CIA Pension SeminarApril 15, 2009

Colloque sur les régimes de retraite de L’ICALe 15 avril 2009

Promises to KeepThe Final Report of the NS Pension Review Panel

Peter C. Hayes, FCIA, FSA

Eckler Ltd., Halifax, NS

Topics

Background Process Themes

Background

Societal changes Declining pension coverage One of 3 Panels/Commissions

Process

Created February, 20082 actuaries and a lawyer!

Rounds of discussion papers, submissions, and meetings

Final report January, 2009

Themes

Hopes and promises Funding Flexibility Governance

Flexibility and governance; hopes and promises Flexibility

Types of plans○ Target benefit○ Jointly sponsored

GovernanceAdvisory CommitteeGovernance Plan

Hopes and promises

Funding

Current regimeGoing concern and solvency

CriticismsExceptions

○ Universities, SMEPPs, MunicipalitiesGoing concern

○ Too much discretionSolvency

○ Too conservative

Funding (cont’d)

Proposed New Minimum Funding StandardMust include ALL promisesLess conservative than solvency, less

discretion than going concernSame for all plans

Doesn’t preclude higher funding (per plan’s funding policy)

New Minimum Funding Standard Method and Assumptions What’s in the weeds? Consequences

Method and assumptions

Accrued benefit methodUnprojectedIncluding ancillary benefits*Introduces MFCSC

* Relationship between plan-mandated eligibility requirements and whether to reflect early retirement subsidies

Method and assumptions (cont’d) Discount rate: CIA CV rate, plus

0.6% to NRD, 0.3% t/a for actives0.3% for pensioners

Which means … what??

First 10 years Thereafter

CIA CV standard (for a June 30/08 valuation, but using the April 1, 2009 standard) 4.1% 5.5%

NS NMFS

Active members to NRD

Active members after NRD

Pensioners*

4.7%

4.4%

4.4%

6.1%

5.8%

5.8%

CIA CV standard (for a December 31/08 valuation, but using the April 1, 2009 standard) 4.2% 5.7%

NS NMFS

Active members to NRD

Active members after NRD

Pensioners*

4.8%

4.5%

4.5%

6.3%

6.0%

6.0%

*CIA annuity rates were 4.50% and 4.55% at June 30th and December 31st, respectively.

Method and assumptions (cont’d) Discount rate: CIA CV rate, plus

0.6% to NRD, 0.3% t/a for actives0.3% for pensioners

Mortality: per CV Standard Terminations: none Retirement: use plan experience, but …

Adjust for plan with subsidies Inflation: 2% Assets: at market (no smoothing)

What’s in the weeds?

Funded ratio between 95% and 105%Minimum contribution = MFCSC

Otherwise …Add deficit amortization piece, orSubtract surplus amortization piece

Amortization is over 10 years, with interest (one exception)

What’s in the weeds (cont’d) Terminations: CVs calc’d according to NMFS

“Top-ups” paid within 1 year

No partial wind-ups Target benefit plans (including MEPPs)

95% test, thenCompare PVFB to assets-plus-PVFC

What’s in the weeds (cont’d) MEPPs: funding and benefit levels

Balance Sheet Test:Funded Ratio >= 95%

Aggregate Test:PVFB <=

90% Assets + PVFC

Aggregate Test:PVFB <=

100% Assets + PVFC

Improve Benefits Maintain BenefitsAggregate Test:

PVFB <=90% Assets + PVFC

Reduce Benefits

Improve Benefits Maintain Benefits

Pass

Fail

FailPass

Pass

Fail

Pass Fail

Consequences

Indexed plans or plans with generous early retirement benefitsHeavier contribution burden (in some cases

significant) vs current regime

Non-indexed, no heavy subsidyIt depends!

MEPPsMore stability vs current regime (depending

on plan design)

Other stuff

Member issues Promotion Province-wide plan Transition rules

Promises to KeepThe Final Report of the NS Pension Review Panel

Peter C. Hayes, FCIA, FSA

Eckler Ltd., Halifax, NS