The Colleges of Applied Arts and Technology pension plan is increasing the pension factor used in its calculation of defined benefit payments from its DBplus plan.

For pensions earned after Jan. 1, 2025, members of the jointly sponsored pension plan will see annual payouts increase from 8.5 per cent of their total contributions per annum to 9.5 per cent. This equates to 11.7 per cent higher benefits than under the current regime.

Read: College of Family Physicians of Canada pension plan joining the CAAT’s DBplus

The change comes as DBplus and DBprime, which are managed together, move from level 4 to 5 of the funding policy agreement. Laid out by the CAAT in 2007 and updated in 2018, the agreement details six levels of benefit payments members can receive, depending on the financial health of the plan.

At each level, a number of new levers can be triggered that improve the benefits accrued by plan members. “The levers within each level are designed to provide equitable treatment to each plan,” says Andrew Whale, vice-president of strategic risk management at the CAAT. “The last lever that we pulled to exit level 4 was also to reduce contributions for our DBprime members, who had been contributing at elevated rates since the [2008/09] financial crisis.”

The decision to promote the pension plans to level 5 is because the plan, which has a funding level of 124 per cent, has reserves that can fund future conditional inflation protection increases and withstand a two per cent reduction in the discount rate. “Essentially, the plan needs to have sufficient surplus to allocate to all the different levers at funding levels 4 and below before it moves to level 5,” says Whale.

Currently, DBplus’ funding reserves are being bolstered to help it withstand a 7.5 per cent increase in liabilities as an additional cushion for securing its benefits. For the CAAT to move to level 6, another reduction to the contributions of DBprime members is required.

At that point, the lifetime pension factor may be increased by more than 9.5 per cent and retired and deferred members will receive conditional inflation protection of at least 75 per cent of the consumer price index. Other benefits may be increased on an ad hoc basis.

Read: CAAT funding status reaches 120%