Wednesday, March 28, 2018

CAAT Pension Hits 118% Funded Status

Benefits Canada reports, CAAT pension plan reaches 118% funded status:
The Colleges of Applied Arts and Technology pension plan’s funded status has grown to 118 per cent, up from 113 per cent last year.

According to its actuarial valuation at Jan. 1, 2018, the plan reached a funding reserve of $2.3 billion and is allocating this surplus to strengthen its benefit and contribution stability as a cushion against unpredictable market downturns or liability growth.

The current surplus represents the strongest position for the plan since it became jointly governed 22 years ago, noted Derek Dobson, chief executive officer and plan manager at CAAT, in a news release. “Long-term projections show the plan’s financial health should remain resilient into the future providing benefit security and contribution stability to our members and employers.

The plan is also on track to grow, with plan members from the Youth Service Bureau of Ottawa voting to join as of Jan. 1, 2018.

“The CAAT plan is open and ready for growth in membership where it is beneficial. This includes workplaces with single-employer defined benefit pension plans, defined contribution plans and those without a pension plan, including those in the private and not-for-profit sectors,” said Dobson, noting CAAT is currently in discussion with several other employee groups and organizations.
Chris Butera of Chief Investment Officer also reports, CAAT Pension Plan Hits 118% Funded:
According to its latest actuarial valuation in January, the $9.4 billion Colleges of Applied Arts and Technology Pension Plan (CAAT) is 118% funded, with a $2.3 billion funding reserve.

While this is not just an upgrade of the previous year, when it was 113% funded with a $1.6 billion funding reserve, the valuation will be filed with the regulator sometime in the next few weeks. By choosing to file the actuarial valuation, CAAT will not have to file another valuation until 2021, keeping flat contribution rates for its 46,000 members and 41 employers until 2022.

To guarantee economic and demographic assumptions are still realistic and appropriate for CAAT’s risk tolerance, each funding valuation includes a review of each of the aforementioned assumptions. According to the valuation, the discount rate remained at 5.6%.

“As of January 1, 2018, our funded ratio, the core measure of benefit security, reached 118%—the strongest position since becoming jointly governed 22 years ago,” Derek W. Dobson, CAAT’s CEO and plan manager, said in a statement.

“Research shows that Canadians want the adequate and predictable retirement income that a well-governed and expertly managed defined benefit plan delivers and they are willing to make meaningful contributions to it. Employers benefit through lower operating costs, stable contribution rates, and lower risk by exiting the pension management business,” he said. “Long-term projections show the plan’s financial health should remain resilient into the future providing benefit security and contribution stability to our members and employers.”

The fund—a modern defined benefit plan—has been jointly governed since 1995, meaning that government, community, and private sectors work together to achieve the goals of the overall fund rather than just focus on individual sectors. The plan is also jointly sponsored by three entities: the College Employer Council, the Ontario Public Service Employees System, and the Ontario College Administrative Staff Association.

When it comes to building additional reserves, prefunding conditional inflation protection, and reducing contributions, the CAAT’s plan governors can utilize any combination under the plan’s funding policy. The plan governors currently decided that the best move at this time is continuing to allocate additional reserves to ensure benefit security and contribution stability.

The plan has also continued to grow by adding new employers, including the Youth Service Bureau (YSB) of Ottawa, whose plan members voted in favor of a merger of the YSB’s defined benefit plan with the CAAT’s. If the regulator approves of the asset transfer, it will be second time a single employer defined benefit pension plan will merge with the CAAT, the first being the 2016 merger of the Royal Ontario Museum pension plan.

“The CAAT Plan is open and ready for growth in membership where it is beneficial. This includes workplaces with single-employer defined benefit pension plans, defined contribution plans, and those without a pension plan, including those in the private and not-for-profit sectors,” said Dobson. “We are in discussions with several organizations and employee groups about them joining the CAAT Plan and are excited to be able to offer our successful model for sustainable defined benefit pensions.”

Alongside its annual investment report, the CAAT will release its 2017 investment results in April.
CAAT's annual report isn't available yet but when it is, you can read all about their 2017 results here.

Clearly, the emphasis is on its funded status, which is absolutely the right thing to focus on, and the plan and its members are on solid footing.

In fact, if you look at CAAT's 2016 Annual Report, you will see their long-term performance is solid and the plan is jointly sponsored and they have implemented a shared-risk model which allows them to increase the contribution rate or cut benefits (typically partial removal of inflation protection) when the plan runs into a deficit. This is the main reason why the plan's funded status is excellent.

Despite its solid funded status, CAAT decided to remain prudent, kept its discount rate at 5.6% and is building a reserve, a cushion which will come in handy if another crisis hits its assets and liabilities.

CAAT's small investment team led by Julie Cays has done a great job delivering excess returns over the last five years and longer. They work with a handful of external managers to build solid relationships and leverage off these relationships to build their internal capabilities and co-invest alongside them.

As stated above, "CAAT Plan is open and ready for growth in membership where it is beneficial". And if you ask me, all educational plans in Canada and non-profit organizations should really carefully consider joining CAAT's members. Maybe CAAT can even help P.E.I. offer pooled pension plans for small businesses.

Today I was reading why pensions are at the heart of the Carleton University strike. There are a lot of problems with defined-benefit pensions at some Canadian universities, so the bombshell revelations at Carlton didn't shock me.

The problems with US public plans governing educational systems are even acuter. Earlier this week, Suzanne Bishopric, the former CIO of the UN Pension Fund, sent me an article on how Chicago Public Schools' huge pension debt just got $1 billion deeper.

Suzanne asked me to compare Chicago Teachers' to Ontario Teachers' and I said there is no comparison, for me, it's like comparing a Ferrari to a beat-up Lada.

If you're a small Canadian plan looking to avoid being chronically underfunded, you should definitely think about joining CAAT pension.

I think CAAT should continue doing what it's doing, namely, focusing on its funded status and solid long-term results, and it needs to engage more prospective members to educate them about CAAT's many advantages over the long run.

Anyway, a short comment on CAAT, a small but well-run defined-benefit plan in Canada which doesn't receive the recognition it deserves.

Once again, CAAT's 2017 results will be available here.

Below, Derek Dobson, CAAT Pension Plan CEO and Plan Manager, explains how the CAAT Plan stays strong, sustainable, and relevant to members.

Also, J. Craig Venter, Human Longevity co-founder, talks about the progress being made in the area of genomics and extending human life.

Listen carefully to what Venter says because as genomics expands and allows doctors to treat disease earlier, it will have a significant impact on quality of life and life expectancy, introducing more longevity risk into defined-benefit plans which will need to pay out pensions for a lot longer.

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