securing your retirement

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Securing Your Retirement

Algonquin College Jan. 2013

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Overview

1. Pensions and politics

2. Why growth matters to you

3. Your role in promoting retirement security

4. Your benefits – a plan worth keeping

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Key Messages - Our mandate

The purpose of the CAAT Pension Plan is to improve the financial security of members in retirement with appropriate and secure benefits supported by stable and affordable contribution rates.

Measuring success

Contribution rates

Minimize probability of increases

Appropriate for benefits earned

Reduce volatility

Secure promised benefits

Avoid benefit reductions (funding level)

Paying post-2007 conditional indexing

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Key Message – Joint Governance adds value

Jointly-sponsored, multi-employer Plan

Equal representation

Bicameral governance structure

29 employers and growing

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Board of Trustees – joint representation

12 member Board

Responsible for Administration

Investments

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Sponsors’ Committee – joint representation

8 member Committee

Responsible for Benefit design

Contribution rates

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Key Message - Healthy demographic profile

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Active members: 20,500Retired members: 12,100 (including survivors)

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Key Message - Well diversified asset mix

Key Message - Strong financials

Filed valuation with small surplus (01/01/2012)

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* Preliminary results to September 30, 2012

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Overview

1. Pensions and politics

2. Why growth matters to you

3. Your role in promoting retirement security

4. Your benefits – a plan worth keeping

Pension plans are facing headwinds

Historically low-interest rates

Increasing longevity

Hangover from the economic crisis of 2008

Onerous and changing pension legislation

Pension Envy

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Pensions, politics and the emerging reality

Federal gov’t announces OAS to start at 67

Drummond Report – calls for amalgamation of plans for better administrative efficiency

Budget 2012 – 50/50 cost sharing, JSPP

William Morneau report - pooling of pension funds under $40 Billion

Pensions are on the political agenda in 2013 and will likely remain there

JSPP framework

Investment pooling

Annual valuations

Choose: benefit reductions over contribution increases

One size fits all

Pension expense

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Hon. Dwight Duncan, Minister of Finance

Specifics of recent agreement

Exempt from special legislation

No forced participation in pooled investment fund

Granted longer valuation cycle for flexibility and stability

Governance decisions remain in the Plan

Benefit restoration at 100% funded

Funding Policy temporarily changed

CAAT recognized as a model

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Forced pooling of pension assets? No Thanks

Misaligned investments results in more volatility

Risk of too many eggs in one basket

Diseconomies of scale in certain assets

Governance structures across unrelated sectors will create costly growing pains

Untested

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Retaining control of investments means

We continue with our diversified, sophisticated investment program

We manage investment risk to our tolerance

We are focused on Plan needs

With a single focus our asset size is not a limitation

Why retaining control matters

Joint governance structure remains independent

Benefits and contributions decisions geared to needs of college sector

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Change to Plan Funding Policy – to 2018

If funding deficit arises

Future benefits would be temporarily reduced

Restoration at 100% funding

Benefits earned remain protected

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CAAT is recognized as the model

Jointly sponsored plan with good governance

50-50 cost and risk sharing

Top quartile investment performance

Sustainable: Liabilities recognize longevity and lower expected

investment returns

Conditional indexing

Funding policy

Should you be worried? No, and here’s why

Pension benefits earned to date are protected

Plan governors are focused on keeping pensions stable, secure

Reductions will be minimized, temporary

CAAT is a model pension plan – tweaks

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More reasons for reassurance

Changes already made put the Plan on a sound financial footing Recognizing longer life span in assumptions

Realistic assumptions about investment returns

More diversified investments, aligned with liabilities

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Overview

1. Pensions and politics

2. Why growth matters to you

3. Your role in promoting retirement security

4. Your benefits – a plan worth keeping

Inviting interested universities to join CAAT

We propose university members join on a future service basis

Past debt remains the responsibility of the university unless plan to fully fund

Governance structure to be adjusted as appropriate, but CAAT retains 50% of representation

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Why the CAAT Plan is pursuing growth

Growth in Plan membership improves stability of pension funding

Accelerates contribution rate reductions

Similar demographic profile makes for lower risk and better alignment

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How university members benefit

Strong voice in a well-governed, transparent pension plan

More of contributions go to benefits than to expenses – economies of scale, no PBGF

Secure, well-funded, sustainable plan offering good value

Ready-made long-term solution

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How universities benefit

Avoids solvency funding requirements

Substantially lowers cost and risks associated with pension administration, investments, governance and compliance

Stabilizes contribution rates

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How Ontario benefits

An efficient postsecondary sector pension plan achieved without legislation

The proposal offers an immediate solution

High interest in its success

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Advantages of postsecondary pension plan

More predictable contribution and secure benefits

True joint governance

Lower costs and risks

Dedicated pension, investment expertise

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Aligned with gov’t objectives

Postsecondary sector alignment

Permanent solvency exemption

Proven solution

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Overview

1. Pensions and politics

2. Why growth matters to you

3. Your role in promoting retirement security

4. Your benefits – a plan worth keeping

Importance of adequate retirement income

60% of Canadians do not have a work-place pension and most will have inadequate personal savings at retirement.

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DB are complex and ripe for oversimplification

The critics see pension plans as too generous, unsustainable and unfair to Canadian taxpayers.

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“Canada’s pension system is a disaster waiting to happen. Public sector pension plans at all levels of government are massively underfunded which will demand higher taxes and strain Canada’s economy.”

Public Sector Pensions: A Runaway TrainCanadian Federation of Independent Business

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“We need to have a retirement scheme that isn’t going to bankrupt the country. The money is not there to cover these obligations.”

Gregory Thomas, National DirectorCanadian Taxpayers Federation

(As quoted the Toronto Sun, August 29, 2012 referencing CD Howe Institute’s estimate of the federal public service unfunded liability of billions of dollars)

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Towers Watson study – results of pressures

Many closing or freezing DB plans

DC members behaviors will lead to insufficient retirement income late entry, leaving money on the table deferring retirement not adequately prepared buy high, sell low

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Solution isn’t viable in the long term

Conversion to DC plans – people will pay more and receive less

DC plans are less efficient – will need to over save to guard against individual risk

In DB, risks are pooled

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Five truths about DB pensions worth sharing

1. Adequately funded

2. Shared risk

3. Plans are efficient, low cost operations

4. Provides long-term capital

5. Helps combat poverty among the elderly

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Sign up to receive news directly from the CAAT Pension Plan at your work or personal e-mail address.

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Overview

1. Pensions and politics

2. Why growth matters to you

3. Your role in promoting retirement security

4. Your benefits – a plan worth keeping

CAAT benefits comparable to other public plans

Lifetime and bridge benefits

Pensions based on best-5 years (60 consecutive months

Flexible retirement options

60% Survivor benefits

Conditional inflation protection

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Lifetime and bridge benefits

Before 652% x service

After 651.3% to YMPE2% over YMPE

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Flexible retirement options

Retire as early as 50 with 20 years or (55 and 2) as late as 71

Permanent early retirement provisions

Unreduced dates (earliest) 85 factor (age plus service) 60 years of age and 20 years of service

Reduction of only 3% per year from earliest

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Joint and survivor pension options

60% survivor pension - included

If you marry after retirement, your new spouse automatically receives a survivor pension – included

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Conditional inflation protection

Inflation protection at 75% of the CPI conditional on the funding status – subject to the results of the Plan’s most recent filed actuarial valuation.

Highest priority First dollar of surplus First priority for reserves

Perfect record

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Value

Member retires at 60

Lifetime pension: $21,967

Bridge paid to 65: $7,036

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www.caatpension.on.ca

Stay informed – sign up for direct updates

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Questions welcome