Pension Review Report September 5, 2019 Good Medical Practice – it’s what we’re all about
Why a pension review? • High cost of current defined benefit (DB) plan • High risk inherent in a DB plan to CPSA • Must ensure the CPSA has a total compensation package and can still: Hire and retain the best staff 2 Good Medical Practice – it’s what we’re all about
Pension governance • Council: • Approves overall pension plan, including any changes • Finance & Audit Committee (FAC): • Recommends changes to pension plan to Council • Appointed Pension Sub-Committee • Pension Sub-Committee: • Recommends to FAC (including terms of pension plan, contributions from employees, etc.) 3 Good Medical Practice – it’s what we’re all about
Guiding Principles 1) Strategic plan Goal 4 “The College is a recognized leader and innovator among self- regulated professions.” 2) CPSA Total Compensation Philosophy Salary = P50; Total compensation = P65 3) Cost and risk associated with pension are manageable to CPSA 4 Good Medical Practice – it’s what we’re all about
Total compensation Pension • Total compensation includes Salary salary, benefits and pension. • The review focused mainly on the pension. Benefits Good Medical Practice – it’s what we’re all about
Total Compensation Philosophy Highlights: • Approved by Council in May 2019 • Aligns with CPSA HR Philosophy • Attract and retain skilled and motivated staff • Competitive in current market • Fiscal responsibility • Salary = median (50 th percentile or P50) • Total compensation = 65 th percentile or P65 • Critical roles 6 Good Medical Practice – it’s what we’re all about
Pension Defined Benefit (DB) plan • A Defined Benefit plan pays a monthly pension for the lifetime of the plan member, no matter how long a member lives. • The fundamental promise is the monthly pension. • Employer bears risk of cost to pay out pension. Defined Contribution (DC) plan • Employee and employer contribute and invest funds over time for retirement. • The fundamental promise is a contribution into a retirement savings vehicle. • Risk transfers to employee to invest funds to have adequate pension during retirement. 7 Good Medical Practice – it’s what we’re all about
Pension options 1. Current plan, no change. 2. Adjust current registered defined benefit (DB) plan. • Increase employee contributions • Adjust pension accrual 3. Adjust supplemental executive retirement plan (SERP), with no change to registered plan. 4. Change registered plan and SERP to defined contribution (DC). 8 Good Medical Practice – it’s what we’re all about
Current pension plan • DB benefit formula: 2% x final average earnings x pensionable service • Number of retirees in pension plan growing faster than working employees • Result: current pension is not financially sustainable long-term 9 Good Medical Practice – it’s what we’re all about
Current Plan Inactive membership on the rise (and expected to double over the next 10 years) results in increasing risk to funding pension costs. 10 Good Medical Practice – it’s what we’re all about
Change to DC registered plan Transition options: Soft close to the existing registered DB plan • Employee pensionable service stops towards DB plan; earnings continue to grow (2% x years of service x 5 year average earnings). • Very commonly used Hard close to the existing registered DB plan • Employee pensionable service and earnings stop. • Most significant impact to employees. • Not commonly used in industry & not permitted through our current pension plan 11 Good Medical Practice – it’s what we’re all about
Change to DC registered plan Employee and employer contributions • Employee: 3% (up to income tax limits) • Employer: 15% (up to income tax limits) • Employee chooses how to invest funds. • Plan is very attractive relative to market comparables • Needs to be an attractive plan to align with Total Compensation Philosophy and to mitigate change impacts. 12 Good Medical Practice – it’s what we’re all about
Change to DC SERP Change to DC SERP • Notional SERP (tracked by payroll team) • Employer contributions at 15% (above income tax limits) • Employee would be paid over a period of time upon retirement. 13 Good Medical Practice – it’s what we’re all about
Pension Cost Assuming favorable market conditions 14 Good Medical Practice – it’s what we’re all about
Financial analysis Issue: Cost of the pension plan today and ability to sustain into the future Findings: • Annual pension costs lowest with DC registered plan. • Potential of significant cost volatility lowest with DC registered plan. • Additional costs (administering two registered plans, education programs for employees) < annual cost of current DB plan 15 Good Medical Practice – it’s what we’re all about
Human Resource analysis Issues: The ability to attract and retain skilled staff DC plans: risk transfers to employee to invest funds to have adequate pension during retirement. Findings: • DC employer contribution of 15% is attractive compared to other employer DC plans. • Enhanced employee education required during transition and afterwards, to invest pension funds wisely. 16 Good Medical Practice – it’s what we’re all about
Communication with staff CPSA leadership and staff have been informed of the recommendations going to Council. - Staff meeting - Department meetings 17 Good Medical Practice – it’s what we’re all about
Recommendations 1. Establish a defined contribution (DC) registered plan. • 15% employer contributions and 3% employee contributions, up to income tax limits. 2. Soft close of existing defined benefit (DB) registered plan effective December 31, 2020. 3. Establish DC notional SERP • with 15% employer contributions on pay in excess of income tax limits 4. Expand the terms of reference of the Pension Sub- Committee to include overseeing the associated change management activities. 18 Good Medical Practice – it’s what we’re all about
Questions Questions? Discussion & Decision: to continue Friday during public session 19 Good Medical Practice – it’s what we’re all about
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