Cost of Living Adjustment
In 2020, Public Service Superannuation Plan Trustee Inc.(PSSPTI) completed its comprehensive funded-health review (2020 Funded-Health Review) of the PSSP. The 2020 Funded-Health Review was conducted in accordance with provisions in the Public Service Superannuation Act (PSSA), which mandates PSSPTI to review the Plan’s funded health every 5 years.
The purpose of a funded-health review is to determine the Plan’s ability to afford indexing (also known as cost-of-living adjustments, or COLA) for the next 5 years and assess if any change is required to Plan benefits and contribution rates.
The 2020 Funded-Health Review was based on the Plan’s funded status as at December 31, 2019, which was 98.5%. The results are:
- As the Plan’s funded status was below 100%, indexing is mandated to be zero for the next 5-year cycle (starting January 1, 2021 and ending December 31, 2025). Under the PSSA’s funding policy, when the funded status is below 100% on a stipulated valuation date there can be no indexing paid during the following 5-year cycle.
- As the Plan’s funded status was above 96% but below 100%, it was required that PSSPTI consider whether to adjust contribution rates. Upon its analysis and with advice provided by the Plan’s actuary, PSSPTI determined that no change in contribution rates is warranted at this time.
Why is a funded-health review of the Plan required every 5 years?
In 2009, the Plan was significantly underfunded. At Dec. 31, 2009, the Plan was 69% funded with a $1.6 billion funding deficit. The PSSP was modernized in 2010-2012 and a new funding policy was embedded in its legislation, the PSSA. This initiative reduced the Plan’s liabilities by $1 billion. This funding policy provides for conditional indexing for PSSP retirees. Conditional indexing means that indexing may only be paid if the PSSP can afford it. The Plan’s funding policy was constructed to ensure the long-term financial sustainability of the Plan and is designed to treat all PSSP members, retirees and actives, as fairly and equitably as possible.
Why doesn’t the PSSP provide guaranteed indexing for all its members?
The PSSP’s funding policy does not allow for guaranteed indexing. Guaranteed indexing is very expensive and, if tied directly to full CPI, would drive the PSSP into a substantial deficit position. The PSSP has a limited amount of funds and must be managed carefully, keeping in mind the interests of its active and retired plan members, as well as the interests of its future generations. The Plan is no longer ‘backstopped’ by the Province and must ‘sink or swim’ on its own. This makes it even more important for the Trustee to strictly adhere to the PSSP’s funding policy
How do other public sector pension plans in Canada deal with indexing for their retirees?
Canadian jointly-sponsored public sector pension plans, like the PSSP, have increasingly been adopting conditional indexing; and some plans provide no indexing at all. The ability of a pension plan to pay indexing ultimately depends on the plan’s funded health.
When is the next 5-year funded health review?
The Trustee’s next review of the Plan’s funded health will be in 2025, for the 5-year cycle starting January 1, 2026 to December 31, 2030. At that time, indexing will be dependent upon the Plan’s funded status as of December 31, 2024. Indexing may only be provided in accordance with the funding policy.
For more on the Funded Health Review, please click here.