1 securing your retirement algonquin college jan. 2013
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Securing Your Retirement
Algonquin College Jan. 2013
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Overview
1. Pensions and politics
2. Why growth matters to you
3. Your role in promoting retirement security
4. Your benefits – a plan worth keeping
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Key Messages - Our mandate
The purpose of the CAAT Pension Plan is to improve the financial security of members in retirement with appropriate and secure benefits supported by stable and affordable contribution rates.
Measuring success
Contribution rates
Minimize probability of increases
Appropriate for benefits earned
Reduce volatility
Secure promised benefits
Avoid benefit reductions (funding level)
Paying post-2007 conditional indexing
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Key Message – Joint Governance adds value
Jointly-sponsored, multi-employer Plan
Equal representation
Bicameral governance structure
29 employers and growing
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Board of Trustees – joint representation
12 member Board
Responsible for Administration
Investments
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Sponsors’ Committee – joint representation
8 member Committee
Responsible for Benefit design
Contribution rates
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Key Message - Healthy demographic profile
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Active members: 20,500Retired members: 12,100 (including survivors)
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Key Message - Well diversified asset mix
Key Message - Strong financials
Filed valuation with small surplus (01/01/2012)
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* Preliminary results to September 30, 2012
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Overview
1. Pensions and politics
2. Why growth matters to you
3. Your role in promoting retirement security
4. Your benefits – a plan worth keeping
Pension plans are facing headwinds
Historically low-interest rates
Increasing longevity
Hangover from the economic crisis of 2008
Onerous and changing pension legislation
Pension Envy
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Pensions, politics and the emerging reality
Federal gov’t announces OAS to start at 67
Drummond Report – calls for amalgamation of plans for better administrative efficiency
Budget 2012 – 50/50 cost sharing, JSPP
William Morneau report - pooling of pension funds under $40 Billion
Pensions are on the political agenda in 2013 and will likely remain there
JSPP framework
Investment pooling
Annual valuations
Choose: benefit reductions over contribution increases
One size fits all
Pension expense
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Hon. Dwight Duncan, Minister of Finance
Specifics of recent agreement
Exempt from special legislation
No forced participation in pooled investment fund
Granted longer valuation cycle for flexibility and stability
Governance decisions remain in the Plan
Benefit restoration at 100% funded
Funding Policy temporarily changed
CAAT recognized as a model
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Forced pooling of pension assets? No Thanks
Misaligned investments results in more volatility
Risk of too many eggs in one basket
Diseconomies of scale in certain assets
Governance structures across unrelated sectors will create costly growing pains
Untested
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Retaining control of investments means
We continue with our diversified, sophisticated investment program
We manage investment risk to our tolerance
We are focused on Plan needs
With a single focus our asset size is not a limitation
Why retaining control matters
Joint governance structure remains independent
Benefits and contributions decisions geared to needs of college sector
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Change to Plan Funding Policy – to 2018
If funding deficit arises
Future benefits would be temporarily reduced
Restoration at 100% funding
Benefits earned remain protected
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CAAT is recognized as the model
Jointly sponsored plan with good governance
50-50 cost and risk sharing
Top quartile investment performance
Sustainable: Liabilities recognize longevity and lower expected
investment returns
Conditional indexing
Funding policy
Should you be worried? No, and here’s why
Pension benefits earned to date are protected
Plan governors are focused on keeping pensions stable, secure
Reductions will be minimized, temporary
CAAT is a model pension plan – tweaks
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More reasons for reassurance
Changes already made put the Plan on a sound financial footing Recognizing longer life span in assumptions
Realistic assumptions about investment returns
More diversified investments, aligned with liabilities
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Stay informed – sign up for direct updates
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Sign up to receive news directly from the CAAT Pension Plan at your work or personal e-mail address.
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Overview
1. Pensions and politics
2. Why growth matters to you
3. Your role in promoting retirement security
4. Your benefits – a plan worth keeping
Inviting interested universities to join CAAT
We propose university members join on a future service basis
Past debt remains the responsibility of the university unless plan to fully fund
Governance structure to be adjusted as appropriate, but CAAT retains 50% of representation
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Why the CAAT Plan is pursuing growth
Growth in Plan membership improves stability of pension funding
Accelerates contribution rate reductions
Similar demographic profile makes for lower risk and better alignment
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How university members benefit
Strong voice in a well-governed, transparent pension plan
More of contributions go to benefits than to expenses – economies of scale, no PBGF
Secure, well-funded, sustainable plan offering good value
Ready-made long-term solution
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How universities benefit
Avoids solvency funding requirements
Substantially lowers cost and risks associated with pension administration, investments, governance and compliance
Stabilizes contribution rates
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How Ontario benefits
An efficient postsecondary sector pension plan achieved without legislation
The proposal offers an immediate solution
High interest in its success
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Advantages of postsecondary pension plan
More predictable contribution and secure benefits
True joint governance
Lower costs and risks
Dedicated pension, investment expertise
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Aligned with gov’t objectives
Postsecondary sector alignment
Permanent solvency exemption
Proven solution
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Stay informed – sign up for direct updates
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Sign up to receive news directly from the CAAT Pension Plan at your work or personal e-mail address.
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Overview
1. Pensions and politics
2. Why growth matters to you
3. Your role in promoting retirement security
4. Your benefits – a plan worth keeping
Importance of adequate retirement income
60% of Canadians do not have a work-place pension and most will have inadequate personal savings at retirement.
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DB are complex and ripe for oversimplification
The critics see pension plans as too generous, unsustainable and unfair to Canadian taxpayers.
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“Canada’s pension system is a disaster waiting to happen. Public sector pension plans at all levels of government are massively underfunded which will demand higher taxes and strain Canada’s economy.”
Public Sector Pensions: A Runaway TrainCanadian Federation of Independent Business
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“We need to have a retirement scheme that isn’t going to bankrupt the country. The money is not there to cover these obligations.”
Gregory Thomas, National DirectorCanadian Taxpayers Federation
(As quoted the Toronto Sun, August 29, 2012 referencing CD Howe Institute’s estimate of the federal public service unfunded liability of billions of dollars)
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Towers Watson study – results of pressures
Many closing or freezing DB plans
DC members behaviors will lead to insufficient retirement income late entry, leaving money on the table deferring retirement not adequately prepared buy high, sell low
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Solution isn’t viable in the long term
Conversion to DC plans – people will pay more and receive less
DC plans are less efficient – will need to over save to guard against individual risk
In DB, risks are pooled
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Five truths about DB pensions worth sharing
1. Adequately funded
2. Shared risk
3. Plans are efficient, low cost operations
4. Provides long-term capital
5. Helps combat poverty among the elderly
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Stay informed – sign up for direct updates
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Sign up to receive news directly from the CAAT Pension Plan at your work or personal e-mail address.
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Overview
1. Pensions and politics
2. Why growth matters to you
3. Your role in promoting retirement security
4. Your benefits – a plan worth keeping
CAAT benefits comparable to other public plans
Lifetime and bridge benefits
Pensions based on best-5 years (60 consecutive months
Flexible retirement options
60% Survivor benefits
Conditional inflation protection
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Lifetime and bridge benefits
Before 652% x service
After 651.3% to YMPE2% over YMPE
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Flexible retirement options
Retire as early as 50 with 20 years or (55 and 2) as late as 71
Permanent early retirement provisions
Unreduced dates (earliest) 85 factor (age plus service) 60 years of age and 20 years of service
Reduction of only 3% per year from earliest
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Joint and survivor pension options
60% survivor pension - included
If you marry after retirement, your new spouse automatically receives a survivor pension – included
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Conditional inflation protection
Inflation protection at 75% of the CPI conditional on the funding status – subject to the results of the Plan’s most recent filed actuarial valuation.
Highest priority First dollar of surplus First priority for reserves
Perfect record
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Value
Member retires at 60
Lifetime pension: $21,967
Bridge paid to 65: $7,036
Stay informed – sign up for direct updates
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Sign up to receive news directly from the CAAT Pension Plan at your work or personal e-mail address.
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Questions welcome