University of Saskatchewan and
Federated Colleges Non-Academic
Pension Plan
November 1, 2012
Agenda
 Pension Committee Governance Structure










What is an Actuary?
Pension Terms
The Non-Academic Plan
Valuation Basics
Going-Concern Position
Solvency Position
Current Contribution Schedule
Solvency “Extras”
Plan Membership
Current Pension Landscape
1
Pension Committee Governance Structure
Board of Governors
Pension Committee
Investment
Benefit, Financial,
Accounting and Controls
- Investment Policy
- Investment
Monitoring
- Plan Design
- Funding Policy
- Communication/
Education
- Expense Controls
- Financial Statement
Accounting
Administration and
Compliance
- Daily Administration
- Plan Documentation
- Regulatory Filings and
Compliance
What is an Actuary?
 ac-tu-ar-y
“An actuary is a professional business person who is skilled in the
application of mathematics to financial problems. Actuaries employ
their specialized knowledge of the mathematics of finance, statistics
and risk theory on problems faced by the following:
– Insurance companies (both Life and Property/Casualty)
– Pension plans
– Government regulators
– Social programs
– Individuals ”
3
Role of the actuary
 Assists pension committee with administration of pension
plan
 Tasks include:
–
–
–
–
–
–
Actuarial valuations
Education
Cost analyses
Plan amendments
Plan design
Funding policies
4
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.
5
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 pension calculated at retirement?
2% x Service x BAE4
where:

Service = pensionable service earned while a member of the Plan

BAE4 = Best Average Earnings, based on average of highest 48 continuous
months of earnings
6
The Non-Academic Plan Basics - continued
 What do I contribute to the Plan?
– Current member contribution rates are:
• 2011: 8.25% of earnings
• 2012 and thereafter: 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:
• 2011: 11.31% of earnings
• 2012 & thereafter: 11.06% of earnings
7
The Non-Academic Plan Basics - continued
 When can I retire?
Normal
Retirement
• 1st of the month immediately
following age 65
Postponed
Retirement
• 1st day of the month following a
member’s normal retirement
• No later than age 71
Early
Retirement
• 1st of the month following age 55
(subject to early retirement
reductions)
8
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
9
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
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 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
10
The Non-Academic Plan Basics – Example
 Member Information:
–
–
–
–
–
Date of retirement = December 31, 2012
Age at date of retirement = 55
Pensionable Service at date of retirement = 21 years
Age plus service equal to 76 (i.e. 76 points towards rule of 80)
Earnings for the last 10 years are as follows:
Year
Annual Pensionable Earnings
2012
$56,000
2011
$50,000
2010
$45,000
2009
$42,000
2008
$40,000
2007
$35,000
2006
$34,000
2005
$32,000
2004
$30,000
2003
$26,000
11
The Non-Academic Plan Basics – Example
 Calculation of BAE4:
– Based on average of highest 48 continuous months of earnings
Year
Annual Pensionable Earnings
2012
$56,000
2011
$50,000
BAE4
2010
$45,000
=(56,000 + 50,000 + 45,000 + 42,000 ) / 4
2009
$42,000
= $48,250
2008
$40,000
2007
$35,000
2006
$34,000
2005
$32,000
2004
$30,000
2003
$26,000
12
The Non-Academic Plan Basics – Example
 Calculation of pension:
– Unreduced Lifetime Pension
= 2% x 21 x $48,250
= $20,265 per year
= $1,688.75 per month
2% x Service x BAE4
 Will the pension be reduced?
– Yes, because member is not age 60, does not have 30 years
of service, and does not meet rule of 80
– Reduction: 0.25% per month to earlier of age 60 or rule of 80
13
The Non-Academic Plan Basics – Example
 Calculation of early retirement reduction:
a) Months until age 60 = (60 – 55) x 12 = 60
b) Months until rule of 80 = (80 – 76) x 12 = 48
Early retirement reduction = 0.25% x 48 = 12%
Unreduced Pension = $20,265 per year
Reduced Pension = $20,265 x (1 – 0.12) = $17,833.20 py
 Member will receive $17,833.20 per year payable in the
normal form.
– Reduction in pension would apply if optional form of pension chosen
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 to the value of benefits for past 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
Total Actuarial Liabilities
Surplus / (Unfunded Liability)
Filed
Dec 31, 2009
Interim
Dec 31, 2010
Interim
Dec 31, 2011
$ 216,130,600
$222,500,100
$ 222,966,600
238,362,100
241,841,700
259,078,400
$ (22,231,500)
$ (19,341,600)
$ (36,111,800)
0.91
0.92
0.86
Funded ratio

Current service cost at Dec 31, 2011: 18.33% 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:
2010
2011
2012
Member
7.50%
8.25%
8.50%
University – matching
7.50%
8.25%
8.50%
University – additional
4.56%
3.06%
2.56%
18
Solvency Position
Total Assets
Total Actuarial Liabilities
Surplus / (Solvency Deficiency)
Filed
Dec 31, 2009
Interim
Dec 31, 2010
Interim
Dec 31, 2011
$ 215,930,600
$222,300,100
$222,766,600
283,627,000
304,420,400
371,324,300
$ (67,696,400)
$ (82,120,300)
$(148,557,700)
Current solvency ratio that is applicable: 76% (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 prior to age 55 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 = 0.76
LS payment on Jan 1, 2012 = 0.76 x $100,000 = $76,000
Transfer Deficiency payment on Jan. 1, 2017
= (1–0.76) x $100,000 = $24,000 (with interest)
22
Estimated Financial Position at Dec. 31, 2012
Dec 31, 2012
5% Margin
10% Margin
6.75%
6.75%
$34.3M
$47.3M
$147.0M
$147.0M
- With solvency
41.2%
42.0%
- Without solvency
23.1%
25.5%
Assumed ROR in 2012
Estimated Unfunded Liability
Estimated Solvency Deficiency
Estimated Total Contribution
Requirements starting Jan 1, 2013
(% of pensionable earnings)
23
Plan Membership
Active Members
Dec 31, 2010
Dec 31, 2011
1,399
1,413
Average age
47.7 years
47.9 years
Average years of service
12.2 years
12.2 years
$ 46,900
$ 48,800
$ 42,698,800
$ 45,278,400
Dec 31, 2010
Dec 31, 2011
638
660
74.1 years
73.9 years
$ 13,400
$ 14,300
Number
Average annual salary
Accumulated employee
contributions with interest
Pensioners and Survivors
Number
Average age
Average annual pension
24
Plan Membership - continued
Deferred Members
Dec 31, 2010
Dec 31, 2011
30
54
49.1 years
48.8 years
$ 3,700
$ 5,400
$ 336,400
$ 869,900
Number
Average age
Average annual pension
Accumulated employee
contributions with interest
Pending Settlement
Dec 31, 2010
Dec 31, 2011
62
24
$ 706,000
$ 244,000
Number
Accumulated employee
contributions with interest
25
Current Pension Landscape
 Challenges facing DB pension plans:
– 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
– Benefit promises may be set too high too far in advance
• Establish more modest promises with hope of future enhancements
 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
Questions
28