Blue
If the pension is currently overfunded wouldn't allowing new members dilute the asset base for existing members?
Short answer is no. Refer to Graham for a quotable response. If the incoming (merger) plan has a deficit, they are paying for it - i.e. they are funding it. What's the difference between FAO and Merger in this instance?
How can the DB fund can grow much higher than an aggressive and well invested DC fund in the same amount of time
Graham to provide input. This is related to diversification of our assets. We have access to investments that a DC fund does not - i.e. real estate, infrastructure, etc. Be careful on how to respond. Let's get Graham's input.
Indexing with only 75% off the CPI rate will constantly erode the annual pension
In retirement, conditional inflation protection increases (or pension indexation) will be applied to pensions in pay to allow members’ retirement income to stay relevant with the economy. Inflation protection is applied annually at the beginning of each year. It is applied at a rate of 75% of Consumer Price Index (CPI) – capped at 8%. In years when there is no increase to the CPI, there is no increase to a member’s pension.
Both the AIW enhancement and inflation protection are conditional on the funded status of the CAAT Pension Plan based on its Funding Policy. They are also cumulative, meaning, once granted they cannot be taken away. The funded status of the CAAT Pension Plan is very strong. Based on the most recent valuation as of January 1, 2022, the Plan is 124% funded on a going-concern basis, with a $4.4 billion funding reserve. CAAT has not missed an inflation adjustment since 2007 when it was first introduced, and conditional payments have been approved through 2024.
What happens to the other 40% of the pension after you die? I assume it gets passed on to other members instead of your spouse.
All benefits being paid out of a pension plan have a cost, including survivor pensions. CAAT, through its joint governance structure, decided that the Plan can provide a 60% survivor pension without impacting the member’s pension.
"• This is the standard joint & survivor pension offered by many DB plans
• All additional benefits have a cost
• CAAT, through its joint governance structure, decided that the Plan can safely afford this free benefit to members"
Are Nanaimo bars from Nanaimo?
Located on the eastern shore of Vancouver Island, Nanaimo, B.C. is a verdant, broody kind of place; a typical Pacific coast town, washed out in foggy greys and steel ocean blues. But this misty city is also the namesake for what might just be the sunniest dessert square the world has ever produced: the Nanaimo bar, a soft layer of yellow custard sandwiched between rich chocolate ganache and a coconut-graham crust.
Does the calculator show the value in today's dollars or future dollars?
The calculator shows the values in today's dollars. However, we use assumptions in the calculator to forecast for future inflation.
Are polar bears fur white?
Beneath all that thick fur, polar bears have jet black skin. The polar bear's fur is also translucent, and only appears white because it reflects visible light.
How can you call it a "guaranteed" plan if it is based on securities which are not guaranteed? For example if there is another 2008 crash, how would the plan perform?
We plan for market fluctuations by building a reserve. We have a diversified investment mix so that we can build up the reserves. We have been doing this for years, as have other DB pension plans.
You didn't answer if the fund can go bankrupt. Just they can't choose to reduce the payout. Is there a government insurance backing the plan?
Jointly sponsored pension plans can wind up. The chances of that happening with DBplus are extremely low. In order for this to happen, all 200 employers, including the 24 Ontario colleges would have to go bankrupt. This is extremely unlikely. There is no government insurance backing JSPPs and that's because the regulator does not expect these plans to wind up.
CAAT has been paying pensions since 1967 and is the same type of plan as Ontario Teachers', HOOPP, and OMERS.
The Plan's funding policy has built-in adjustments to manage through periods of volatility to keep the Plan well funded. If the funding status drops sufficiently conditional benefits would be suspended. For example, the subsidized early retirement reduction would not be available.
•Highly unlikely
•CAAT and peer DBplans has been around since the 60s
How much of CAAT’s promised benefit comes from realistic growth expectations (i.e., investment returns) versus dependency on future plan member's contributions?
Approximately 75-80% of the cost of benefits is paid for by investment returns and 20-25% by contributions.
How long does it take to walk from Toronto to Burlington?
According to Google Maps, 11 hours 11 mins (54 km via Lake Shore Blvd W).
CAAT is a not-for-profit trust, but has investment and administration expenses. What percentage of our contributions go towards these?
CAAT is a not-for-profit trust, or what we call a “profit for members” trust, in that any profits are directed back into the pension plan for the benefit of members. The vast majority of profits directly improve benefits for members: for example, as our funded status improves, this provides additional benefits to members like inflation protection, early retirement subsidies, an increase in the core benefit formula.
A small portion of CAAT’s profits indirectly improve benefits for members: these are used to pay for pension administration in terms of salary for CAAT employees. This helps members in retaining educated pension plan professionals in order to answer member questions, research legal and policy issues, provide financial strategy for the plan, as well as investment management to maximize returns.
You’ll notice that the final page of CAAT’s 2020 Annual Report notes that the 10-year average for expenses is 78 basis points: just over ¾ of a percent. The net return of 11% for that same 10-year period can be attributed to some of those expenses: for example, we’re invested in private markets, so when we outperform the markets, this can result in higher dollar expenses. CAAT’s record of beating our benchmark targets can also be attributed to this, and we’ve consistently added value net of all expenses, such as investment and pension administration expenses and investment management fees.
You have 124% funded on a going concern basis - does that mean for at present? What will it be 10 and 20 years into the future if CAAT didn't get any new groups/members?
Conservatism is built into the plan design and the Funding Policy, which suggests that over the longer term the Plan’s funding health should continue to improve. In other words, the Plan should drift up to Funding Level 6 over time. All our asset-liability models demonstrate this expected trend. As the Plan increases its reserve levels (i.e., as it rises through the levels in the Funding Policy), the rate of accruals under DBplus can increase or other enhancements be provided. Similarly, if reserve levels decrease, future benefit accrual rates may be temporarily scaled back – with catch-up as the Plan moves back up the funding levels.
• Conservatism is built into the plan design
• Long term, sustainability
• All asset liability models demonstrate upward trend
• As funding level increases, benefits increase
• If funding level decreases, benefits are reduced
• Catch-up provision is included
If the pension is currently overfunded wouldn't allowing new members dilute the asset base for existing members?
Short answer is no. Refer to Graham for a quotable response. If the incoming (merger) plan has a deficit, they are paying for it - i.e. they are funding it. What's the difference between FAO and Merger in this instance?
How many retirees needs to die each year to sustain growth in the plan? it seems like a lot of the growth comes from losing members.
N/A
If CAAT goes bankrupt, what would happen to their funds, would they get the total contributions plus enhancements paid out to them?
There is no financial liability on wind-up of the CAAT Pension Plan for DBplus accruals. In the highly unlikely event of a total CAAT Plan wind-up (which would require virtually all participating employers to cease participating, (including the 24 Ontario Community Colleges that are required to participate) and there was a funding deficiency, then benefits accrued under DBplus could be reduced as legislation does not permit jointly sponsored pension plans like CAAT to go back to members or employers seeking additional contributions. Members and participating employers would not be required to make additional contributions to the Plan on wind-up.
The CAAT Plan is respected for its pension and investment management expertise and focus on long-term stability and benefit security. At January 1, 2023, the Plan was 124% funded on a going-concern basis.
Our employees are not expected to stay with our company for more than 2 or 3 years. Why would a DB plan make sense?
The Plan is portable in a few ways. When you terminate employment your benefit will initially stay in the Plan and then you can leave it in CAAT as a deferred pension that can be added to later if you find work with another CAAT employer, the list of which is growing rapidly. Or, you can transfer it to another pension plan where you go to work and continue to build a pension or retirement savings there. The other option at termination is to transfer your benefit out of CAAT to a locked-in retirement account (LIRA), which is like an RRSP, where you would be responsible for managing the investment of it to provide retirement income in future.
An important thing to keep in mind is that the longer you are in a plan and saving for retirement the bigger your retirement income will be.
• Pension plan is portable
The average human only use 10% of their brain. True or False.
"Though an alluring idea, the "10 percent myth" is so wrong it is almost laughable, says neurologist Barry Gordon at Johns Hopkins School of Medicine in Baltimore. Although there's no definitive culprit to pin the blame on for starting this legend, the notion has been linked to the American psychologist and author William James, who argued in The Energies of Men that "We are making use of only a small part of our possible mental and physical resources." It's also been associated with Albert Einstein, who supposedly used it to explain his cosmic towering intellect. "
https://www.scientificamerican.com/article/do-people-only-use-10-percent-of-their-brains/
https://www.medicalnewstoday.com/articles/321060#how-much-of-our-brains-do-we-use
Are pension plans considered to be an unregulated insurance company?
Not at all. We are highly regulated - by provincial and federal authorities and the Canada Revenue Agency. You might be interested to know that Canadian pension plans are among the most highly regulated ones in the world and that our governance structure, which is a jointly sponsored pension plan, is a world renowned model for independence, efficiency and effectiveness.
Are there any limitations when they join (e.g., we can’t hard freeze benefits, minimum provisions required etc.)
If the transaction is FAO then a hard/soft freeze is not our issue. It’s up to the prior plan to determine whether such rules would apply. Hard/soft freezes would only be our issue if there is a transfer of past liabilities (see above re: OSFI). For all other related jurisdictional rules, CAAT’s administration is able to comply with all applicable jurisdictional requirements for members outside of Ontario.
When are indigenous peoples tax exempt and if they do not pay tax on their income, would that signify that no tax would be paid on retirement income?
Indigenous peoples are tax exempt on certain income if they have “status”. Eligible persons would have a “Status Card”. Generally, only income earned on a reserve by someone with status is tax exempt, but there are exceptions where income earned off reserve by someone with status may also be tax exempt.
CAAT benefit tax exemption will be tied to the income tax exemption on which the benefit is earned. Employment income earned on a reserve by someone with status is tax exempt. CAAT benefit that is earned in respect of income that is tax exempt will also be tax exempt. The employer is responsible for reporting to CAAT that the member’s income is tax exempt. Our system is set up to flag this as our first Indigenous status member joined CAAT under Vancouver Foundation.
CAAT benefit earned in respect of income that is NOT tax exempt will NOT be tax exempt at the time of payment. Generally, employment income earned off a reserve is not tax exempt, in which case the CAAT benefit is not tax exempt and tax will be withheld. That said, there are exceptions where the income earned off a reserve may be tax exempt, in which case the CAAT benefit will be tax exempt.
While CAAT has added value consistently over the years net of fees, how should we respond to someone who challenges our fees as being high (e.g. 0.3% administration, 0.5% investment management)?
I don’t think you can say “yeah, you’ve added a lot of value, but look at those fees!”, because a big part of why we’ve been able to add value has been because we’re spending wisely to access strong partners and investments that don’t come cheaply. This is particularly relevant in accessing “alternative” asset classes (e.g. private markets and hedge funds), for which there are virtually no “budget” or passively invested substitutes (e.g. ETFs). In addition to enhancing our returns vs traditional public market asset classes, the alternative asset classes also provide us with diversification (and therefore reduced return volatility) that can’t be achieved with a traditional asset mix. So these benefits come at a price, but I think our value add numbers bear out that it’s been a price worth paying.
I’d also note that a material portion of our fees in recent years have come in the form of performance fees payable to our partners. Since those fees are only paid when our partners are beating benchmarks, the fact that we’re paying them at all is a good sign. That is, we wouldn’t be paying performance fees if we weren’t generating strong returns in the first place, and even net of fees, we’re still ahead for having spent the money.
Can a Federally registered DB plan join CAAT on a merger basis (have members across Canada, including Quebec), unionized, assuming all members will to join for simplicity
To date, federally regulated employers have joined the CAAT Pension Plan on a go forward basis only – The 2020 multijurisdictional pension agreement permits federally regulated employers to join on a go-forward basis, because the agreement clarifies that the funding rules of the jurisdiction with the majority of members would apply to all members of the plan.
While OSFI has broad discretion to approve DB mergers, OSFI views DB mergers to be those that occur between like-to-like plans (for example, SEPP to SEPP, not SEPP to JSPP). To date we have not been able to convince OSFI to change this view. Having a federal employer may help in those efforts but there are no guarantees.
In terms of Quebec employees, if the employees are considered to be federally regulated employees, there should be no issue in being able to participate in the plan through a go forward arrangement. However, if the Quebec employees are considered Quebec regulated employees working for a federally regulated company then approval would be needed from Retraite/the government to participate in the CAAT Plan for the Quebec specific employees.
How big is the heart of the blue whale, the largest animal on earth?
The heart of the blue whale, the largest animal on earth, is about five feet long, 4 feet wide and 5 feet tall. It weighs 400 pounds. The whale in total weighs 40,000 pounds.
https://blog.education.nationalgeographic.org/2015/08/31/how-big-is-a-blue-whales-heart/
A unionised group is owed back pay and might receive back pay from the employer after the effective date of joining CAAT. If they do receive back pay after the effective date of joining CAAT, would it be considered part of earnings and therefore contributions deducted or would it be excluded and contributions only deducted from earnings from the effective date?
Retroactive pay/back pay received on or after the effective date of plan participation (even if it related to a period prior to the effective date unless carved out in the Participation Agreement) is pensionable to the extent the components of it meet the definition of pensionable earnings.