Questions Pertaining to the DB Plan
With the PAOC Pension Fund registered federally, and yet contributors being across Canada, why is the Pension Fund's registration in Ontario?
Although the Plan does have members across Canada, the plurality of the membership resides in Ontario. And therefore, for funding purposes, the Plan is required to be registered in Ontario. It may be worth noting that individual member benefits are administered according to provincial legislation where the member resides. This would be the administration of cases due to an event occurring, such as retirement.
Is the age still 71 where a member must begin receiving pension funds?
Under the DB plan, yes, a member must begin receiving a retirement stream at age 71.
Given the dependence of the Pension Plan on church mortgages, how concerned should we be that the significant impact of the coronavirus pandemic and its potential for church buildings to lose real or perceived value in the ongoing reality could erode Pension Plan funding?
In general, our churches are able to maintain ongoing mortgage payments, with less than 20% of churches taking up our offer for deferred principal payments of up to 6 months. As long as payments are current or are within agreed upon terms (e.g. 6 months deferred principal payments) there is minimal risk of reduction in value of church mortgages, or of impact on Pension Plan funding.
Have there been any material changes in the investment portfolio since the December 31, 2019 statement?
The overall portfolio as at May 31, 2020 has decreased in value by only 1% since the December 31, 2019 financial statements.
Will there be any increase in the Pension amount paid to recipients this year?
During our 2018 General Members Meeting, it was advised that once a surplus in the Fund is reached, consideration will be given to re-engaging the cost of living allowance (COLA), restoring benefits that were previously reduced for contributors, and repatriating a percentage of special contributions back to employers. While we have made significant gains in the Pension Fund and while this remains our goal, we are not in a position to take such action at this time, noting the economic uncertainty caused by the coronavirus pandemic. We will continue to work with our Actuaries and Board of Trustees toward this goal.
What was the return on investment (ROI) for equities in 2019?
The ROI for equities was 14.0% in 2019.
I am nearing retirement. Will my cash pension be affected due to the coronavirus?
Your pension payments can be strongly expected to be made as calculated upon retirement. As at July 10, 2020, it is quite unlikely that the coronavirus will affect the level of payments you receive. The DB pension plan was in a healthy position as at December 31, 2019 with an estimated Going Concern Funded ratio of 113.3%, which is well above the required threshold. The next valuation will not be required until December 31, 2022. With our new status as a Specified Ontario Multi-Employer Pension Plan, the likelihood has been significantly reduced that the Defined Benefit Pension plan will require special contributions going forward.
Are we in a position that will require employers to make additional payments in light of the equity losses in 2020?
No. Our pension remains in a surplus position as at the latest full actuarial valuation on December 31, 2019. The next actuarial valuation is scheduled for December 31, 2022. Even with equity losses in 2020, special payments are not expected to be required through to December 31, 2022. If a full actuarial valuation was completed as at April 30, 2020, our pension is estimated to be in a surplus position, such that no special payments would be expected.
Does this mean that employers do not have to top up if there is a shortfall?
If there is a shortfall in the DB plan, it remains possible that employers will have to make special contributions. However, with our new status as a Specified Ontario Multi-Employer Pension Plan, the likelihood has been significantly reduced that the Defined Benefit Pension plan will require special contributions going forward.
Does the Specified Ontario Multi-Employer Pension Plan (SOMEPP) designation mean that employers do not have to top up if there is a shortfall in the pension plan on any basis?
The SOMEPP designation significantly reduces the likelihood that the Defined Benefit Pension plan will require special contributions going forward, but does not eliminate the possibility of special contributions. We will be required to adhere to going concern funding requirements only, not solvency funding requirements and going concern funding requirements.
What is the Threshold percentage that the plan would have to maintain before employers may have to pay additional top-up payments?
As the Plan is only required to fund on a going concern basis moving forward, no additional employer special contributions will be required a long as the Plan maintains a going concern funded position above 100%.
In light of recent downturns in the market, what impact is anticipated for pension revenues?
As at May 31, 2020, the overall return on investment is – 0.3%. Our pension remains in a surplus position as at the latest full actuarial valuation on December 31, 2019. The next actuarial valuation is scheduled for December 31, 2022. Even with equity losses in 2020, special payments are not expected to be required through to December 31, 2022. If a full actuarial valuation was completed as at April 30, 2020, our pension is estimated to be in a surplus position, such that no special payments would be expected.
Are we in a position that will require employers to make additional payments in light of the equity losses in 2020?
No, employers will not be required to make additional payments in light of equity losses (as at May 31, 2020). With an estimated going concern funded ratio of 113.3% as at December 31, 2019, a significant buffer exists before additional payments would be required due to any equity losses. The next actuarial valuation is scheduled for December 31, 2022. Even with equity losses in 2020, special payments are not expected to be required through to December 31, 2022.
Could previous extra payments be refunded?
Yes, it is possible that previous extra payments could be refunded in the future, however probability and timing of such payments is unknown at this time. During our 2018 General Members Meeting, it was advised that once a surplus in the Fund is reached, consideration will be given to re-engaging the cost of living allowance (COLA), restoring benefits that were previously reduced for contributors, and repatriating a percentage of special contributions back to employers. While we have made significant gains in the Pension Fund and while this remains our goal, we are not in a position to take such action at this time, noting the economic uncertainty caused by the coronavirus pandemic. We will continue to work with our Actuaries and Board of Trustees toward this goal.
Are members able to transfer from Defined Benefit to Defined Contribution plans if they choose?
DB members will not be able to transfer their DB contributions over to the DC. That stated, DB members can suspend or terminate contributions to the DB plan and commence contributions to the DC plan. We would encourage DB members to continue in the DB plan, so that their known retirement income stream will continue to increase. With our new status as a Specified Ontario Multi-Employer Pension Plan, the likelihood has been significantly reduced that the Defined Benefit Pension plan will require special contributions going forward.
If a church in the DB plan closes or terminates from the plan, do its obligations: a) get factored into the actuary’s numbers, or b) flow to the rest of the churches?
a) The benefits that were accrued through service with a church that closes or terminates remain in the Plan (i.e. the member does not lose their benefit in a situation such as this). The actuary will continue to factor these members into the calculations. A liability will be calculated for these members, until the benefit is settled.
b) The only way a church obligation would be passed on to other churches is if we have to make additional payments like we did following the 2008/09 financial crisis. However, with the reclassification of the pension plan to a Specified Ontario MultiEmployer Pension Plan, this risk is greatly reduced. Closure of churches should not be much of a concern. If a church is closed there are no more employees and therefore no more contributions or future liability created.
What is the advantage of participating in the DB plan instead of the DC plan, for employee and for employer?
Employee
a) The certainty of post-retirement income. The retirement income stream is predetermined based on contributions and removes the uncertainty of just how much the pensioner will be receiving during their retirement years. The income stream will not stop prior to death.
b) Income is stable throughout retirement. This provides future security during periods of market uncertainty.
c) The pensioner can ensure their spouse will be taken care of. Options are available to ensure the surviving spouse will receive an ongoing income stream if the pensioner dies.Employer
a) Comfort and relief that the employee’s financial needs will be taken care of in a certain and stable way upon retirement.Can an employee participate in both DB and DC plans?
Technically yes, an employer and employee can participate in both plans. However, please take into consideration the following:
a) There will be added administration for the employer:
• Will be sending payment and file information to PAOC for the DB plan for each employee.
• Will be sending payment and file information to Canada Life for each employee for both the employer portion and the individual RRSP portion.
b) The employee will need to keep in mind their RRSP limits when considering how much can go into the employer portion of the DC and the employee RRSP portion of the DC, after the DB portion has been deducted from the RRSP limits.
• DB and DC contributions go against the RRSP limits, though there is a formula for the DB portion, so the employee will need to ensure they do not over-contribute.
We would encourage DB members to maximize contributions to the DB plan so their known retirement income stream will continue to increase. With our new status as a Specified Ontario Multi-Employer Pension Plan, the likelihood has been significantly reduced that the Defined Benefit Pension plan will require special contributions going forward.