University of Saskatchewan 1999
Academic Pension Plan
November 1, 2012
Agenda
 The 1999 Academic Plan Basics
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Valuation Basics
Going-Concern Position
Solvency Position
Current Contribution Schedule
Solvency “Extras”
History of Plan Transfers
Current Pension Landscape
Plan Membership
1
The 1999 Academic Plan Basics
 What type of Plan do I have?
– The Academic Pension Plan is a defined benefit pension plan
– Provides a monthly pension at retirement
– Based on service and best average earnings at retirement
 What benefit am I entitled to at retirement?
– Monthly Pension; or
– Lump sum transfer equal to greater of:
1. Commuted value of pension
2. Member and University contributions with interest
2
The 1999 Academic Plan Basics - continued
 How is my pension calculated at retirement?
(2% x Service x BAE4) – (0.4% x Post-2005 Service x FAYMPE3)
where:
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Service = pensionable service earned while a member of the Plan
BAE4 = Best Average Earnings, based on average of highest 48
continuous months of earnings

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Post-2005 Service = pensionable service earned after 2005
FAYMPE3 = Average of the final 3 years of the Year’s Maximum
Pensionable Earnings
3
The 1999 Academic Plan Basics - continued
 What do I contribute to the Plan?
– Current member contribution rates are:
• To August 31, 2010: 6.82% of earnings
• After August 31, 2010: 8.50% of earnings
 What does the University contribute to the Plan?
– The University matches your contributions plus pays for any
additional amounts required to meet minimum funding standards
(deficit funding)
– Current University contribution rates are:
• To August 31, 2010: 10.33% of earnings
• After August 31, 2010: 8.65% of earnings
4
The 1999 Academic Plan Basics - continued
 When can I retire?
Normal
Retirement
• June 30th immediately following age 67
Postponed
Retirement
• Last day of the month following a member’s
normal retirement
• No later than end of year member turns 71
Early
Retirement
• Last day of the month following the June 30th
after age 55 (pension subject to early
retirement reductions)
5
The 1999 Academic Plan Basics – continued
 Is my pension reduced at retirement?
– Depending on when you retire, your pension might be reduced at
retirement
– Pre-92 service
• not subject to early retirement reduction
– Post-91 service
• Amount of reduction for early retirement is equal to 0.25% for
each month between your early retirement date (ERD) and the
earlier of:
 Age 60; or
 Rule of 80
– Members with less than 10 years are subject to an actuarial
equivalent reduction
6
The 1999 Academic Plan Basics – continued
 How will my pension be payable?
–
–
–
–
Pension is payable at the end of each month for your lifetime
Normal Form = Single Life, 10 year guarantee
Pension on annual statement always calculated in normal form
Optional forms available:
• With Spouse:
 Joint & Survivor, reducing to 60%, 66 2/3%, 75% or paying full
100%
 A guarantee period of 5, 10 or 15 years can be attached
 Integrated options (i.e. level income option)
• Without Spouse
 Single Life, guaranteed for 15 years
 Integrated options (i.e. level income option)
–
Normal form pension actuarially reduced based on which
optional form chosen
7
The 1999 Academic Plan Basics – continued
 Is my pension limited?
– The Plan limits the amount of pension you can earn in any given
year
– Limit is set by CRA and increases each year
– Historical earnings limits
Year
Maximum
Pensionable
Earnings Limit
2012
$142,354
2011
$137,271
2010
$134,162
2009
$131,482
2008
$125,647
2007
$119,851
2006
$113,976
2005
$100,000
2004
$91,667
2003
$86,111
8
The 1999 Academic Plan Basics – Example #1
 Member Information:
– Member is age 60
– 21 years of total service (14 years of pre-2006 service and 7 years of
post-2005 service)
– Earnings and YMPE for the last 10 years are as follows:
Year
Actual Earnings
Annual Pensionable
Earnings After Appling
Maximum Limit
2012
$100,000
$100,000
$50,100
2011
$95,000
$95,000
$48,300
2010
$92,000
$92,000
$47,200
2009
$90,000
$90,000
$46,300
2008
$85,000
$85,000
$44,900
2007
$84,000
$84,000
$43,700
2006
$82,000
$82,000
$42,100
2005
$80,000
$80,000
$41,100
2004
$76,000
$76,000
$40,500
2003
$75,000
$75,000
$39,900
9
Year’s Maximum
Pensionable
Earnings
The 1999 Academic Plan Basics – Example #1
 Calculation of BAE4 and FAYMPE3:
– BAE4 is based on average of highest 48 continuous months of
earnings
– FAYMPE3 is based on average of final 3 years of YMPE
Year
Annual Pensionable
Earnings After Appling
Maximum Limit
Year’s Maximum
Pensionable
Earnings
2012
$100,000
$50,100
= (100,000 + 95,000 + 92,000 + 90,000) / 4
2011
$95,000
$48,300
= $94,250
2010
$92,000
$47,200
2009
$90,000
$46,300
2008
$85,000
$44,900
2007
$84,000
$43,700
2006
$82,000
$42,100
2005
$80,000
$41,100
2004
$76,000
$40,500
2003
$75,000
$39,900
10
BAE4
FAYMPE3
= (50,100 + 48,300 + 47,200 ) / 3
= $48,533
The 1999 Academic Plan Basics – Example #1
 Calculation of pension:
(2% x Service x BAE4) – (0.4% x Post-2005 Service x FAYMPE3)
Lifetime Pension
= 2% x 21 x $94,250 – 0.4% x 7 x $48,533
= $38,226.07 per year payable in the normal form
= $3,185.51 per month payable in the normal form
11
The 1999 Academic Plan Basics – Example #2
 Member Information:
Age : 65
Service: 31 years (24 years of pre-2006 service and 7 years of post-2005
service)
Earnings and YMPE for the last 10 years are as follows:
Year
Actual Earnings
Annual Pensionable
Earnings After Appling
Maximum Limit
2012
$175,000
$142,354
$50,100
2011
$170,000
$137,271
$48,300
2010
$165,000
$134,162
$47,200
2009
$160,000
$131,482
$46,300
2008
$155,000
$125,647
$44,900
2007
$150,000
$119,851
$43,700
2006
$145,000
$113,976
$42,100
2005
$135,000
$100,000
$41,100
2004
$120,000
$91,667
$40,500
2003
$100,000
$86,111
$39,900
12
Year’s Maximum
Pensionable
Earnings
The 1999 Academic Plan Basics – Example #2
 Calculation of BAE4 and FAYMPE3:
– BAE4 is based on average of highest 48 continuous months of
earnings
– FAYMPE3 is based on average of final 3 years of YMPE
Year
Annual Pensionable
Earnings After Appling
Maximum Limit
Year’s Maximum
Pensionable
Earnings
2012
$142,354
$50,100
2011
$137,271
$48,300
2010
$134,162
$47,200
2009
$131,482
$46,300
2008
$125,647
$44,900
2007
$119,851
$43,700
2006
$113,976
$42,100
2005
$100,000
$41,100
2004
$91,667
$40,500
2003
$86,111
$39,900
13
BAE4
= (142,354 + 137,271 + 134,162 + 131,482) / 4
= $136,317
FAYMPE3
= (50,100 + 48,300 + 47,200 ) / 3
= $48,533
The 1999 Academic Plan Basics – Example #2
 Calculation of pension:
(2% x Service x BAE4) – (0.4% x Post-2005 Service x FAYMPE3)
Lifetime Pension
= 2% x 31 x $136,317 – 0.4% x 7 x $48,533
= $83,157.62 per year payable in the normal form
= $6,929.80 per month payable in the normal form
14
Valuation Basics
 Both employees and the University contribute to a
separate trust to fund benefits
 Intent is that contributions relating to an employee
together with investment returns on those contributions
will fully fund the employees pension
 Question: how much needs to be contributed?
– Assess through an Actuarial Valuation
– Actuarial valuations must be prepared and filed with regulators at
least once every three years
– Last filed valuation prepared as at December 31, 2009
– Next required valuation is December 31, 2012
15
Valuation Basics - continued
 Purpose of the actuarial valuation is to assess
– the plan’s financial health
– future contribution requirements
 Two perspectives:
– Going-concern
• longer-term view
• compares current assets plus future contributions to the value of
benefits for past and future service
– Solvency (required by regulators)
• shorter-term view
• compares current assets to the settlement value of benefits for past
service (e.g. annuity purchase)
16
Going-Concern Position
Total Assets
Filed
Dec 31, 2009
Interim
Dec 31, 2010
Interim
Dec 31, 2011
$ 142,413,000
$ 145,841,000
$ 143,560,000
142,181,000
142,056,000
154,373,000
3,785,000
$(10,813,000)
1.03
0.93
Total Actuarial Liabilities
Surplus / (Unfunded Liability)
$
232,000
1.00
Funded ratio

$
Current service cost at Dec 31, 2011: 20.51% of pensionable earnings
17
Current Contribution Schedule
 University is currently matching employee contributions per
plan requirements and contributes an additional amount
based on most recent valuation results and legislation:
To August 31, 2010
After August 31, 2010
Member
6.82%
8.50%
University – matching
6.82%
8.50%
University – additional
3.51%
0.15%
18
Solvency Position
Total Assets
Total Actuarial Liabilities
Surplus / (Solvency Deficiency)
Filed
Dec 31, 2009
Interim
Dec 31, 2010
Interim
Dec 31, 2011
$ 142,213,000
$ 145,641,000
$ 143,360,000
166,551,000
172,808,000
194,415,000
$ (24,338,000)
$ (27,167,000)
$ (51,055,000)
Current solvency ratio that is applicable: 85% (December 31, 2009)
19
Solvency “Extras”
 Solvency relief
– University elected 3 year temporary solvency relief for the
December 31, 2009 valuation
– Province currently reviewing minimum funding requirements for
public pension plans in Saskatchewan, with changes to be
released prior to December 31, 2012
– Transfer deficiencies still apply if members transfer out value of
pension
20
Solvency “Extras” - continued
 Transfer Deficiency
– Applies to individuals who terminate employment and elect to transfer the
lump sum value of their entitlement out of the Plan
– When a Plan has a solvency deficiency, legislation requires that a portion
of every lump sum (LS) payment be held back
– Transfer Deficiency = Portion of LS held back
= (1- solvency ratio) x total lump sum entitlement
– Transfer Deficiency paid out, with interest, at end of five year period
following the date of payout
– No impact on members retiring and commencing a pension from the Plan
21
Solvency “Extras” - continued
 Example – Transfer Deficiency
–
–
–
–
–
Date of termination = Jan 1, 2012
Total lump sum entitlement = $100,000
Solvency ratio = 0.85
LS payment on Jan 1, 2012 = 0.85 x $100,000 = $85,000
Transfer Deficiency payment on Jan. 1, 2017
= (1–0.85) x $100,000 = $15,000 (with interest)
22
Estimated Financial Position at Dec. 31, 2012
Dec 31, 2012
5% Margin
10% Margin
6.5%
6.5%
Estimated Unfunded Liability
$10.7M
$18.2M
Estimated Solvency Deficiency
$56.8M
$56.8M
- With solvency
42.3%
43.4%
- Without solvency
22.7%
26.6%
Assumed ROR in 2012
Estimated Total Contribution
Requirements starting Jan 1, 2013
(% of pensionable earnings)
23
Lump Sum Transfer Option
 Members retiring from the Plan have the option of either
taking a pension or a lump sum transfer
 Reserves are included in going-concern balance sheet to
account for this option
 History of lump sum transfers vs. pensions for the last 9
years is as follows:
24
Lump Sum Transfer Option
Year
# electing a
pension from the
Plan
# electing a lump
sum transfer from
the Plan
2011
9
2010
7
Total lump sum
payments out of the
Plan during year
$5,066,000
Average lump sum
payment out of the
Plan in year
$724,000
9
4
$4,804,000
$1,201,000
2009
1
9
$5,685,000
$632,000
2008
2
6
$3,923,000
$654,000
2007
7
17
$11,007,000
$647,000
2006
12
6
$4,961,000
$827,000
2005
9
14
$8,604,000
$615,000
2004
6
11
$6,899,000
$627,000
2003
8
9
$6,405,000
$712,000
Total
63 (43%)
83 (57%)
25
Current Pension Landscape
 Challenges facing DB pension plans:
– Sustainability and affordability
– Pensions being paid for longer
– Investment markets volatile and uncertain:
• Approximately 75% of a pension plan's funding comes from
investment returns
• Threatens benefit security
• Places additional funding strain on the current system
– Pension plans have grown to a size that is often a multiple of the
operating budget of the sponsoring organization
• Hiccup with the pension plan means significant burden for the sponsor
and its employees
26
Current Pension Landscape - continued
 Concerns:
– The pension plan may result in serious funding challenges for
sponsors
– Safety margins in plans may not be adequate
• requires increased funding relative to benefits provided
 General consensus in the industry is that the way in which
benefits are funded and promised needs to be reviewed:
– Want to avoid future generations paying for the promises made to
past generations
– Want to deliver on promises that have been made
27
Plan Membership
Active Members
Dec 31, 2010
Dec 31, 2011
196
181
Average age
57.5 years
58.1 years
Average years of service
19.0 years
19.6 years
Average annual salary
$ 114,487
$ 119,583
Accumulated employee
contributions with interest
$ 36,087,654
$ 33,942,908
Accumulated University
contributions with interest
$ 38,510,057
$ 36,015,200
Expected average
remaining service lifetime
6.6 years
6.3 years
Number
28
Plan Membership - continued
Pensioners and Survivors
Dec 31, 2010
Dec 31, 2011
88
98
69.6 years
70.0 years
Average annual pension
$ 39,518
$ 39,280
Average period since retirement
6.7 years
7.0 years
Number
Average age
Temporary Pensioners
Number
Average monthly pension
Average period since retirement
Average total number of
payments remaining
29
Dec 31, 2010
Dec 31, 2011
20
19
$ 3,748
$ 4,202
2.3 years
2.5 years
33.6 months
30.9 months
Plan Membership - continued
Other Members
Total Contributions with Interest
Dec 31, 2010
Dec 31, 2011
51
48
$ 1,309,611
$ 1,207,962
$0
$0
$ 3,140,210
$ 3,426,199
$ 276,947
$ 282,348
Pending Retirements
$ 3,274,008
$ 2,702,326
Total
$ 8,000,776
$ 7,618,835
Number
Deferred
Inactive
Pending Terminations
Pending Deaths
30
Questions
31