BCTF
Pension Plan Consultations
Jim Iker video
BCTF Pension Plan Consultations 2
Agenda
1. What is going on?
2. What does our current plan look like?
3. What are the proposed options?
4. What does the survey look like?
5. What happens next?
6. What support materials are available?
BCTF Pension Plan Consultations 3
What is going on?
a. What has happened so far?
• 2012 Teachers’ Pension Plan initiated discussions
with BCTF on possible plan design change
• Plan Member Partner (BCTF) discusses with
Plan Employer Partner (Government)
• principles for change agreed by both partners
• plan options selected by both partners with
Teachers’ Pension Board input
• consultations to guide BCTF in discussions with
Plan Employer Partner in selecting option.
BCTF Pension Plan Consultations 4
1
What is going on?
b. Why are we proposing changes to our pension plan?
• de-integrate from Canada Pension Plan (CPP)
– Year’s Maximum Pensionable Earning (YMPE)
used to determine pension build up (accrual)
below and above this amount ($53,600 for 2015)
• flat accrual rate
– if high enough, generates a larger lifetime pension
and simpler to calculate than split accrual rates
– fair
• demographics of plan members
BCTF Pension Plan Consultations 5
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What is going on?
BCTF Pension Plan Consultations 6
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TPP – Pensions by age at retirement
Year <=55 56 57 58 59 60 61 62 63 64 >=65 Total
2004 248 212 220 184 143 177 56 55 32 33 47 1407
2014 81 118 150 158 153 236 94 84 87 81 179 1421
What is going on?
BCTF Pension Plan Consultations 7
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TPP – Pensions by age at retirement as percentage
Year <=55 56 57 58 59 60 61 62 63 64 >=65 Total
2004 17.6 15.1 15.6 13.1 10.2 12.6 4.0 3.9 2.3 2.3 3.3 100%
2014 5.7 8.3 10.6 11.1 10.8 16.6 6.6 5.9 6.1 5.7 12.6 100%
What is going on?
BCTF Pension Plan Consultations 8
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TPP – Pensions by age at retirement as percentage
What is going on?
BCTF Pension Plan Consultations 9
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57.0
57.5
58.0
58.5
59.0
59.5
60.0
60.5
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Ag
e (
years
)
TPP – Average age at retirement 2000–2014
What is going on?
BCTF Pension Plan Consultations 10
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TPP – Longevity
Average life expectancy for a 65 year old is
UK* Male = 83.6 Female = 86.2
Canada* Male = 83.5 Female = 86.6
Japan* Male = 83.7 Female = 88.7
TPP 1999 Male = 86.0 Female = 88.1
TPP 2008 Male = 87.2 Female = 88.7
TPP 2011 Male = 88.0 Female = 89.3
TPP 2014 Male = 88.5 Female = 91.1
* OECD Health Data
Average life expectancy for a 65 year old is
UK* Male = 83.6 Female = 86.2
Canada* Male = 83.5 Female = 86.6
Japan* Male = 83.7 Female = 88.7
TPP 1999 Male = 86.0 Female = 88.1
TPP 2008 Male = 87.2 Female = 88.7
TPP 2011 Male = 88.0 Female = 89.3
TPP 2014 Male = 88.5 Female = 91.1
What is going on?
BCTF Pension Plan Consultations 11
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TPP – Factor 90 (F90) benefit
• In 2001 77% of retiring members were under age 60.
• This number has decreased to 47% in 2014.
• As a result of members being above age 60, fewer members
are able to take advantage of Factor 90.
• This is the trend, as evidenced in the graph, and not a point
in time assumption.
• As a result the average age at retirement is also increasing, it
is now age 60.3.
• We expect this trend to continue.
What is going on?
b. Why are we proposing changes to our pension plan?
• de-integrate from Canada Pension Plan (CPP)
– Year’s Maximum Pensionable Earning (YMPE) used
to determine pension build up (accrual) below and
above this amount ($53,600 for 2015)
• flat accrual rate
– if high enough, generates a larger lifetime pension and
simpler to calculate than split accrual rates
– fair
• demographics of plan members
• equity.
BCTF Pension Plan Consultations 12
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What is going on?
BCTF Pension Plan Consultations 13
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$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year’s maximum pensionable earnings (YMPE)
What is going on?
BCTF Pension Plan Consultations 14
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Calculated value of lifetime pension
Assumptions : HAS - $78,000 with 25 years of service YMPE amount
$78,000
2.0% above YMPE
($594)
1.3% below YMPE
($628)
$0
2011
lifetime
pension $30,548
$78,000
2.0% above YMPE
($558)
2.0% above YMPE
($594)
1.3% below YMPE
($651)
1.3% below YMPE
($628)
$0
2011 2012
lifetime
pension $30,548 $30,233
$78,000
2.0% above YMPE
($538)
2.0% above YMPE
($558)
2.0% above YMPE
($594)
1.3% below YMPE
($664)
1.3% below YMPE
($651)
1.3% below YMPE
($628)
$0
2011 2012 2013
lifetime
pension $30,548 $30,233 $30,058
$78,000
2.0% above YMPE
($538)
2.0% above YMPE
($558)
2.0% above YMPE
($594)
1.3% below YMPE
($664) 2.0% of all salary
1.3% below YMPE
($651)
1.3% below YMPE
($628)
$0
2011 2012 2013 Option?
lifetime
pension $30,548 $30,233 $30,058 $39,000
2015 BCTF Pension Consultation Update to Fall Representative Assembly 15
Yet another indicator YMPE will likely increase next year
5. Pension consultation key points
2015 BCTF Pension Consultation Update to Fall Representative Assembly 16
TPP lifetime pension calculations are coupled with YMPE (1.3%/2.0%)
Year YMPE ($) YMPE
Increase
(% of
prev.
year)
Salary
increase
(% of
prev.
year)
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
43,700
44,900
46,300
47,200
48,300
50,100
51,100
52,500
53,600
54,900
3.80
2.75
3.11
1.94
2.33
3.73
2.00
2.74
2.10
2.43
29.93
2.50
2.50
2.50
2.00
0.00
0.00
0.00
2.00
1.25
1.00
13.75
Sample
Cat. 5
Salary ($)
68,709
70,427
72,187
73,631
73,631
73,631
73,631
75,104
76,043
76,803
Projected
PS
(years)
26
26
26
26
26
26
26
26
26
26
Lifetime
Pension
(1.3/2.0
Accrual
Rate)
$28,066
$28,668
$29,366
$29,862
$29,698
$29,498
$29,170
$29,754
$29,987
$30,182
Effective
Accrual
Rate (%)
1.5711
1.5656
1.5646
1.5598
1.5513
1.5408
1.5237
1.5237
1.5167
1.5115
Option a
Accrual
Rate (%)
1.8000
1.8000
1.8000
1.8000
1.8000
1.8000
1.8000
1.8000
1.8000
1.8000
Lifetime
Pension
(1.80%
accrual &
3% red.)
$31,191
$31,971
$32,770
$33,426
$33,426
$33,426
$33,426
$34,094
$34,520
$34,865
What is going on?
b. Why are we proposing changes to our pension plan?
• de-integrate from CPP
• flat accrual rate
• demographics of plan members
• equity.
c. What were the guiding principles?
• preserve the pension promise
• future service
• sustainable indexing
• no additional costs. BCTF Pension Plan Consultations 17
1
What does our current plan look like?
a. Contributory service (CS)
• any TPP contribution made = full month of CS
• reduction calculations.
b. Pensionable service (PS)
• actual work time used to calculate pension, 35 year cap.
c. Highest average salary (HAS)
• average of best 5 years of income.
d. Accrual rate for lifetime pension
• 1.3% for salary up to and including YMPE* and
2.0% for portion of salary above. * YMPE = Years’ Maximum Pensionable Earnings ($53,600 for 2015).
BCTF Pension Plan Consultations 18
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What does our current plan look like?
e. Bridge benefit is a mini pension designed to bring
the pension to the full 2% amount until 65 or death
• (0.7% x lesser of last year’s YMPE or HAS).
f. Early-retirement Reduction Factor (ERF) is the
pension plan cost of early retirement = 3.0%.
g. Reduction point = lesser of 3% per year for every
year less than 60 or 3% per year less than Factor
90.
h. Factor 90 (F90) = age + CS.
BCTF Pension Plan Consultations 19
2
What does our current plan look like?
i. Pension formula – split accrual rate (1.3% / 2.0%)
20
2
Data: HAS = $78,000 PS = 25 years bridge benefit to age 65 YMPE = $53,600
Formula: {lifetime pension} + {bridge benefit to age 65}
{([1.3% x ≤ YMPE] + [2.0% x > YMPE]) x PS} + {(0.7% x lesser of last year’s YMPE or HAS) x PS}
BCTF Pension Plan Consultations
(less early retirement reductions)
{([1.3% x $53,600] + [2.0% x $24,400]) x 25 years} + {(0.7% x $52,500) x 25 years}
{($696.80 + $488.00) x 25 years} + {$367.50 x 25 years}
{$1,184.80 x 25 years} + {$9,187.50}
{$29,620.00 lifetime amount + $9,187.50 bridge benefit}
(≤ YMPE = $53,600 > YMPE = $24,400)
What does our current plan look like?
j. Proposed formula – flat accrual rate (e.g. 1.80%)
21
2
Data: HAS = $78,000 PS = 25 years
Formula: {lifetime pension}
BCTF Pension Plan Consultations
(less early retirement reductions)
{ [1.80% x $78,000] x 25 years}
{$35,100.00 lifetime amount}
What are the proposed options?
No F90 calculations.
Bridge amount folded
into increased lifetime
pension.
The options were selected
using current data and any
changes resulting from the
2014 actuarial valuation
released in Q4 will be
reflected at that time.
BCTF Pension Plan Consultations 22
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What are the proposed options?
Options:
a. Accrual rate for lifetime
pension 1.80% for all salary
• ERF 3.0% reduction for
every year before age 61.
BCTF Pension Plan Consultations 23
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What are the proposed options?
b. Accrual rate for lifetime
pension 1.80% for all salary
• ERF 3.5% reduction for
every year before age 61.
c. Accrual rate for lifetime
pension 1.85% for all salary
• ERF 4.0% reduction for
every year before age 61.
BCTF Pension Plan Consultations 24
3
What are the proposed options?
d. Accrual rate for lifetime
pension 1.85% for all salary
• ERF 3.0% reduction for
every year before age 62.
e. Accrual rate for lifetime
pension 2.0% for all salary
• ERF 5.0% reduction for
every year before age 62.
BCTF Pension Plan Consultations 25
3
What are the proposed options?
BCTF Pension Plan Consultations 26
3
Summary—numerical (all options)
Scenario Accrual Rate ERF Rate ERF Age
61
61
61
62
62
60
Scenario Accrual Rate ERF Rate
3.00%
3.50%
4.00%
3.00%
5.00%
3.00%
Scenario Accrual Rate ERF Rate ERF Age
Option a
Option b
Option c
Option d
Option e
Option f (Current benefit)
Scenario Accrual Rate
1.80%
1.80%
1.85%
1.85%
2.00%
1.30%/2.00%
What are the proposed options?
BCTF Pension Plan Consultations 27
3
Summary—graphical
Earliest
retirement
Age 55
Age
70 Age
60
Age
75
Age
80
Age
85
Age
65
Canada Pension Plan
Old Age Security
Bridge amount
Lifetime pension
What are the proposed options? 3
Option c—1.85% accrual, 4.0% reduction from age 61
Macroscopic view of benefit for a future member
BCTF Pension Plan Consultations 28
What are the proposed options? 3
Option c—1.85% accrual, 4.0% reduction from age 61
Break even points
BCTF Pension Plan Consultations 29
Break-Even point: age at which a person would have accrued a
greater benefit in a new plan option than under the current plan.
What are the proposed options? 3
BCTF Pension Plan Consultations 30
What are the proposed options? 3
Option e—2.0% accrual, 5.0% reduction from age 62
Break even points
BCTF Pension Plan Consultations 31
What are the proposed options?
Retiring: 26 years of PS
1. 26 years all in current benefit (CB)
2. Ø CB
+ 26 new
=> 100% 26 26
3. 6.5 CB
+ 19.5 new
=> 75% 26 26
4. 13 CB
+ 13 new
=> 50% 26 26
5. 19.5 CB
+ 6.5 new
=> 25% 26 26
6. 23.4 CB
+ 2.6 new
=> 10% 26 26
BCTF Pension Plan Consultations 32
3
Setting up to calculate annual pensions
• How to make sense of the annual pension per year
of service data?
What are the proposed options? 3
Option c—1.85% accrual, 4.0% reduction from age 61, annual pension per year of service
Annual pension per year of service
33 BCTF Pension Plan Consultations
Current: $1,600 X 26yrs = $41,600 annual pension from 60 to 65 $1,225 X 26yrs = $31,850 annual pension from 65 till death
Revised 10%: $1,582 X 26yrs = $41,132 annual pension from 60 to 65 $1,244 X 26yrs = $32,344 annual pension from 65 till death
Revised 100%: $1,421 X 26yrs = $36,946 from 60 till death
3 What are the proposed options?
34 BCTF Pension Plan Consultations
Option e—2.0% accrual, 5.0% reduction from age 62, annual pension per year of service
Annual pension per year of service
Current: $1,600 X 26yrs = $41,600 annual pension from 60 to 65 $1,225 X 26yrs = $31,850 annual pension from 65 till death
Revised 10%: $1,584 X 26yrs = $41,184 annual pension from 60 to 65 $1,246 X 26yrs = $32,396 annual pension from 65 till death
Revised 100%: $1,440 X 26yrs = $37,440 from 60 till death
What are the proposed options?
BCTF Pension Plan Consultations
3
• BCTF pensions webpage
35
What does the survey look like?
Strongly Agree
Agree
Neither
Agree nor
Disagree
Disagree Strongly
Agree Don’t Know
Change early retirement
reduction factor to
3/3.5/4/4.5% a year for each
year below 61/62 to increase
accrual rate
O O O O O O
Increase accrual rate so
members currently working
receive larger percentage of
salary when retired
O O O O O O
4
Online September 8 to December, 2015
BCTF Pension Plan Consultations 36
What happens next?
• January 2016—report and
recommendations to EC
• Winter RA 2016—report from EC
• 2016 AGM—pension option selected
• Spring 2016—partners inform
Trustees of option selected
• January 1, 2018—start date.
5
BCTF Pension Plan Consultations 37
What support materials are available?
• BCTF pensions webpage
• video messages
• online information
– FAQ, glossary,
schedule, data tables
• communication
– newsletter, eBlasts,
Newsmag
• notices for Local’s use.
6
BCTF Pension Plan Consultations 38
BCTF Pension Plan Consultations 39