Pension Plan

Changes to Your Pension Plan Effective July 1, 2018

The STF Executive has approved two changes to the Saskatchewan Teachers’ Retirement Plan, effective July 1, 2018. These changes are required to ensure the Plan remains compliant with federal pension legislation.

More information is provided below regarding:

• What’s Changing
• What’s Not Changing
• Why Plan Changes Are Required

• How These Changes Affect Plan Funding

What’s Changing

• Your pension contributions are decreasing.

  Starting July 1, 2018, member contribution rates are decreasing on average* from 12.0% to 10.4% of salary. For example, a teacher earning $85,000 per year will see a decrease in pension contributions of approximately $1,530 per year (i.e., $127 per month).

  The amount you contribute to your pension plan each month is shown on your pay stub.

  * Contribution rates are based on a step formula. The current rates are 11.3% of salary up to the YMPE and 13.5% of salary above the YMPE. On July 1, 2018, the rates will decrease to 9.5% of salary up to the YMPE and 11.7% of salary above the YMPE. The YMPE is the year’s maximum pensionable earnings set annually by the Canada Revenue Agency and used to determine Canada Pension Plan contributions and benefits.

• Interest on your required contributions is changing.

  Starting July 1, 2018, the interest rate credited to member required contributions will be based on five-year personal fixed term bank deposit rates. Currently, required contributions are credited with the annual rate of return that the pension fund earns each year.

  This new method of crediting interest will likely result in lower, more stable interest rates over the long term. Member voluntary contributions will continue to earn the net rate of return that is earned by the pension fund.

In addition, as you’ll be contributing less to the pension plan and the interest rate credited to your required contribution account may be lower, the likelihood of any excess contributions being paid when you leave the Plan may be lower. Members are entitled to a refund of any excess contributions upon retirement, termination and death.

What’s Not Changing

• Your monthly lifetime pension is not changing.

  Your STRP pension is determined by a formula, not your contribution account balance. The pension formula –  which is based on your salary and service – has not changed. Just because you will be paying less, doesn’t mean you will be getting less.

• The method used to determine the interest credited to member voluntary contributions is not changing.

  If you have made voluntary contributions to the STRP, or do so in the future, these contributions will continue to be credited an annual interest rate equal to the net rate of return earned on the Plan’s assets.

Why Plan Changes Are Required

After filing the July 1, 2016 funding valuation with the pension authorities, the Federation received notice from the Canada Revenue Agency (CRA) that steps must be taken in order for the STRP to comply with the Income Tax Act.

Federal pension laws restrict the level of contributions to a registered pension plan in order to limit the amount that can be tax-sheltered. As such, employee pension contributions are generally limited to 9% of pay. As some plans require employee funding in excess of 9%, CRA may waive this limit if the plan passes a “waiver test.”

To pass the waiver test it must be shown that, over the long term, total member contributions plus interest will not exceed 50 percent of the amount needed to fund the benefits promised.* The waiver test is applied regardless of whether or not employer pension contributions are negotiated – as is the case for the STRP.

When the July 1, 2016 funding valuation was filed, the STRP did not meet the requirements of the waiver test. However, CRA advised that a waiver will be granted until 2020 in order to give the Plan time to take the necessary steps to comply with applicable legislation.

The STRP Board of Directors and the STF Executive are confident the Plan changes effective July 1, 2018 will address CRA’s directive and protect the long-term sustainability of the Plan.

An increase in government contributions would also help address CRA’s maximum employee contribution limit and waiver test. The government contributes a fixed percentage of teachers’ salaries to the STRP. The Federation continues to advocate for additional government contributions through the collective bargaining process.

The Board has filed a funding valuation as at July 1, 2017, which reflects the changes to the Plan effective July 1, 2018.

*This is a simplified description of the “waiver test.”

How These Changes Affect Plan Funding

A funding valuation as at July 1, 2017 has been filed with the regulatory authorities. By filing a valuation two years earlier than required by legislation, the pension fund is able to lock in the investment gains experienced over the last year, and proactively address the Canada Revenue Agency’s directive before the waiver expires. (See Why Changes Are Required.)

In summary, the pension plan’s “rainy day” reserves have been strengthened and the deficit reduction strategy is on target. All factors considered, STRP’s funding deficit has decreased by $54 million over the last four years, from $189 million in 2013 to $135 million as at July 1, 2017.