What options are available for de-risking DB pension plans?

The Colleges of Applied Arts and Technology pension plan has reached a going-concern funding status of 120 per cent as of Jan. 1, 2019, up from 118 per cent last year.

Along with the increased funded status, the plan’s funding reserve rose from $2.3 billion to $2.6 billion.

The CAAT’s funding policy includes six funding levels, each of which outlines potential options for the plan’s governors. According to the CAAT’s website, the funding levels and actions are designed with the goal of benefit security, contribution stability, intergenerational equity and equity between CAAT’s two plan designs — DBprime and DBplus.

While they’re two distinct designs, DBprime and DBplus have the same funded status because they’re one pool of assets with a single asset strategy, says Derek Dobson, chief executive officer and plan manager of the CAAT. “It’s really the CAAT pension plan at the top of the house and then we have two different plan designs that sit under that one structure.”

Under DBprime, stability contribution rates gradually reduce as the CAAT improves its funding status, says Dobson. “In funding level four, where we reside today based on the latest funding valuation, the board and the sponsors’ committee, working together, can choose between three different options. Two options relate around reserving, which is what decision they made, and the other option is to reduce what we call stability contributions, which build reserves.”

However, once the plan reaches funding level five, the funding policy prescribes the reduction of stability contributions by two per cent, he says, noting the CAAT plan is currently more than 60 per cent of the way through funding level four with funding level five possible in the next three to five years.

As part of its valuation, the CAAT held its assumption that members retiring will live to 89 years on average while collecting their pensions. However, the plan lowered its discount rate from 5.6 to 5.5 per cent this year.

The improvements to the CAAT’s funded status have been driven by contributions that are designed to build additional reserves, strong long-term investment outperformance and membership growth, adds Dobson. “For example, our discount rate is now 5.5 per cent, but our 10-year investment numbers are very close to 10 per cent, so that outperformance has been building reserves quite substantially.”

The latest announcement reaffirms that the CAAT board and sponsors are committed to a focus on benefit security, he says. “Our funding policy directs us to reserve for a rainy day and to try to outperform where we can and that’s what we remain focused on.”