The new Pension Benefits Standards Act of British Columbia (the “PBSA”) came into force on September 30, 2015. The PBSA introduced a new class of pension plan called a Target Benefit Plan. The UBC Staff Pension Plan (SPP) Board and its advisors have worked with the Financial Institutions Commission of British Columbia to review the classification of the UBC SPP under the PBSA. In August 2016, the regulator determined that the UBC SPP meets all of the design features of a Target Benefit Plan and has operated as one since its inception.
What makes the UBC SPP a Target Benefit Plan?
A key feature of the UBC SPP’s design is the pension promise and its funding policy. As both employee and employer contributions to the Plan are fixed, the Plan’s funding policy states that the basic pension benefit and inflation adjustments (indexing) are subject to the Plan’s ability to pay. Benefits are adjusted depending on whether the Plan is over- or underfunded.
How is it determined if the Plan is over- or underfunded?
It is based on the results of an actuarial valuation. An actuarial valuation is a financial check-up of the Plan performed every three years by an actuary that determines the funded position of the Plan. The next actuarial valuation for the UBC SPP will occur as of December 31, 2016. The PBSA prescribes a new set of funding rules for Target Benefit Plans. Under the new funding rules, the Plan’s liabilities are measured and funded on a realistic and sustainable long term going concern basis that assumes the Plan will continue indefinitely into the future.
What is changing for members?
There are a number of instances in which Plan members, their surviving spouses or beneficiaries can receive a lump sum payment from the Plan. The method for calculating these lump sum payments may change for some members. For example, if you leave the University and are eligible to take your money out of the Plan, you can choose to give up your deferred pension and receive instead a lump sum payment equal to the greater of 1.5 times your contributions plus interest or the value of your deferred pension (called the commuted value). The PBSA specifies a different method for calculating commuted values for Target Benefit Plans which will generally result in lower commuted value amounts. However, the minimum benefit of 1.5 times member contributions plus interest may be more than the new commuted value. Therefore, there may be no impact on the lump sum payment for some members. Also, if an actuarial valuation of the Plan using the rules for Target Benefit Plans indicates the Plan’s current assets are less than its liabilities, any lump sum payment from the Plan will be reduced to reflect that. Remember that terminated members have the option of leaving their funds in the Plan and receiving a deferred pension, rather than electing a lump sum payment. Choosing a deferred pension means a terminated member will receive a lifetime pension in retirement and will not be affected by the lower commuted value amount. This change increases the long term sustainability of the Plan with the purpose of protecting monthly lifetime pensions for all Plan members.
Are there any changes to the Benefit Formula?
No, your monthly lifetime pension will continue to be calculated using the exact same formula as before. If you are already receiving a monthly lifetime pension, it will remain the same.
