Board Communique: August 13, 2020
Positive valuation leads to good news for members and employers.
The College Pension Plan’s (plan’s) most recent valuation, measured as at August 31, 2018, shows the money available for current and future pensions exceeds the projected costs of paying for those pensions. As a result, we have made three changes to the plan that benefit our members and employers.
- Effective immediately, when members receive contractual pay increases, members and employers no longer need to make additional contributions to help fund the inflation adjustment account (IAA). The IAA is used to fund cost-of-living adjustments (COLAs) for retired members.
- The COLA cap will be removed. This means, starting January 1, 2021, the annual COLA granted retired members can match the annual increase in the Canadian consumer price index even in years of higher inflation.
- A rate stabilization account (RSA) has been established. Funds in the RSA can be used to offset future contribution rate increases in the case of a negative valuation.
The 2018 valuation
The plan’s valuation, measured as at August 31, 2018, shows the plan has actuarial assets of $5.2 billion and actuarial liabilities of $4.9 billion. This means the plan is in a surplus situation with a funding ratio of 106.1 per cent.
After carefully exploring various options, and using the College Pension Plan Joint Trust Agreement (the agreement that provides the framework for the plan) as a guide, we were able to make the decisions above.
The plan’s next valuation will be as at August 31, 2021, with results announced in 2022.
Removal of contribution rate increases tied to contractual raises
In 2014, we agreed to strengthen the long-term health of the IAA by requiring IAA contribution increases to be in step with negotiated salary increases in the college sector. For every annual pay increase of one per cent or more, an amount equivalent to one-twentieth (five per cent) of that increase would go to the IAA as member contributions, with matching employer contributions.
This meant for an annual member pay increase of $1000, the member and employer would each pay $50 more toward the IAA.
As the latest valuation shows the IAA is healthy and sustainable, we made the decision to remove this requirement effective immediately.
Removal of the COLA cap
Plan rules allow us to grant an annual COLA to retired members. COLAs help maintain the purchasing power of pensions by increasing monthly pensions. COLAs come into effect January 1 each year and are based on the annual change in the average Canadian consumer price index (CPI) in the 12 months up to and including October 31 of the preceding year.
Since January 2011, COLAs have been limited by a cap, put in place to ensure COLAs remained sustainable. This meant if the CPI exceeded the cap in any given year, a retired member would receive only the amount of the cap. This cap will be removed.
The COLA benefit is not guaranteed, although once a retired member receives a COLA, it becomes part of their guaranteed lifetime benefit. We regularly review the IAA and, if required at a future date, we will restore a cap on COLAs to protect their sustainability.
The valuation and the pandemic
As a member or employer, you may be concerned about the plan making enhancements during this difficult economic time.
It’s important to remember pensions are calculated based on a formula that takes into account a member’s years of service and highest average salary. Pensions are safe and secure.
The performance of investment returns over the long term can, however, ultimately lead to contribution rate changes for active members and employers. Though 2020 has been difficult, the plan has enjoyed strong performance over the past 10 years.
Our commitment to you
We want to thank the college community not only for working hard to serve the people of British Columbia but also for doing their part to follow public health guidelines.
We are committed to being both responsive and responsible, and members can count on us to look after their pension. We hope that knowing pensions are safe and secure provides some peace of mind.