My Pension, My Investment, My Future

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1 My Pension, My Investment, My Future

2 My Pension It s my future The Plan provides secure retirement income. It s my investment I receive good value for my contributions. It s my pension I pay for it. It s secure The Plan is sustainable and contributions are not escalating.

3 My Pension Plan The Alberta Teachers Pension Plan (the Plan)(the TPP)

4 Alberta Teachers Retirement Fund (ATRF) Board Trustee of the fund. Investor of the fund. Administrator of the pension promise.

5 ATRF Ensure sufficient assets for pension payments SECURE PENSIONS Examine risks and options Enhance governance processes Oversee cost-effective solutions 5

6 Who We Are Chris Gibbon, Teacher Welfare Sandra Johnston, Teacher Welfare and member of ATRF Board

8 My Pension Benefits and funding structure are set by plan sponsors: Board is joint governance. Contributions for both current service and deficiencies are shared half and half by teachers and government.

10 My Future Defined Benefit Plan Payable for life (and to surviving spouse). Benefit is defined by formula A percentage (1.4% of YMPE max + 2% of balance of salary) A salary (best five consecutive years averaged) Years of service. Contributions are made to fund service.

11 Defined Contribution Plan Contributions are defined but the pension is not. Contributions are invested for the member Investment decisions may be sole responsibility of employee. Pension is total of contributions plus interest earned as it exists on the day of retirement. A worker who planned to retired in a DC plan in March of 2009 would have had to work, on average, an additional seven years to recover their losses.

12 Benefits of a Defined Benefit Pension amount is known and predictable. Pension is based on salary prior to retirement including grid and inflationary salary increases. Risk is shared between employer and all plan members rather than risk being born by the individual. Members face risk during the contribution period but not in retirement.

14 Funding Challenges Extremely low interest rates Lowers future expected returns Negative market extremes over past 13 years Lower average market returns Increased longevity People are living longer so pensions are in pay for longer

15 Financial Position of Post-1992 Plan Post-August 1992 Benefit Period - as at August 31, 2014 Liabilities Funding Assets $11.9 Billion $9.6 Billion Deficiency $2.3 Billion

16 Teacher Pension Plan Returns Since % required rate-ofreturn funding objective 1.8% funding shortfall 5.6% ATRF actual return 14 Years Ended August 31,

17 Retiring Earlier & Collecting Pensions Longer Teachers Retiring in 1970 Teachers Retiring in 2014 Average Retirement Age 62 Average # of Years Collecting a Pension 20 Average Retirement Age 59 Average # of Years Collecting a Pension 30 17

18 The Good News Administered by one organization focussed on securing pensions of Alberta teachers (governance, funding and investment policy, administration and operations). Young plan with a lower level of pensioner liabilities vs other mature plans. Positive cash flow for the next 15 years. Joint governance structure. 18

19 Pension Envy Part of broader attack on public sector. Dwindling numbers of employees covered by defined benefit plans. Dwindling numbers of employees covered by any pension plan. Private investment firms pushing for business.

20 SECURE ADAPTABLE AFFORDABLE

21 Bill 9 Would Have Reductions to Retirement Benefits Local Authorities Pension Plan Public Sector Pension Plan Governance Changes Special Forces Wind up of Management Employee Pension Plan Not included Teachers Pension Plan. University Academic Pension Plan.

22 Proposed Reductions To LAPP/PSPP included: Reduced early retirement Current: age 55 with age + service= 85 no reduction or age 55 with 2 years vesting = reduction of 3% per year not age 65 or index 85. New: Age 60 and index of 90. New: Age 60 with 2 years vesting = full actuarial reduction (5%) per year prior to age 60. Loss of guaranteed COLA Current 60%. New 60% if plan is fully funded; COLA would move with funding status.

23 Contribution Cap Cap on government contributions Subject of White Paper still being debated in industry Effectively plans would be defined contribution rather than defined benefit

24 Address the competitiveness of the public sector pension plans and ensure that they are sustainable Jim Prentice Premier of Alberta Robin Campbell, Minister of Finance and President of Treasury Board

25 There is no question pension reform is needed. Recommendation: Defined contribution pension plans, not defined benefit, for all new hires.

26 It s My Investment

27 Teacher With 30 Years of Service 5 Year Average Salary $93, Year CPP Average Salary $49, Contributions from 1983/ /14 $172, Interest earned $61, Total $234, Basic Annual Pension $47, Annual Pension Joint Equal $41,470.20

28 My Pension is Cost Effective Contributions 25% Teachers 12.5% Government 12.5% Pension Plan Benefit Investment Returns 75%

29 My Investment ATRF as an institutional investor Lower Investment costs 39 cents for each $100 invested Access to more investment choices Real Estate Infrastructure Power of over $10 billion in assets Power of 30 year timeframe

30 My Investment Teacher paying 13.5% of income invested in the Teachers Pension Plan every year from age 25 to 59. At age 65 (67)with CPP and OAS have 70% of preretirement income A person outside of the pension plan would have to earn 10% per year on that same 13.5% of income to duplicate a pension that may not necessarily keep up with inflation. A current GIC pays 2.05%.

31 My Pension - I Pay For It Teachers Government Current Service Cost Additional 10% COLA 0.50 Post-1992 Deficiency Post-1992 additional COLA 0.31 TOTAL Below the YMPE ($52,500 in 2014) % Above the YMPE %

32 My Pension is Part of my Income In 1939 teachers offered to defer a portion of their salaries in order to provide for retirement income. This deferred salary is what government contributes to teachers pensions. This government contribution plus teachers contribution plus investment returns pays for teachers pensions.

33 Good Deal for Teachers and Taxpayers

34 My Pension is Sustainable Funding policy targets funding liabilities to be at 110% to 115% of best-estimate liabilities. Provides a 1% provision for potential adverse future plan experience in the assumed funding discount rate (currently 6.25%) Investment policy is based on: plan liabilities and cash flows; mitigating contribution risk; and reducing overall investment risk (principally equity risk).

35 Deficiencies Are required by law to made up within 15 years. Payments are split equally between the government and teachers. The first deficiency identified in 2002 will be made up in 2017.

36 Estimated Total Plan Funding Costs (% of teacher salaries) Deficiency Cost of Current Benefits

37 Its Your Pension! You pay for your pension. Your pension is part of your total compensation. Your pension is a way to provide compensation that is cost effective for both teachers and taxpayers.

Teacher Pensions and the Income Tax Act Frequently Asked Questions

Teacher Pensions and the Income Tax Act Frequently Asked Questions The pension benefit paid out under the Teachers Pension Plan (the Plan) is governed by a formula that includes a calculation of a benefit