Funding Management Strategy

A primary objective of the SC is to ensure the continuing health and long-term viability of the Primary Plan, giving due consideration to the interest of stakeholders.  The Funding Management Strategy outlines how the SC intends to achieve that objective.

There are three management zones defined by the plan’s funded status.  The funded status represents a snap shot of the plan’s current financial health and assists the SC in determining whether action is required to either improve or maintain the current funded status.  The management zones are defined as follows:

Each zone has a unique goal and a unique set of actions which are meant to achieve that goal.  There is an order of priority - first is to get the plan back to fully funded, then to build the funded status up to 110%.  Once the plan is 110% funded, the extra 10% will act as a reserve to mitigate any undesirable events, providing a level of benefit security and a stabilizing effect on contribution rates.  The objective at that point will be to maintain the funded status at or above 110%.

The actions outlined in each management zone are meant to achieve the stated objectives while balancing competing factors such as equity, sustainability, security of benefits and affordability.

The Management Zones

The actions under the three management zones are outlined below:

  • Under Deficit Management the objective is to get to 100% funded:

    • Deficits will be funded through a combination of contribution rate increases and benefit reductions – with the need for benefit reductions increasing as contribution rates increase.
    • No benefit reductions are considered when the contribution rate is below 19.5%.
    • The blended contribution rate will not be permitted to go above 22.6% (a little more than 1 percentage point higher than the 2014 blended contribution rate).
    • There is flexibility to reduce contribution rates if the plan's funded position improves faster than expected.

 

  • Under Reserve Management the objective is to get to 110% funded and begin restoring benefits:

    • Contribution rates will cover the cost of benefits accruing, plus either: 2% when below 105% funded, or 1% when above 105% funded.
    • Benefit reductions which occurred during Deficit Management will be restored, on a phased basis, beginning when the plan reaches 105% funded.  Any remaining restoration occurs when the plan reaches 110% funded.  The SC may choose to alter the benefits which are restored, but they would be of equivalent value.
    • Restoration will be on a prospective basis, which means it will only impact benefits earned in the future, not those that have already accrued.
    • The benefit reductions effective January 1, 2013, although originally expected to be restored when the plan returns to 100% funded status, will be delayed until the funded status reaches 105%.

 

  • Under Surplus Management the objective is to maintain the 110% funded status and restore benefits:

    • Contribution rates will no longer include the extra 2% or 1% that was included in reserve management.
    • Before any other actions are taken, benefits will be restored retroactively, but only when doing so will not reduce the funded status to below 110%, and it is considered prudent to do so.
    • Additional contribution rate reductions and benefit enhancements may also occur, but only to the extent the funded status is not reduced to below 110%.

For reference, the contribution rate figures noted above (i.e. 19.5%, 22.6%) refer to the average for the entire plan and combine both the amount contributed by the member and employer – this is sometimes referred to as the blended contribution rate.  The extra 2% or 1% noted above also combines the member and employer amounts (i.e. each would pay an extra 1% or 0.5%).

There are four contributions rates which are unique and depend on the member’s normal retirement age (i.e. 60 or 65) and earnings above and below the Years Maximum Pensionable Earnings.  The SC has adopted a methodology for allocating the blended contribution rate into the four contribution rates.