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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.
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Measuring success
Contribution rates
Secure promised benefits
Minimize probability
of increases
Avoid benefit
reductions (funding
level)
Appropriate for
benefits earned
Reduce volatility
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
Active members: 20,500
Retired members: 12,100 (including survivors)
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Key Message - Well diversified asset mix
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Key Message - Strong financials
Filed valuation with small surplus (01/01/2012)
* 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
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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
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JSPP framework
Investment pooling
Annual valuations
Choose: benefit
reductions over
contribution
increases
One size fits all
Hon. Dwight Duncan, Minister of Finance
Pension expense
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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
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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
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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
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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
Aligned with gov’t
objectives
Postsecondary sector
True joint governance
alignment
Lower costs and risks Permanent solvency
exemption
Dedicated pension,
investment expertise 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
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Importance of adequate retirement income
60% of Canadians
do not have a workplace 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 Train
Canadian 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 Director
Canadian 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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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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CAAT benefits comparable to other public plans
Lifetime and bridge
benefits
60% Survivor
benefits
Pensions based on
best-5 years (60
consecutive months
Conditional inflation
protection
Flexible retirement
options
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Lifetime and bridge benefits
Before 65
2% x service
After 65
1.3% to YMPE
2% 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
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Questions welcome
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