All good news for teachers regarding their pension plan
The most recent updates published by the Saskatchewan Teachers’ Retirement Plan make for pleasant reading for teachers in the province.
Earlier this year the Saskatchewan Teachers’ Federation filed a funding valuation as at July 1, 2020. A funding valuation provides a point-in-time snapshot of the long-term health of the STRP. As required by law, a valuation must be filed with federal and provincial pension authorities at least every three years.
The Plan is in good financial health and the funded status has improved since the last valuation as at July 1, 2019. The Plan is 99.6 percent funded as of July 1, 2020, compared to 98.7 percent the previous year.
This improvement in funding status was due, in part, to the strong investment gains the pension fund experienced over the 2019-20 fiscal year. The market value of net assets grew to $6.3 billion, up $0.4 billion from 2019. This significant growth in assets is expected to continue.
The Federation continues to closely monitor the financial health of the Plan in order to maintain its long-term sustainability.
In other pension-related news, this spring, after extensive lobbying efforts by the STF, the provincial government passed amendments to The Pension Benefits Regulations, 1993 that updated the regulatory framework under which the STRP operates. These are welcome changes that provide more flexibility in managing the long-term sustainability of the Plan.
The amended regulations do two key things:
1. Remove the requirement for the Plan to have a solvency ratio of 90 percent before providing benefit improvements.
With the removal of this rule, the Federation is now more easily able to provide members with benefit improvements whenever the finances of the Plan allow. The Pension and Benefits Board of Directors is currently undertaking an analysis to determine when this may be possible under the amended regulations.
2. Allow the Federation to have more time to pay back any future funding deficits as the amortization period was extended from 10 to 15 years.
Under pension law, pension plans like the STRP are required to file valuations at least every three years with the provincial regulator. If the Plan’s liabilities outweigh the assets, the Plan is in deficit and must fund the deficit within a set time period called the amortization period.
An increase in the amortization period from 10 to 15 years gives the Plan more time to pay off future deficits. With a longer period to fund a deficit, the Plan is under less pressure to alter benefits or contribution levels to fund the deficit.
Meanwhile, a recent change to pension standards has resulted in a higher number of retirees receiving excess contribution payouts at the time of retirement.
Under pension law in Saskatchewan, your total contributions* (plus interest) cannot be more than 50 percent of the commuted value of your pension at the time you receive your benefit. The commuted value of your pension is the lump-sum value of the pension benefit you’ve earned at the time you leave the Plan. So, when you retire, terminate plan membership or pass away, the Federation will compare the commuted value of your pension to your total contributions (plus interest) throughout your career. If your total contributions are more than half of the commuted value of your pension, you will receive those excess contributions as a lump-sum payment.
In December, the Canadian standards for calculating commuted values were changed and resulted in an overall reduction to commuted value amounts. In turn, this led to a drop in the threshold for what constitutes excess contributions, leading to an increased number of payouts to retiring members.
It’s important to note that not every member will have excess contributions on the date they leave the Plan. Given the variables involved with this calculation, excess contributions can only be determined at your actual retirement date.
* Contributions and interest are adjusted for any teacher contributions and interest unmatched by government before the excess test is performed.