Converting a DC Plan into a Target Benefit Plan: The Wave of the Future? The BCGEU Plan Conversion: A Case Study Paul Finch, BCGEU SHARE BC Pension Forum, February 24, 2017
Topics Why the BCGEU Wanted to Convert its Plan Plan Design Member Communications Conversion Process Target Benefit Administration Plan-Based Risk Management The Future 1
About the BCGEU Represents more than 72,000 workers ¾ of members belong to DB plans for other BCGEU members, the BCGEU has sponsored its own DC plan since 1988 2
Why the BCGEU Wanted to Convert its Plan To improve lifetime income security for BCGEU members Target Benefit was the answer: lifetime income security fixed cost 3
How Was Conversion Possible? PBSA no target benefit Income Tax Act no target benefit SMEP 4
Timeline 2013 & 2014 Design 2015 Build, Communicate 2016 Implement Converted July 1, 2016 the first in Canada? 5
Key Design Decisions Convert DC account to TB (default) or withdraw DC account Automatically TB July 1, 2016 Post-conversion benefits = % of contributions Cost-neutral retirement age No lump sums after 55 Voluntary contributions allowed Benefit adjustments: adjust benefits to stay in desired funding range 1. indexing rate 2. benefit rate 6
Member Communications 4 Bulletins Town Hall Conversion packages: Read This First Personalized pre-conversion statements Election Form to transfer out (+ supporting forms) Plan Summary Return envelope Pension hotline for members and financial institutions Personalized post-conversion statements 7
Conversion Process Administration challenges Unlocatable members Missing dates of birth Marriage breakdowns Late contribution remittances Investment risk during conversion period Plan documents Plan Text SIPP Funding/Benefits Policy Governance Policy Initial actuarial valuation 8
Technical and Actuarial Issues Legislative status: CB MEP TB DC DB SMEP Valuations 3 types: 1. Benefit adjustments 2. Compliance 3. Long term outlook 9
Administration Implications Complex benefit calculations, due to: Service breakpoints (two, so far) Member choice Voluntary contributions Immediate vesting Data more complex than DC Changes to member communications 10
Individual vs. Plan-Based Risk Management Other Sources Workplace Retirement Plans Government Plans Accumulation Phase Decumulation Phase 11
Uncertain Rate of Return 13.0% 12.5% 12.2% 10.9% 10.6% 11.1% 7.4% 7.4% 6.2% 5.6% 5.6% 2.1% 2.1% 3.7% 4.7% 1.6% 1980 s 1990 s 2000 s 2010 2015 Starting Long Canada Bond Yield Canadian Equity Returns Long Bond Returns Inflation Source: Canadian Institute of Actuaries, Report on Canadian Economic Statistics 12
Uncertain Lifespan 20 year increase in life expectancy in a lifetime! 13
Advantages of Collective Risk-Bearing Defined Benefit Target Benefit Collective Risk- Bearing DB/DC Hybrids Defined Contribution Individual Risk- Bearing 100% Contributor Risk 100% Benefit Recipient Risk Bruce Kennedy s Risk-Bearing Space concept was articulated in Benefits and Pensions Monitor September 2013. 14
The Future new Plan name expansion of Plan membership new communications online pension estimator tool Declaration of Trust: formalize relationship between board and Plan sponsor new board appointment process provide avenue for board representation as new units join the Plan 15
About Me Paul Finch, was elected Treasurer of the B.C. Government and Service Employees Union (BCGEU) at the BCGEU s 49th Constitutional Convention in May 2014. The BCGEU is the most diverse labour union in British Columbia, representing over 72,000 members at 550 different employers and government ministries. As Treasurer, Paul works closely with the President of the BCGEU and serves as the Union s Chief Financial and Administrative Officer. He serves as the Plan Partner for the BCGEU and as a Trustee for the BC Public Service Pension, and as Chair of the Board of Trustees for the BC Target Benefit Pension Plan. 16