New Regulations Changing Lump Sum Calculations
Starting on December 1, 2020, new standards will come into effect that will change the way we calculate the lump sum values that are paid out of the Plan. If you terminate your employment before reaching retirement age, you have the option to leave your money in the Plan and receive a future monthly pension or to transfer out the lump sum value of your future pension. We call this lump sum your “commuted value.”
Commuted value calculations use a certain prescribed set of assumptions for things like mortality rates, investment returns, assumed retirement ages and inflation. The Canadian Institute of Actuaries sets the standard for what assumptions our plan must use when calculating commuted values. These standards affect the amount of your commuted value.
The new standard coming into effect on December 1st requires that STRP use long-term assumptions in calculating commuted values, so that the lump sum value more accurately reflects the amount of money the Plan has put aside to fund your future pension. Previously, the STRP was required to use short-term assumptions that significantly inflated lump sum values and left the Plan with a loss to its funded status every time a commuted value was transferred out of the Plan.
As a result of this change, any members transferring out lump sum values from the Plan are likely to see significantly lower commuted values after December 1, 2020. The change in the standard will help to improve the sustainability of the STRP and will be more equitable for all members of the Plan. It is important to note that this change will not have any impact to the monthly pension amount you will receive when you retire.