University of Saskatchewan and
Federated Colleges Non-Academic
Pension Plan
AGM Presentation – December 31, 2012
November 18, 2013
November
2013
Prepared by8,
Aon
Hewitt
Aon Hewitt | © 2013 Aon Hewitt. All Rights Reserved
Agenda
 Pension Terms







The Non-Academic Plan
Valuation Basics
Going-Concern Position
Current Contribution Schedule
Solvency Position
Transfer Deficiency
Plan Membership
1
Pension Terms



Pensionable Service
–
the period of service while contributing to the Plan
–
starts at date of enrolment in the Plan and ends on the date of termination of
service, death or retirement, whichever first occurs.
Pensionable Earnings
–
Includes: all regular salary and wages, shift differential, additional earnings for
holding a temporary position, cumulative sick leave payments and market
adjustments received by the Member that are deemed eligible by the pension
plan.
–
Excludes: overtime pay, cost of living bonuses, additional earnings for part-time
Employees who are employed beyond their agreed to hiring status, unsociable
hours differential or any other type of income.
Best Average Earnings:
–
the average monthly earnings of a member for the 48 continuous months where
Pensionable Earnings were highest.
2
The Non-Academic Plan Basics
 What type of Plan do I have?
– The Non-Academic Pension Plan is a defined benefit pension plan
– Provides a monthly pension at retirement
– Based on service and best average earnings at retirement
 How is my normal form of pension calculated at
retirement?
2% x Service x 4-yr Average Pensionable Earnings
where:

Service = pensionable service earned while a member of the Plan

4-yr Average Pensionable Earnings = Best Average Earnings, based on
average of highest 48 continuous months of earnings
3
The Non-Academic Plan Basics - continued
 What do I contribute to the Plan?
– Current member contribution rates are:
• 8.50% of pensionable 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 per year are:
• 2013: 11.06% of pensionable earnings ($1.6M additional contributions per
year above the matching 8.50%)
• 2014 and thereafter: 15.45% of pensionable earnings ($4.6M additional
contributions per year above the matching 8.50%)
4
The Non-Academic Plan Basics - continued
 When can I retire?
Normal
Retirement
• 1st of the month immediately following age
65
Postponed
Retirement
• 1st of any month following a member’s
normal retirement
• No later than December 1st in the year you
turn age 71
Early
Retirement
• 1st of any month following age 55, 30 years
of service or Rule of 80 (subject to early
retirement reductions)
5
The Non-Academic Plan Basics – continued
 Is my pension reduced at retirement?
– Depending on when you retire, your pension might be reduced at
retirement
– 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 (i.e. Age + Pensionable Service = 80)
– Maximum reduction is 15%
– Reduction is applied to pension permanently for all future pension
payments
6
The Non-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
• 10 year guarantee: If you die within 10 years after your retirement, the payments will
continue to your beneficiary to the date 10 years after your retirement date
– Pension on annual statement always calculated in normal form
– Optional forms available:
• With Spouse:
 Joint & Survivor, reducing to 60%, 75% or paying full 100%
 A guarantee period of 5, 10 or 15 years can be attached
 Integrated with CPP and OAS options (i.e. level income option) for early
retirements
• Without Spouse
 Single Life, guaranteed for 15 years
–
 Integrated with CPP and OAS options (i.e. level income option) for early
retirements
Normal form pension reduced based on which optional form chosen (i.e. reduced to
reflect the payment now attached to 2 lives)
7
The Non-Academic Plan Basics – Example
 Member Information:
– Date of retirement = December 1, 2013
– Age at date of retirement = 55
– Member’s Spouse’s age = 52
– Pensionable Service at date of retirement = 26 years
– Age plus service equal to 81 (i.e. 81 points towards rule of 80)
– Earnings for the last 10 years are as follows:
Year
Annual Pensionable Earnings
2013
$56,000
2012
$50,000
2011
$45,000
2010
$42,000
2009
$40,000
2008
$35,000
2007
$34,000
2006
$32,000
2005
$30,000
2004
$26,000
8
The Non-Academic Plan Basics – Example
 Calculation of 4-yr Average Pensionable Earnings:
– Based on average of highest 48 continuous months of earnings
Year
Annual Pensionable Earnings
2013
$56,000
2012
$50,000
2011
$45,000
=(56,000 + 50,000 + 45,000 + 42,000 ) / 4
2010
$42,000
= $48,250
2009
$40,000
2008
$35,000
2007
$34,000
2006
$32,000
2005
$30,000
2004
$26,000
4-yr Average Pensionable Earnings
9
The Non-Academic Plan Basics – Example
 Calculation of pension:
– Unreduced Lifetime Pension
= 2% x 26 x $48,250
= $25,090 per year
= $2,090.83 per month
2% x Service x 4-yr Average
Pensionable Earnings
 Will the pension be reduced?
– No, because member meets the rule of 80
Member will receive $25,090 per year payable in the normal
form.
- Reduction in pension would apply if optional form of pension chosen
10
The Non-Academic Plan Basics – Example
 Optional forms of Pension are available
 All equivalent value to normal form of pension (Single Life, 10 year
guarantee) equal to $2,090.83 per month
Non-Integrated Monthly Retirement Options
0
N/A
Single Life Options
Joint Life Options:
Joint and Survivor 60%
Joint and Survivor 75%
Joint and Survivor 100%
1,994.38
1,967.15
1,923.38
11
Guaranteed Period (Years)
5
10
N/A
2,090.83
15
2,065.52
1,992.52
1,966.00
1,923.35
1,976.90
1,955.92
1,921.92
1,986.83
1,962.42
1,923.05
The Non-Academic Plan Basics – Example
 Integrated Optional forms of Pension also available
 Provides a level income before and after age 65
Integrated Monthly Retirement Options
0
Single Life, Integrated with CPP and OAS:
− before age 65
− after age 65
− for guaranteed period
Guaranteed Period (Years)
5
10
15
N/A
N/A
N/A
N/A
N/A
N/A
2,714.90
1,253.91
2,090.83
2,689.59
1,228.60
2,065.52
Joint Life, Integrated with CPP and OAS:
Joint and Survivor 60%
− before age 65
− after age 65
− for guaranteed period
− to spouse after member's death and guaranteed period
2,618.45
1,157.46
0.00
1,196.63
2,616.59
1,155.60
1,992.52
1,195.51
2,610.90
1,149.91
1,986.83
1,192.10
2,600.97
1,139.98
1,976.90
1,186.14
Joint and Survivor 75%
− before age 65
− after age 65
− for guaranteed period
− to spouse after member's death and guaranteed period
2,591.22
1,130.23
0.00
1,475.36
2,590.07
1,129.08
1,966.00
1,474.50
2,586.49
1,125.50
1,962.42
1,471.82
2,579.99
1,119.00
1,955.92
1,466.94
Joint and Survivor 100%
− before age 65
− after age 65
− for guaranteed period
− to spouse after member's death and guaranteed period
2,547.45
1,086.46
0.00
1,923.38
2,547.42
1,086.43
1,923.35
1,923.35
2,547.12
1,086.13
1,923.05
1,923.05
2,545.99
1,085.00
1,921.92
1,921.92
12
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 employee’s 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, 2012
– Next required valuation is December 31, 2015
13
Valuation Basics - continued
 Purpose of the actuarial valuation is to assess
– the plan’s sustainability and affordability
– future contribution requirements
 Two perspectives:
– Going-concern
• longer-term view
• compares current assets to the value of benefits for past service
– Solvency (required by regulators)
• Wind-up the plan and pay out lump sum values or purchase annuities
• shorter-term view
• compares current assets to the settlement value of benefits for past
service (e.g. annuity purchase)
14
Going-Concern Position
Interim
Dec 31, 2010
Total Assets
Total Actuarial Liabilities
Surplus / (Unfunded
Liability)
Filed
Dec 31, 2012
$222,500,100
$ 222,966,600
$ 242,978,400
241,841,700
259,078,400
279,195,300
$ (19,341,600)
$ (36,111,800)
$ (36,216,900)
92%
86%
87%
18.5%
18.3%
18.5%
Funded ratio
Current service cost
Interim
Dec 31, 2011
15
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:
2013
2014
Member
8.50%
8.50%
University – matching
8.50%
8.50%
University – additional
2.56%
(approx. $1.6M per
year)
6.95%
(approx. $4.6M per
year)
16
Solvency Position
Interim
Dec 31, 2010
Total Assets
Total Actuarial Liabilities
Surplus / (Solvency
Deficiency)
Interim
Dec 31, 2011
Filed
Dec 31, 2012
$222,300,100
$222,766,600
$242,778,400
304,420,400
371,324,300
413,520,100
$ (82,120,300)
$(148,557,700)
$(170,741,700)
73%
60%
59%
Solvency Ratio
• Effective June 2013, the Plan is classified as a “Specified Plan” under the
Pension Benefits Act and therefore solvency funding is not required
• Transfer deficiencies still apply if members transfer out value of pension
17
Transfer Deficiency
– Applies to individuals who terminate employment prior to age 55 or
rule of 80 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
= 41% 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
18
Transfer Deficiency - continued
 Example – Transfer Deficiency
–
–
–
–
–
Date of termination = Jan 1, 2013
Total lump sum entitlement = $100,000
Solvency ratio = 0.59
LS payment on Jan 1, 2013 = 0.59 x $100,000 = $59,000
Transfer Deficiency payment on Jan. 1, 2018
= (1–0.59) x $100,000 = $41,000 (with interest)
19
Plan Membership
Active Members
Dec 31, 2011
Dec 31, 2012
1,413
1,407
Average age
47.9 years
48.0 years
Average years of service
12.2 years
12.1 years
$ 48,800
$51,000
$ 45,278,400
$46,937,154
Dec 31, 2011
Dec 31, 2012
660
697
73.9 years
73.4 years
$ 14,300
$ 15,100
Number
Average annual salary
Accumulated employee
contributions with interest
Pensioners and Survivors
Number
Average age
Average annual pension
20
Plan Membership - continued
Deferred Members
Dec 31, 2011
Dec 31, 2012
54
57
48.8 years
48.4 years
$ 5,400
$ 6,200
$ 869,900
$ 1,026,500
Number
Average age
Average annual pension
Accumulated employee
contributions with interest
Pending Settlement
Dec 31, 2011
Dec 31, 2012
24
24
$ 244,000
$ 216,500
Number
Accumulated employee
contributions with interest
21
Questions
22