Pension Review Report September 5, 2019 Good Medical Practice its - - PowerPoint PPT Presentation

Good Medical Practice – it’s what we’re all about

Pension Review Report September 5, 2019

Good Medical Practice – it’s what we’re all about

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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

Good Medical Practice – it’s what we’re all about

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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.)

Good Medical Practice – it’s what we’re all about

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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

Good Medical Practice – it’s what we’re all about

Total compensation

• Total compensation includes

salary, benefits and pension.

• The review focused mainly
• n the pension.

Pension Benefits Salary

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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 (50th percentile or P50)
• Total compensation = 65th percentile or P65
• Critical roles

Good Medical Practice – it’s what we’re all about

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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.

Good Medical Practice – it’s what we’re all about

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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).

Good Medical Practice – it’s what we’re all about

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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

Good Medical Practice – it’s what we’re all about

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Current Plan

Inactive membership on the rise (and expected to double over the next 10 years) results in increasing risk to funding pension costs.

Good Medical Practice – it’s what we’re all about

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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
• ur current pension plan

Good Medical Practice – it’s what we’re all about

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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.

Change to DC registered plan

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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.

Change to DC SERP

Good Medical Practice – it’s what we’re all about

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Pension Cost

Assuming favorable market conditions

Good Medical Practice – it’s what we’re all about

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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

Good Medical Practice – it’s what we’re all about

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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
• ther employer DC plans.
• Enhanced employee education required during transition

and afterwards, to invest pension funds wisely.

Good Medical Practice – it’s what we’re all about

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Communication with staff

CPSA leadership and staff have been informed of the recommendations going to Council.

• Staff meeting
• Department meetings

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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.

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Questions

Questions? Discussion & Decision: to continue Friday during public session