||Volume 16, Number 4, March 2004
Teachers’ Pension Plan contribution rates increase July 1, 2004
The December 31, 2002, actuarial valuation report for the Teachers’ Pension Plan was presented to the trustees on January 13, 2004. The report gives the trustees an assessment of the financial health of the pension plan and the changes in the plan-member and employer contribution rates that are needed to keep the pension plan financially healthy. The report is the first received by the trustees since the implementation of the joint-trust agreement of April 2001. Typically, an actuarial valuation report is prepared every three years.
The joint-trust agreement, established in 2001, provides that the plan members and plan employers share in all aspects of the management of the Teachers’ Pension Plan—sharing the risks and rewards of funding the pension plan and sharing any increase or decrease in the contribution rates.
The trustees are pleased to report that the Teachers’ Pension Fund remains strong financially with a relatively small unfunded liability of $382 million. The current unfunded liability is down slightly from the unfunded liability of $454 million at the previous valuation. To put this in context, the funded portion of the liability is $13.2 billion; therefore, the current unfunded portion is less than 3% of the total liabilities of the fund. The total liabilities of the fund are the funds required to pay current and future pension benefits as promised in the plan rules.
During the three years between valuations, the investment rates of return were 7.1% in 2000, –2.0% in 2001, and –5.1% in 2002. The good news is that those investment results were better than those obtained by the average pension plan or in investment markets generally over the same period of time. However, the results are disappointing when compared with expectations for the three-year period.
The changing economic conditions and declining market investment returns are the primary reasons the actuary has changed his economic assumptions for the future. Other factors have also put pressure on plan costs, including an aging plan membership and improving life expectancy. The changes in economic assumptions will increase the amount of contributions needed to provide the promised pension benefit in the Teachers’ Pension Plan. This is a fact that many pension plans are facing today.
As a result, the actuary has determined that an increase in contribution rates is necessary so that the pension plan will maintain its financial viability and thus its ability to meet the pension promise made to plan members. The terms of the joint trust agreement state that the trustees are required to amend the pension-plan rules if they receive an actuarial valuation report concluding that an increase in contribution rates is necessary. Therefore the trustees have decided that effective July 1, 2004, plan-member and employer contribution rates will each be increased by 0.55% as follows:
a. 7.55% of pensionable salary up to the YMPE*, and
b. 9.05% of pensionable salary for salary in excess of the YMPE.
a. 10.68% of pensionable salary up to the YMPE, and
b. 12.18% of pensionable salary for salary in excess of the YMPE.
* Years’ Maximum Pension Earnings (YMPE): the earnings on which you make Canada Pension Plan (CPP) contributions. The 2004 YMPE is $40,500.
Teachers’ Pension Board of Trustees, Pension Board Secretariat, PO Box 9460, Victoria, BC V8W 9V8, F: 250-387-4199, Pension.Board@pensionsbc.ca.