BENEFIT IMPROVEMENTS FAQ

 

Introduction

The Plan is a mature multi-employer negotiated cost pension plan that is registered under the British Columbia Pension Benefits Standards Act (PBSA) with target benefit provisions. There is never a direct relationship between a member’s contributions and their benefit entitlement in these pooled type pension plan arrangements where members receive benefits based on a formula. The nature of benefit formula plans involve a constant balancing of expected assets and liabilities which are forecast decades into the future, and in turn determine affordability of benefits.

 

What are the legislative considerations for implementing benefit improvements?

The PBSA requires the Trustees to file an actuarial valuation with the Superintendent of Pensions at least once every three years to assess the plan’s funding on a going concern basis. Before the plan is allowed to improve benefits, legislation requires the plan to be fully funded together with a safety margin called the PfAD (the provision for adverse deviation) that requires a portion of pension plan funds to be kept as a rainy-day fund to protect the pensions of plan members.

 

What happens if the plan is underfunded?

If the valuation shows that the plan is not fully funded and the contributing parties choose not to increase contributions, the plan is required by legislation to reduce members’ benefits to restore funding levels.

 

What happens if the plan is fully funded?

It is important to note that plan funding fluctuates, in particular driven by investment returns - the key to sustainability is for the plan to remain fully funded over the long term, because 100% funding can quickly diminish when investment markets turn. Where the plan is fully funded, the trustees will maintain existing benefit levels.

 

What happens if the plan is fully funded to the extent it can improve benefits?

If the plan is funded to the extent benefit improvements may be possible, it means that trustees must decide what benefit level is sustainable and build in legislated safety margins to minimize the risk of future benefit reductions.

 

When did the trustees make the decision regarding benefit improvements?

Benefit improvements were approved by the Pension Full Board of Trustees on September 15, 2022, and approved by the provincial pension regulator, the BC FSA on February 1, 2023.

 

How did the trustees make this decision?

Working in consultation with plan actuaries, the trustees carefully considered the long-term health and funding of the plan, as well as legislated thresholds and safety margins that guide benefit adjustments prior to making the increase. The benefit improvement implemented was made on the basis that it would be sustainable for members from this point forwards and represent an acceptable risk of future reductions.

 

What are the plan improvements?

The benefit level was raised 41% to $85 per month from $60, and the credited hours threshold was increased to 1,800 hours. Combining the benefit level increase together with the change in credited service threshold allows for a higher benefit improvement for most members.  

As the benefit level and credited hours threshold were increased retroactively to January 1, 2022, the improvements were designed to ensure that members benefits were not negatively impacted for the 2022 Plan year.

 

Why was the plan able to make benefit improvements in 2022?

The Trustees have been closely monitoring plan funding looking for the opportunity to make sustainable long-term improvements for plan members and beneficiaries. Our Plan is a “mature plan” which means that most of its funding comes from investment performance rather than contributions.  Over the last 20 years plan returns have averaged 8%, and it has been this consistent increased rate of return which provided the Trustees the opportunity to make benefit improvements.

 

Can the plan afford this?

Yes, the plan is in good health. The improvements are a testament to the work the trustees have done over the last few years.  The plan is in good financial health to increase the benefit level due to consistent returns, stable funding, and a positive plan experience reflected in the valuation determined by the actuaries and trustees.

 

Am I eligible for the increase?

You are eligible if you earned service in 2022 and did not receive a lump sum benefit prior to September 15, 2022. You will see the increase reflected on your June 2023 pension statement. The increase does not apply to service earned prior to January 1, 2022.

 

I retired prior to 2022 – when can I expect a benefit improvement?

Recent regulatory changes to pension legislation effective December 31, 2022 are likely to positively affect the plan’s funding status and may allow for consideration of further benefit improvements in the future, keeping in mind that benefit improvements can only be made after full consideration of actuarial forecasts and with a view to minimizing the risk of future benefit reductions.

 

How did trustees decide which member groups should receive the increase in 2022?

In 2022 the Plan was in the position where it was able to afford benefit improvements for future service, but not in a position to improve benefits for all categories of members based on the required margins discussed above. The threshold to increase benefits for past service was not met.

Trustees must make decisions about benefit levels considering the different perspectives of all members. Retired members may feel as though they funded future service, and active members may feel as though they are subsidizing the previous generation of members.  Both perspectives are understandable but unfortunately, do not always align.

To preserve prudent funding levels and thereby avoid the risk of benefit reductions, it was not possible to increase all benefit types simultaneously.

 

Will our contributions increase?

Contribution rates are set during collective bargaining and are not determined by the plan. These benefit increases are based on existing contribution rates.

 

Does the increase to 1800 hours mean I need to work more to earn my pension?

Most members who work less than 1800 hours per year will still see an increase due to the higher benefit level. This is because the increased hours threshold combined with the benefit level increase makes this possible in most cases. The examples below show how the new benefit level works with the increase hours threshold.

 

Why was the annual hourly threshold increased?

The trustees increased the annual hours threshold from 1,500 hours to 1,800 hours effective January 1, 2022 to allow members the opportunity to apply more of their worked hours towards earning pension credits.

 

How do the benefit improvements work if I earned less than 1,800 hours in 2022?

If, for example, you worked 750 covered hours in 2022, you would earn 0.4 year of credited service (750÷1,800= 0.4)  

  • Your pension for 2022 would be 0.4 year of service multiplied by the new $85 benefit level. The calculation is: 0.4 x $85 = $34
  • This would give you a $34 per month lifetime pension for 2022

Under the previous rules, if you worked 750 hours, you would earn 0.5 year of credited service (750÷1,500 = 0.5). Your pension would be 0.5 year of service multiplied by the previous $60 benefit level. The calculation used: 0.5 x $60 = $30

This would result in a $30 benefit

In this hypothetical example, with the new improvements, you would see a pension increase of $4 per month if you worked 750 covered hours in 2022.

 

How do the benefit improvements work if I earned 1,500 hours in 2022?

If you earned 1,500 hours in 2022, you would earn 0.8 year of credited service (1,500 ÷ 1,800 = 0.8)

  • Your pension for 2022 will be 0.8 year of service multiplied by the new $85 benefit level. This calculation is: 0.8 x $85 = $68
  • This would give you a $68 per month lifetime pension for 2022

Under the previous rules, if you worked 1500 hours, you would earn 1.0 year of credited service (1500÷1,500 = 1.0). Your pension would be 1.0 year of service multiplied by the previous $60 benefit level. The calculation used: 1.0 x $60 = $60

This would result in a $60 benefit

This example shows a pension increase of $8.00 for the same number of hours.

 

How do the benefit improvements work if I earned 1,800+ hours in 2022?

If you earned at least 1,800 hours in 2022, you would earn 1.0 year of credited service (1,800 ÷ 1,800 = 1.0)

  • Your pension for 2022 will be 1.0 year of service multiplied by the new $85 benefit level. The calculation is: 1.0 x $85 = $85
  • This would give you a $85 per month lifetime pension for 2022
  • The number of hours worked above 1800 hours would be added to your excess hours balance.

In this example,  your pension will increase by $25.

 

I worked very little in 2022, what happens to my pension rate for this year?

  • If you worked 150 to 179 hours, your credited service would be 0.1 year of service.
  • If you worked 300 to 359 hours, your credited service would be 0.2 year of service.
  • If you worked 450 to 539 hours, your credited service would be 0.3 year of service.

If your credited service for 2022 fell into one of these three bands, you will have received a top-up through unfunded hours that would ensure that the increase to the 1800 hour threshold did not negatively impact your pension benefit for 2022.

After 2022, you will be subject to the new rate of accrual for 1,800 hours.

 

What other changes have resulted following the increase to the credited hours threshold?

  • If you are on LTD or eligible for Disability Credits you will earn credited service for the pension plan at the rate of 150 hours per month, which is up from 125 hours.
  • The maximum excess hours that can be applied in a Plan Year is 1,800 instead of 1,500.
  • If you are a deferred member who returns to work following involuntary job loss (IJL) you will need to earn 1,800 hours instead of 1,500 hours in a Plan year in order to be able to upgrade your past service from “deferred” to “active” status.

 

When will I see the change in my pension?

As an active member, you will see the benefit increase reflected in your next annual statement which will be mailed to you June 2023. You can also see it when you sign into your MemberConnect account.

If you are retired and have 2022 credited service, you can review how the increase has impacted your pension by referring to the letter sent in April 2023 and in our annual statement which will be mailed in June 2023. 

 

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