Board Communique: September 25, 2019
The Municipal Pension Plan 2018 valuation shows the plan is fully funded.
The basic account is fully funded
The Municipal Pension Plan 2018 valuation shows the plan is fully funded on the basis that current contributions continue. This means the projected money available for future pensions (actuarial assets) exceeds the projected costs of paying for those pensions (actuarial liabilities).
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 pensions.
The most recent valuation, conducted as at December 31, 2018, showed the plan’s basic account, which pays lifetime pensions, was 105.1 per cent funded with actuarial assets of $58.53 billion and actuarial liabilities of $55.66 billion. There is a surplus of $2.87 billion. In addition, the rate stabilization account, which was set up to help offset potential future contribution rate increases, has a balance of about $2.5 billion.
When there is a valuation surplus, the Municipal Pension Board of Trustees is guided by specific instructions outlined in the Municipal Pension Plan Joint Trust Agreement (JTA), which is jointly managed by the plan partners. The employer plan partner is the BC Government and the Union of British Columbia Municipalities. The employee plan partner is the Municipal Employees’ Pension Committee.
To meet JTA instructions, a surplus must pay off liabilities from previous actuarial valuations and simultaneously decrease contribution rates and improve benefits by changing the normal form of pension and the benefit formula. The current surplus is not large enough to meet these conditions and so it will be kept in the basic account. This will help protect active members and employers from contribution rate fluctuations in the future.
Sustainable COLA cap is unchanged
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 2020–2022 will remain at 2.1 per cent. The cap was put in place to sustain the availability of COLAs.
COLA is funded by the IAA. This account holds a portion of member and employer contributions, and earns investment income. The board has strengthened the plan’s inflation protection in two ways. After the 2015 valuation, the board increased the percentage of the contribution going into the IAA effective January 1, 2019. In accordance with the plan’s funding policy, excess investment returns have also been moved out of the basic account into the IAA. These actions have moved more money into the IAA, ensuring that those funds can only be used to grant COLAs.
Annual COLA is not guaranteed; however, once granted, increases are applied to the lifetime portion of your pension. The COLA is also applied to the bridge benefit and the temporary annuity portion of your pension while you are receiving them.
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.
What it means for active members: contribution rate to stay the same
Your contribution rate will not increase because of this valuation.
What it means for retired members: COLA cap to remain the same
The sustainable COLA cap for the next three years will continue to be 2.1 per cent.
What it means for employers: letter with your rate to come
Your unique contribution rate will change because of your employee demographics and blended contribution rate. You will receive a letter with your rate in October.