Exploring Alternative Pension Solutions

Transcription

1 Ontario Universities Pension Symposium Exploring Alternative Pension Solutions Derek Dobson CEO and Plan Manager May 6, 2014

2 2 As at January 1, 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

3 3 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

4 4 A JSPP option for the PSE Sector

5 5 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

6 6 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

7 7 Funding Policy manages risk and limits unknowns

8 8 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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10 10 For members valuable, secure and sustainable retirement income Lifetime benefits based on pensionable earnings and pensionable service 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

11 11 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

12 12 Circumstances change - retirement flexibility needed/used

13 13 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

14 14 Predictable and valuable inflation protection

15 15 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

16 16 Blended Contribution rate 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**

17 17 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

18 18 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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20 20 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.

21 21 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 Decision support for all stakeholders Education sessions and evaluation tools Memorandum of Understanding Past service transfer pricing

22 22 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

23 23 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.

24 24 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

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