustments to the January 1 following the valuation date. 23

25 Hold-On-Deposit Members Membership Summary December 31, 2014 December 31, 2016 Number of members 3,711 4,756 Male 1,192 1,553 Female 2,519 3,203 Average age Male Female Average contributions with interest $2,511 $3,342 Male $2,540 $3,411 Female $2,497 $3,308 B.3 Changes in Membership Data The following table shows the changes in the Plan membership since the last valuation date: Reconciliation of Membership Data Active Members CPS Suspended Members Deferred/ Hold-on- Deposit Retirees and Beneficiaries As at December 31, ,561 3,860 12,583 23,799 81,803 New entrants 7, ,411 Return to active status 362 (98) (264) 0 0 New CPS (711) 861 (150) 0 0 Terminations - deferred (2,582) (145) 2, Total Paid out/transfers (2,841) (79) (675) 0 (3,595) Retirements (1,951) (284) (525) 2,760 0 Deaths or expiry of guarantee (35) (1) (15) (1,140) (1,191) Data adjustments (1) 0 As at December 31, ,490 4,148 14,368 25,422 85,428 24

26 B.4 Active Members Detail Distribution of Pensionable Service and Contributions All Active Age Under Total Under $50,035 * * $7,043 $20,750 $7, , ,250 $59,509 $64,349 * * $13,445 $39,098 $42,624 $15, ,926 1, ,796 $65,937 $73,623 $74,606 * * $17,721 $48,590 $67,517 $71,251 $28, ,670 1, ,527 $68,081 $76,185 $80,751 $78,700 $73,028 $18,603 $53,709 $76,450 $90,212 $41, ,992 1,489 1, ,083 $68,816 $76,821 $80,732 $84,595 $77,130 $75,304 $19,127 $56,507 $79,578 $99,891 $104,980 $51, ,492 1, ,911 $68,321 $74,878 $80,092 $80,335 $79,199 $73,193 * * $19,567 $56,103 $82,002 $99,565 $110,146 $115,468 $80,942 $61, ,203 1, ,374 $70,056 $71,682 $75,832 $79,143 $78,964 $77,003 $73,733 $74,415 $20,165 $54,500 $75,621 $97,471 $110,919 $127,156 $133,532 $74, ,150 $67,638 $71,612 $72,574 $74,877 $74,952 $76,967 $75,080 $73,129 $19,760 $55,258 $73,823 $93,883 $107,177 $128,092 $138,767 $85, ,887 $67,481 $72,281 $71,537 $72,389 $72,240 $72,845 $74,559 $72,243 $21,545 $57,258 $74,720 $91,313 $102,898 $123,643 $137,178 $91, $68,850 $69,314 $69,635 $71,200 $68,982 $69,332 $77,720 $71,773 $21,145 $55,922 $73,316 $92,582 $99,312 $118,839 $137,747 $91,411 Total 17,367 9,366 5,221 3,759 1,522 1,941 2,314 41,490 $65,036 * * * $76,113 $75,442 * $71,194 $17,099 $53,521 $76,935 $96,146 $107,536 $125,428 $137,309 $55,102 * Not shown for confidentiality reasons. 25

27 Distribution of Pensionable Service and Contributions Male Active Age Under Total Under $54,484 * * $7,973 $20,750 $8, , ,443 $61, 739 $70,917 $62,331 $14,338 $44,242 $16, , ,969 $69,130 $78,220 $78,476 $71,992 $19,357 $54,711 $73,391 $31, ,828 $73,668 $81,190 $84,444 $88,181 $78,253 $21,109 $60,780 $82,953 $105,850 $46, ,756 $78,079 $83,592 $86,623 $89,940 $85,296 $82,853 $23,496 $65,424 $88,911 $110,589 $118,495 $59, ,610 $78,466 $83,700 $89,899 $88,696 $86,358 $80,096 $84,151 $23,682 $66,591 $97,682 $116,061 $121,036 $126,528 $72, ,663 $83,579 $82,452 $86,483 $92,853 $86,573 $83,317 $79,562 $85,221 $25,974 $67,838 $88,899 $119,119 $126,520 $142,023 $149,249 $87, ,507 $80,083 $81,544 $87,410 $89,756 $82,695 $84,451 $86,142 $84,464 $24,520 $67,780 $94,412 $118,348 $123,445 $147,042 $166,933 $104, ,251 $78,387 $82,979 $83,749 $85,694 $84,854 $83,322 $83,479 $83,150 $25,382 $68,846 $91,783 $113,398 $125,435 $146,720 $160,590 $109, $75,577 $80,321 $77,707 $79,105 $81,938 $84,399 $88,630 $82,437 $18,254 $67,813 $86,322 $106,473 $122,669 $149,124 $159,322 $107,639 Total 5,826 2,964 1,668 1, ,512 $71,007 * $86,033 $89,317 $85,106 $83,545 $84,560 * $19,633 $62,776 $89,388 $115,212 $124,181 $144,011 $161,590 $63,645 * Not shown for confidentiality reasons. 26

28 Distribution of Pensionable Service and Contributions Female Active Age Under Total Under $48,042 $48,042 $6,626 $6, , ,807 $58,331 $61,906 * * $12,974 $37,185 $42,624 $15, ,575 1, ,827 $64,261 $71,390 $72,403 * * $16,863 $45,616 $64,174 $71,251 $26, ,776 1, ,699 $65,268 $74,007 $78,523 $73,628 $70,446 $17,341 $50,633 $72,526 $81,848 $38, , ,327 $64,131 $73,314 $77,360 $81,603 $73,047 $71,319 $16,917 $51,889 $74,237 $93,903 $98,222 $47, ,301 $63,284 $70,820 $75,530 $75,693 $75,275 $70,727 * * $17,524 $51,277 $74,706 $90,407 $104,177 $111,518 $80,942 $56, ,711 $63,691 $67,368 $71,185 $73,163 $74,873 $73,497 $71,934 $69,537 $17,431 $49,158 $69,827 $88,030 $102,531 $118,901 $128,681 $68, ,643 $62,570 $67,048 $68,198 $69,251 $71,715 $73,049 $70,219 $68,411 $17,822 $49,504 $67,750 $84,632 $100,375 $118,173 $126,390 $77, ,636 $61,519 $66,717 $66,715 $67,548 $67,490 $68,311 $69,126 $67,067 $19,447 $51,230 $67,982 $83,277 $94,412 $113,658 $122,919 $82, $64,478 $62,652 $65,764 $68,875 $67,581 $64,127 $69,352 $66,453 $23,024 $48,804 $67,081 $88,496 $96,787 $108,377 $121,198 $83,314 Total 11,541 6,402 3,553 2,592 1,048 1,303 1,539 27,978 $62,022 $70,488 * * $72,046 $71,475 * $67,629 $15,820 $49,236 $71,088 $87,562 $100,007 $116,329 $125,082 $50,976 * Not shown for confidentiality reasons. Each cell shows: Number of members Average annual pensionable earnings Average contributions with interest 27

29 B.5 Retirees & Beneficiaries - Detail Age Distribution of Annual Pension Years Since Retirement Under Total Under 60 1, ,342 $23,776 $12,390 $9,166 $6,062 $22, ,192 1, ,809 $23,267 $21,291 $10,431 $6,450 * * ,145 3, ,628 $20,255 $17,829 $8,829 $7,232 $4,297 $18, ,017 1, ,013 $20,590 $17,004 $10,888 $6,772 $5,827 $15, ,219 2, ,718 $19,083 $14,516 $10,855 $10,277 $6,600 $12, , ,846 $16,563 $12,925 $10,411 $10,248 $7,492 $10, , ,090 $10,581 $10,389 $9,895 $6,753 $10, $9,142 $10,333 $9,414 $10,069 Total 6,052 9,297 6,675 3, ,422 $22,063 $17,580 $10,630 $9,968 * $15,788 * Not shown for confidentiality reasons. Each cell shows: Number of members Average annual pension 28

30 Appendix C Assets C.1 Plan Asset Information Plan assets are held in trust and managed by Alberta Investment Management Corporation. The fund is audited annually by the Auditor General of Alberta. The asset data required for the valuation in respect of the Plan s trust fund was taken from the Plan s audited financial statements at December 31, The asset value has been tested and reconciled with the value at the last valuation. The benefits paid from the fund have also been examined and tested against the membership data. C.2 Statement of Plan Assets and Asset Mix A breakdown of the market value of the fund as at the valuation date, with the last valuation shown for comparison, is shown in the following table: Assets Class December 31, 2014 December 31, 2016 Amount ($ millions) Asset Mix (%) Amount ($ millions) Asset Mix (%) Cash and Short-Term % % Long and Real Return Bonds 1, % % Other Fixed Income 1, % 1, % Equities 4, % 6, % Alternatives 1, % 2, % Strategic Opportunities % % Subtotal 9, % 11, % Adjustments Accounts Receivable Accounts Payable (7) (16) Subtotal Total 9,787 11,911 29

31 C.3 Changes to the Plan Assets The following table shows the changes to the market/assigned value of the assets during the intervaluation period: Beginning of Period January 1, 2015 ($ million) January 1, 2016 ($ million) Opening Asset Value 9,787 10,937 Contributions Employer Employee Past service 5 7 Transfers from other plans 12 6 Subtotal Benefit Payments Pension payments (354) (374) Disability payments (2) (2) Termination benefits (104) (79) Death benefits (33) (27) Transfers to other plans (18) (10) Subtotal (511) (492) Expenses Non-investment expenses (13) (13) Investment expenses (54) (44) Subtotal (67) (57) Investment Earnings 1, Closing Asset Value 10,937 11,911 End of Period December 31, 2015 December 31,

32 C.4 Long Term Asset Mix The Board has adopted an investment policy that includes the following long-term asset mix: Asset Class Target % Money market 0.5% Long bonds 7.0% Universe bonds 7.0% Private mortgages 5.0% Private debt and loans 1.5% Canadian equities 13.0% Global equities (traditional) 22.0% Global equities (low volatility) 11.0% Emerging market equities 5.0% Private equities 4.0% Canadian real estate 13.0% Foreign real estate 2.0% Infrastructure 9.0% Total 100.0% C.5 Fund Rates of Return The rate of return history of the market value of assets, net of investment management fees, is shown below. The rate of return history of the actuarial value of assets is also shown below for comparison. Year Market Value Actuarial Value % 3.2% % 10.7% % 10.3% % 9.9% % 10.4% 31

33 C.6 Development of Actuarial Value of Assets The actuarial value of assets is determined by adjusting for fluctuations in market value to moderate the effects of market volatility on the Plan s funded status. The projected asset values are calculated by starting with the market value of assets for the specific year and projecting forward with the assumed rate of return and actual cash flows for each year until the valuation date. The corridor approach is used so that if the calculated value is more than 10% above the market value, then 110% of the market value will be used as the actuarial value. Similarly, if the calculated value is less than 10% below the market value, then 90% of the market value will be used as the actuarial value. Market value at Dec. 31, ,300 Net cash flow 194 Assumed return (7.06%) 522 Projected/Market value at Dec. 31, ,016 8,559 Net cash flow Assumed return (7.00%) $ millions $ millions $ millions $ millions $ millions Projected/Market value at Dec. 31, ,765 9,347 9,787 Net cash flow Assumed return (6.60%) Projected/Market value at Dec. 31, ,535 10,155 10,624 10,937 Net cash flow Assumed return (6.60%) Projected/Market value at Dec. 31, ,375 11,036 11,536 11,870 11,911 Five-Year Average of Projected / Market Values (rounded) 11,346 Corridor Maximum (110% of Market Value of Plan Assets) 13,102 Corridor Minimum (90% of Market Value of Plan Assets) 10,720 Actuarial Value of Assets 11,346 Public Service Pension Plan Actuarial Valuation as at December 31,

34 Appendix D Actuarial Methods D.1 Actuarial Cost Method Going Concern Valuation The projected unit credit actuarial cost method has been used for this valuation, as was the case in the previous valuation. Under this method, the going concern liabilities at the valuation date are the actuarial present value of benefits in respect of service prior to the valuation date, but based on pensionable earnings projected to retirement. The normal actuarial cost is the present value, at the middle of the ensuing year, of benefits that accrue to active members in the ensuing year, again based on projected pensionable earnings. Benefits in respect of excess contributions are determined as of the date the member s benefits are determined by comparing accumulated total service contributions with total service benefits and then the difference, if any, is allocated between past and future service periods on a pro-rata basis. The pattern of future contributions necessary to pre-fund future benefit accruals for any one particular individual will increase gradually as a percentage of his or her pensionable earnings as the individual approaches retirement. For a stable population (i.e., one where the demographics of the group remain relatively constant from year to year), the normal actuarial cost will remain relatively level as a percentage of pensionable earnings. An actuarial excess is the excess of the going concern assets over the going concern liabilities; an unfunded liability is the excess of the going concern liabilities over the going concern assets. D.2 Actuarial Cost Method Solvency Valuation The Act requires disclosure of the Plan s financial position at the valuation date under the solvency valuation provision of the Albert Employment Pension Plans Act. The Act does not require funding of any solvency deficit. As in the last valuation, the solvency liabilities have been calculated as the actuarial present value of the benefits to which a member would be entitled if participation in the Plan was terminated on the valuation date. It is further noted that the solvency liabilities do not take into consideration any benefit reductions that may be required in the event of actual Plan termination on the valuation date. D.3 Asset Valuation Method Going Concern and Solvency Valuations The going-concern asset valuation method determines the value that will be assigned to the assets on the valuation date. The actuarial value of assets has been determined by applying a smoothing methodology to the Plan's market value of assets at the valuation date. The same method was used in the previous valuation. The actuarial value of assets is based on the market value of Plan assets (adjusted for accrued contributions and payments), plus an Asset Fluctuation Adjustment. This adjustment is based on a 33