Built on fundamental principles: paying both promised and conditional benefits
The Funding Policy defines six levels of Plan financial health and sets guidelines for the Plan governors to use reserves and conditional benefits to manage through periods of volatility, to keep the Plan sustainable over the long term to secure benefits while balancing fairness across the membership.
Annually, CAAT performs an actuarial valuation of the Plan. The valuation determines the Plan’s funded status and accordingly where the Plan sits within the levels of the Funding Policy.
The Funding Policy highlights the Plan’s long-term focus of protecting promised benefits and minimizing contribution rate volatility, while recognizing the desire to achieve intergenerational equity. To deliver on these longer-term goals while managing through short term volatility a blend of stability contributions, conditional benefits, and reserves are used.
There are six funding levels that help the Plan maintain a long-term focus and achieve its key strategic goals of benefit security, contribution stability and intergenerational and inter-design equity.
Revised effective June 1, 2018
DBprime
If the Plan has a deficit after using all reserves and the 3% DBprime stability contributions being paid by active members, Ontario pension law would require DBprime stability contributions to be further increased temporarily and/or that benefits members build in future be reduced to eliminate a deficit. Conditional inflation protection would not be paid to retired and deferred members.
DBplus
If the Plan has a deficit after using all reserves and contributions being paid by active members, the Plan would not pay post-retirement conditional inflation protection to retired and deferred members and will not pay pre-retirement benefit increases to active members. The Plan will also temporarily remove any early retirement subsidies. The Plan may consider reductions to future benefits by reducing the lifetime annual pension factor below 8.5%.
With the 3% in DBprime stability contributions being paid by active members and the Plan’s funding reserves being fully used, the Plan has a small surplus. The Plan will provide the current period of conditional inflation protection increases to retired and deferred members. Surplus funds will also be allocated to funding reserves to withstand up to a 1% reduction in the discount rate.
With the contributions being paid by active members and the Plan’s funding reserves being fully used, the Plan has a small surplus. The Plan will provide the current year of conditional inflation protection increases to retired and deferred members and would restore the annual pension factor to 8.5% for future benefits while considering restoring any prior pension factor reductions in previous years (if any). The subsidized early retirement reduction rate will be set at 5%. Pre-retirement benefit increases for active members will not be made. Surplus funds will also be allocated to funding reserves to withstand up to a 1% reduction in the discount rate.
DBprime stability contributions of 3% are required from active members. The Plan will provide current period conditional inflation protection increases for retired and deferred members plus make additional increases for past years of conditional inflation rate increases missed (if any). Surplus funds will also be allocated to funding reserves to withstand up to a 1.5% reduction in the discount rate.
The Plan will apply conditional inflation protection increases for retired and deferred members for the current period plus make additional increases for past years of inflation rate increases missed (if any). Pre-retirement benefit increases for active members will be applied. The subsidized early retirement reduction rate will be 5% and the lifetime annual pension factor will be 8.5%. Surplus funds will also be allocated to funding reserves to withstand up to a 1.5% reduction in the discount rate.
DBprime stability contributions of 1%, 2%, or 3% are required from active members. All periods of conditional inflation protection increases for retired and deferred members have been made. Surplus funds will be allocated into reserves to withstand up to a 2% reduction in the discount rate and build reserves to fund future conditional inflation increases for retired and deferred members.
The Plan will pay current period pre-retirement benefit increases to active members and consider providing increases for past years of pre-retirement benefit increases that were missed (if any). The lifetime annual pension factor will be 8.5%. In addition, the Plan will consider early retirement reduction factors of 3%, 4%, or 5%. Post-retirement conditional inflation protection will be applied and surplus funds will be allocated to reserves to withstand up to a 2% reduction in the discount rate and build reserves to fund future conditional inflation increases.
Active members will be contributing DBprime stability contributions of 0% or 1%. The Plan has fully funded the reserves required to fund future conditional inflation protection increases and withstand a 2% reduction in the discount rate. Additional funding reserves are being built to withstand up to a 7.5% increase in liabilities as an additional cushion for securing promised benefits.
Pre-retirement benefit increases for active members and post-retirement conditional inflation protection for retired and deferred members will be applied, while the early retirement reduction factor will be 3%. The Plan will consider lifetime annual pension factors of 8.5% or 9.5%. The Plan has the reserves required to fund future conditional inflation protection increases and can withstand a 2% reduction in the discount rate. Additional funding reserves are being built to withstand up to a 7.5% increase in liabilities as an additional cushion for securing promised benefits.
Full funding reserves have been built. DBprime stability contribution rate is 0%. Conditional inflation protection for retired and deferred members will be paid. The Plan has sufficient surplus to consider any combination of the following changes:
Full funding reserves have been built. The lifetime pension factor is at least 9.5%. Conditional inflation protection for retired and deferred members and pre-retirement increases for active members will be made. The Plan has sufficient surplus to consider any combination of the following changes:
For DBprime and DBplus
For DBplus only