CAAT Pension Plan funded status grows to 120% with benefit security reserves of $2.6 billion
The CAAT Pension Plan stands 120% funded on a going-concern basis, with a funding reserve of $2.6 billion, based on its latest actuarial valuation as at January 1, 2019. This is an improvement over last year’s valuation that showed the Plan 118% funded with a funding reserve of $2.3 billion.
Based on the Plan’s Funding Policy, the Plan governors determined that allocating additional reserves to further strengthen benefit security is the most prudent option at this time. Funding reserves maintain the Plan’s resilience and cushion the Plan against future economic or demographic shocks.
The valuation will be filed with the regulator in the coming weeks and posted to the Plan’s website. By opting to file this valuation, the Plan will not be required to file again before 2022.
Each funding valuation includes a review of the economic and demographic assumptions used, to ensure they continue to be realistic and appropriate for the Plan’s risk tolerance. As part of this review, the Plan’s discount rate has been lowered to 5.5% from 5.6%. The discount rate reflects the asset mix, expected long-term market returns on the investment portfolio, and the Plan’s risk tolerance.
The valuation assumes that members retiring today can expect to live on average to age 89.
The CAAT Plan’s 2018 investment results will be released with its annual report in late April.
The actuarial valuation compares the CAAT Plan’s liabilities – the pensions earned by members, and the estimated pensions that will be earned in the future – to the assets of the pension fund and estimated contributions to be received.
When the value of the fund, and the value of the liabilities match, the Plan is fully funded. When the Plan is more than 100% funded, it means the Plan has funding reserves to further back the promised pensions.
The Plan’s ongoing stability is the result of strong long-term investment performance, realistic assumptions, and setting contribution rates at a level adequate to secure pension benefits over the long term.
Maintaining a healthy funding reserve to manage through unforeseen economic and demographic shocks reflects the desire for a secure and sustainable pension plan.
These factors are enshrined in a well-thought-out Funding Policy developed by the joint sponsors of the Plan.
The Funding Policy defines six levels of Plan financial health and prescribes the use of reserves, stability contributions, and conditional benefits at each level.