SESSION/SÉANCE: The Desjardins Pension Plan: Facing Actual and Future Challenges

Transcription

1 SESSION/SÉANCE: The Desjardins Pension Plan: Facing Actual and Future Challenges SPEAKER(S)/CONFÉRENCIER(S): Jérôme Savard, FCIA, FSA Director, actuarial services, pricing and financial performance, group retirement savings Desjardins Group

2 Goals Give background information on the plan to allow for comparison with other plans. Explain how, in Québec s current legislative environment, solutions were thought through and adopted. Insist on conditions that made it possible to transform our plan.

3 Plan Context The Desjardins Group Pension Plan The transformation Before 2008: Proactivity 2008: Reaction : Consolidation 2013? Conclusion: conditions for success

4 Context The Desjardins Group Pension Plan Generally speaking Eight largest Canadian private pension fund with approximately 7.5 $bn of assets Defined benefit pension plan registered in the province of Québec Came into effect on January 1, 1979 What makes it unique Identical benefits for all 45,000 employees Managed internally More than 450 employers, 400 of which within the Caisse s network Shared costs: 65% for the employers and 35% for the employees High benefits: Pension credit of 2% of average five best salaries, integrated with QPP/CPP Indexation both before and after retirement (CPI up to 4% and 3%) Unreduced retirement age as early as 57, with minimum service criteria

5 Before 2008: Proactivity Context No deficit (ever) and surplus distributions Focus on investment returns Lack of liability knowledge The plan will become mature in the next 10 years Active members per retiree: from 4.3 to 1.5 Portion of total liabilities for retirees: from 30% to 50%

6 Before 2008: Proactivity (continued) Initiatives: managing increasing maturity Investments Liability-driven investment strategies (LDI) are put in place Manage increasing maturity Focus on retirees' liabilities Benefits Changes to future benefits to increase average retirement age Increased pension credit Unreduced retirement age at 62, without minimum service criteria

7 2008: Reaction Context and challenges Important investment losses First deficit Increased focus on investment returns Initiatives: understand the shock and adjust Management Creation of a working group of experts from all sectors involved Actuaries, HR, accounting, risk management, investments, etc. Investments Faster implementation of LDI Financing Benefit from temporary solvency measures Gradually change the going-concern valuation basis Limit future increases in contributions Increase margins using future experience gains Benefit from accelerated financing of the deficit through solvency deficiency special payments Benefits Thanks to the cost-sharing rule, contributions were increased by 37% for both employees and employers Limit to sharing: Income Tax Act

8 : Consolidation Context and challenges Relatively good investment returns However, the solvency ratio deteriorates because of decreasing interest rates and temporary solvency relief measures expired on Dec. 31, 2011 IFRS accounting rules have significant financial impacts Bottom line: things quickly get more complex and focus shifts to the bigger picture

9 : Consolidation (continued) Initiatives: long-term survival of the plan Management Creation of a permanent executive committee The working group is also made permanent Benefits Employer and employee contributions further increased by 15% Limits to sharing Income Tax Act Employees' budget Total cost higher than total contributions

10 : Consolidation (continued) Initiatives: long-term survival of the plan (continued) Benefits (continued) Global benefit reduction of 30% After meeting with groups of employees and union representatives and being transparent VII. La structure de coût du RRMD Les choix 33 Indexation à la retraite (6,4 % des salaires) Prestations de décès à la retraite (0,9 % des salaires) Salaire des 5 meilleures années (1,3 % des salaires) Retraite anticipée subventionnée (2,0 % des salaires) Rente de base payable à 65 ans (formule de rente) (11,4 % des salaires) Caractéristiques de la rente Prestations complémentaires qui protègent le participant contre certains risques Indexation: Inflation durant la retraite Prestations de décès: Sécurité financière des survivants du retraité Salaire des 5 meilleures années: Inflation avant la retraite Prestations de base Récemment renouvelées (1 er janvier 2009) Formule de rente bonifiée 2 % du salaire final moyen, partiellement intégré avec la rente du RRQ Âge de retraite anticipée sans réduction à 62 ans Règle de retour des cotisations à 175 % à la cessation d emploi avant 55 ans

11 : Consolidation (continued) Initiatives: long-term survival of the plan (continued) Investments Even faster implementation of LDI Significant increases in fixed income and inflation-related investments Financing Reflect LDI in going-concern valuation basis Virtual split of the fund Treat future service like a new plan Significantly higher margins Special contribution from the employers only to prevent use of letters of credit Communications Transparency: employees and employers were informed of every initiative and reflexions throughout the process

12 2013? Better prepared and structured to face actual and future challenges: Low-interest rates environment Revised IAS 19 Financial impacts Increased volatility Accounting discount rate selection Rapport D'Amours Changes to financing rules Changes to Québec's pension system

13 Conclusion: winning conditions Whatever changes on the way Act now, do not wait If possible, do not let only actuaries take control Have as many experts as possible involved HR Accounting Risk management Investments experts Etc. Take time to train executives and have them involved Involve employees Be as clear and as transparent as possible Communicate, communicate, communicate