Board Communique: October 15, 2018
2017 valuation means lower contribution rates
Good news—contribution rates will decrease as a result of the 2017 valuation.
Effective January 1, 2019, rates will be reduced for both member and employer contributions to BC's Teachers' Pension Plan. Currently, members contribute 12.92 per cent of salary. Effective January 1, 2019, they will contribute 11.17 per cent of salary. Employers currently contribute 13.23 per cent of salary. Effective January 1, 2019, they will contribute 11.30 per cent of salary.
In short, you will pay less money to the plan: for every $1,000 of salary, members will pay $111.70, a reduction of $17.50, and employers will pay $113.00, a reduction of $19.30.
Member and employer contribution rates:
Up to and including
As of January 1, 2019
|Member contribution rates||12.92||11.17|
|Employer contribution rates||13.23||11.30|
Why are the contribution rates being reduced?
The most prominent factor in allowing the board to reduce contribution rates was the plan's strong investment returns. The valuation showed the plan's basic account has actuarial assets of $26.8 billion and actuarial liabilities of $26.2 billion, meaning the plan is 102.5 per cent funded as at December 31, 2017, with a surplus of $644 million. These figures consider not only the plan enhancements already announced in March (see below) but also the contribution rate reductions announced today.
The surplus will make up a new rate stabilization account (RSA), created in accordance with the Pension Benefits Standards Act rules about plan surpluses. Funds in the RSA will help mitigate any significant increases to contribution rates that may result from future valuations.
You may wonder why employer contribution rates decreased more significantly than member contribution rates. When there is a valuation surplus, the Teachers' Pension Board of Trustees—which is made up of trustees appointed by the British Columbia Teachers' Federation (member partner) and the provincial government (employer partner)—acts on specific instructions outlined in the Teachers' Pension Plan Joint Trust Agreement (JTA), a document jointly managed by the partners.
The JTA requires the plan to use this surplus toward balancing employer and member contribution rates—a goal of the JTA. With the new rates, employers will contribute 0.13 per cent of salary more than members. This is because employers contribute more than members toward the plan's inflation adjustment account, the account used to fund cost-of-living adjustments (COLAs) for retired members.
Back in March 2018, we told you that early indicators from the valuation showed the plan is in a surplus position. This means there's more money in the plan than we expect is needed to pay the pensions of current and future retired members.
In that March communication, we also announced a trio of improvements resulting from the valuation:
- Increase in the rate at which your pension grows
- A change to the default (normal form) pension
- More money allotted to pay COLAs into the future
More information on these improvements is found online in the 2017 Report to Members, which was mailed out to active members this past June.
What is a valuation?
A valuation is the most important measurement of plan health. It determines, using a series of economic and demographic assumptions, how much money the plan needs to pay current and future pensions. An independent actuary—a professional with specialized training in financial modelling, laws of probability and risk management—performs a valuation at least every three years.
A word about buying service
Did you take a leave from work—such as a pregnancy, parental or general leave—and stop contributing to the plan for the duration of that leave? If so, you could have an opportunity to increase your pension by buying that service. On January 1, 2019, the cost of buying that service will likely decrease because of the new contribution rates.
Regardless of the rates, you must apply to buy service within five years of when your leave ends or within 30 days of ending your job with a plan employer, whichever comes first.
We will continue to carefully monitor the plan's financial health to ensure it remains financially sound. The next valuation will occur as at December 31, 2020.