What members of the CSSB Pension Fund need to know about the funded status of their pension plan:
Many members of the CSSB Pension Plan are unaware that their pension fund is in a critically underfunded state. This is important information for members to know because it means that the assets available within the fund are not sufficient to provide the benefits promised.
In the Actuarial Report as at December of 2011, the actuaries for the plan were quoted as stating “I hereby certify that, in my opinion, the assets of the Fund, together with future investments income, and the current contributions levels are inadequate to provide the benefits promised by the Fund, in respect of service completed up to the valuation date based on the actuarial assumptions and methodology used in this Report. Without the necessary contribution increases and/or favourable future experience, assets will not be sufficient to provide the benefits.” (Appendix 1)
The deficit of the pension plan at the end of 2011 ($3,706,538,000) was greater than the asset available for benefits ($3,464,536,000). (Appendix 2)
When a pension plan is underfunded and changes are required in order to ensure that all members receive the benefits promised to them, there are several options that are available to the pension plan including:
- Increase contributions
- Increase investment returns which could increase risk
- Delay the age at which unreduced benefits can be taken
- Decrease benefits
The underfunded position of the pension plan as identified by the plan’s actuaries led to the decision to recommend a gradual increase to the employee contribution rates by an additional 2% of their salary over a four year period from July of 2012 to January of 2015.
The Lieutenant Governor in Council made a regulation to increase contribution rates to the plan as outlined in the following table that first appeared in the Annual Report of the Fund for 2011.
Please note that the increased contributions are not intended to provide increased pension benefits, but are considered necessary to fund existing benefits in the future.
| For pay periods ending: | Contribution rate on salary up to Canada pensionable earnings | Contribution rate on salary over Canada pensionable earnings |
|---|---|---|
| before July 1, 2012 | 6.0% | 7.0% |
| on or after July 1, 2012 but before 2013 | 6.5% | 7.5% |
| in 2013 | 7.0% | 8.0% |
| in 2014 | 7.5% | 8.5% |
| after 2014 | 8.0% | 9.0%\ |
The pension plan has experienced average annual rates of return of 9.46% from 2012 to the end of 2016 as disclosed in the Annual Reports for those years.
The plan’s returns for the past 5 years as reported in the Annual Reports were as follows:
2012: 10.23%
2013: 14.74%
2014: 9.24%
2015: 7.63%
2016: 5.65%
Contributions by employees have increased by 33% (from 6% to 8%) from 2012 to 2015.
However, the deficit of the pension plan has increased from the end of 2011 from $3,706,538,000 to $4,275,000 at the end of 2016.
The problem is that the actuarial valuation of the pension obligations is increasing at a faster rate than the total assets available to provide pension benefits. This is resulting in the deficit increasing at an even faster rate than the total assets available to provide pensions for the members.
In the Actuarial Report as at December of 2016, the actuaries for the plan were quoted as stating “We hereby certify that, in our opinion, the assets of the Fund, together with future investment income, and the current contributions levels are inadequate to provide the benefits promised by the Fund, in respect of service completed up to the Valuation Date based on the actuarial assumptions and methodology used in this Report. Without the necessary contribution increases and/or favourable future experience, assets will not be sufficient to provide the benefits.”
In conclusion, after significant increases to the contributions made by the employees who are members of the Plan and after 5 years of very favourable experience where the returns substantially exceeded the actuarial return of 6%, the deficiency is higher at the end of 2016 than it was at the end of 2011 and the actuaries conclude that based on current contribution levels and future investment income, the assets of the fund are inadequate to provide the benefits promised.
Although the information provided above is worrisome, there is some good news. There are options available to provide a more secure retirement income than the pension plan may be able to provide.
You can take control of your future retirement lifestyle by making the right changes today.
Contact ken@evolutionsolutions.ca or at 204-416- 3272 (ask for Ken) for a private, no cost, no Obligation consultation.