Board Communique: October 6, 2022
Your Municipal Pension Plan is 105.3 per cent funded and ready for the future
The 2021 actuarial valuation1 shows BC’s Municipal Pension Plan has:
- a funding ratio of 105.3 per cent
- actuarial assets of $74.13 billion and liabilities of 70.37 billion for a surplus of $3.76 billion
- $3.19 billion in the rate stabilization account2
- a well-funded inflation adjustment account
The plan continues to be sustainable for the future.
Based on the actuary's analysis, the board decided to remove the cost-of-living adjustment (COLA) cap for the next three years.
What this means for members and employers
You do not need to take any action.
The basic account is well funded to provide members’ lifetime monthly pensions. Member and employer contribution rates will not increase because of this valuation.
All members benefit from a well-funded plan, with pensions remaining secure both now and in the future.
What this means for non-guaranteed benefits
Cost-of-living adjustments for retired members
As part of the valuation, the actuary reviews the inflation adjustment account. We use this information to set the level of sustainable COLAs for the next three years. COLAs are a valuable but non-guaranteed benefit of the plan.
When provided, COLAs take effect in January. Increases apply to your lifetime pension. The COLA also applies to the bridge benefit and any temporary annuity while you are receiving them.
In 2016, we decided to put a cap, or limit, on the amount of COLA so that funds are not used up faster than they can be replaced.
Sustainable COLA for 2023–2025
We recognize that COLAs are an important way to preserve the purchasing power of your pension. Because of the financial strength of the plan’s basic and inflation adjustment accounts, we can remove the COLA cap for the next three years. This will provide valuable inflation protection.
For 2023 through 2025, COLAs may be in line with the annual changes in the Canadian consumer price index (CPI). For example, the COLA effective January 1, 2023, may be the increase in CPI from September 2021 to September 2022.
Although there is no COLA cap during this time, trustees still have the option of providing a COLA less than the increase in the CPI from September to September, based on the health of the plan.
Sustainable COLA is closely tied to actual inflation levels and actual investment returns. Because of this, we will review the level of sustainable COLA every three years as part of the actuarial valuation.
We will post the COLA for 2023 on the plan website in January. It will also be in the winter issue of the retired member newsletter Pension Life.
Group health benefits for retired members
Retired members have access to optional group benefits through the Municipal Retiree Benefit Trust. This program and its funding are not related to the plan’s valuation results.
What happens next
The plan’s Joint Trust Agreement guides our decisions in the use of that surplus. The Joint Trust Agreement allows surplus to first be used to maintain the current contribution rates, and then to divide any remaining surplus between the inflation adjustment account and the rate stabilization account. The inflation adjustment account funds COLAs. The rate stabilization account helps offset potential future contribution rate increases.
Of the $3.76 billion of the surplus, about $2.47 billion will be kept in the basic account as a contribution cushion. Another $277 million will be used to maintain the current contribution rates. We will divide the remaining $1.018 billion between the inflation adjustment and rate stabilization accounts.
We have lowered the discount rate—an estimate of expected rates of return from plan investments over the long term—from 6.25 per cent to 6.00 per cent. We’ve done this because we expect lower investment returns in the future.
The plan conducts a valuation every three years. Valuations are a snapshot in time that assess the financial sustainability of the plan. An actuary does the valuation. An actuary is a specialist in financial modelling, statistics and risk management.
The next valuation will be measured as at December 31, 2024 with the report available in fall 2025.
1 At December 31, 2021
2 This account helps protect active members and employers from contribution rate fluctuations