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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) 8
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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 10
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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 14
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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 15
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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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Stay informed – sign up for direct updates
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
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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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Stay informed – sign up for direct updates
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
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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) 36
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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Stay informed – sign up for direct updates
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
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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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Stay informed – sign up for direct updates
Sign up to receive news directly from the CAAT Pension Plan at your work or personal e-mail address.
Questions welcome
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