Board Communique: September 26, 2016
An independent valuation report shows that BC's Municipal Pension Plan is fully funded.
The Municipal Pension Plan 2015 valuation shows the plan funding ratio is 104.6 per cent. This means the money projected to be available for future pensions (actuarial assets) exceeds the projected costs of paying for those pensions (actuarial liabilities).
The valuation results demonstrate the plan is well governed, healthy and sustainable. The plan is designed to adapt with the times to promote long-term sustainability. At least every three years, an independent actuary (a professional with specialized knowledge of the mathematics of finance, statistics and risk theory) performs a valuation. It helps the board make sure there are enough funds available to meet plan members’ basic pension promise.
The most recent valuation, conducted as at December 31, 2015, was received by the board in September 2016. The valuation showed the plan’s basic account, which pays lifetime pensions, was 104.6 per cent funded with actuarial assets of $50.67 billion and actuarial liabilities of $48.44 billion.
Of the surplus, $1.9 billion will be put into a rate stabilization account, which will help offset potential future contribution rate increases. The remaining surplus is needed to maintain the Pension Benefits Standards Act required contribution rate. Active plan members and their employers have had three contribution rate increases resulting from three of the last four valuation reports. The account will help promote contribution rate stability and create a more equitable experience for active members and employers contributing to the plan right now.
As part of the valuation, the board reviews actuarial projections and the market outlook. In light of these conditions, the board has lowered the target investment rate from 6.5 per cent to 6.25 per cent.
Sustainable COLA has increased
As part of the valuation, the actuary reviews the inflation adjustment account (IAA). The board uses this information to determine the sustainable cost-of-living adjustments (COLA) limit—the COLA cap—for the next three years. The sustainable COLA cap for 2017–2019 will be 2.1 per cent, up from the previous cap of 1.95 per cent.
COLA is funded by the IAA. This account holds a portion of member and employer contributions, and earns investment income. Annual COLA is not guaranteed; however, once granted, it becomes part of a member’s basic pension.
COLA is based on the September to September change in the Canadian consumer price index and the sustainable COLA limit. This cap is the maximum amount the board can grant in a year. Any COLA granted is applied in January.
Non-guaranteed group benefits for retired members are changing
In addition to a valuation, the board monitors the health of the plan by reviewing non-guaranteed group benefits for retired members. In April 2016, the board announced changes to extended health care and dental benefits for retired members effective January 1, 2017. Access to and subsidies of post-retirement group benefits are subject to board policy and funding constraints.
What it means for members
Your contribution rate will not increase because of this valuation.
What it means for employers
Your unique contribution rate will change because of employer contribution rate simplification and your employee demographics. Please see the September 26, 2016, Employer Bulletin for more information.