Teachers in Alberta can rest easy knowing that, when they retire, they will have a defined benefit pension based on an average salary multiplied by the number of years they taught. One may wonder how this promise can be kept in the face of current economic conditions. Key pressures faced by pension plans include teachers living longer than the average Canadian, very low interest rates over the last 15 years and lower than expected market returns. So what has the Alberta Teachers’ Retirement Fund (ATRF) Board done to keep your pension and your future secure?
The ATRF Board has been actively managing risks for decades. First, the Alberta Teachers’ Pension Plan always uses up-to-date mortality tables based on plan experience and current industry research. In 1970, the average teacher retired at 62 and collected a pension for 20 years. Now the average teacher retires at 60 but collects a pension for 30 years. On average, most are collecting pension longer than they are paying into the plan.
Another way the ATRF has been able to keep teacher pensions secure is through carefully monitoring its investment policies to maximize investment returns within the asset mix. Over the last 15 years (August 1999 to August 2014) the plan has had investment returns averaging 6.6 per cent per year. Although this number is a bit below the investment objective (7.5 per cent) over the same period, it surpasses the current discount rate of 6.25 per cent. The discount rate is the projected rate of return required to meet the pension obligation. By setting the discount rate at a more conservative 6.25 per cent, the plan has been able to survive long-term low interest rates.
The plan has also been fiscally prudent by establishing a “smoothing fund.” During times of high market returns, a portion of assets are set aside in this fund, which grew by more than $500 million dollars to $1.055 billion at the end of the 2013–14 year. When market returns are lower than expected, these funds are available to compensate for losses, lessening the impact on contribution rates.
The financial status of the fund has improved over the past year, and it is now funded at 81 per cent, as compared to 74 per cent for the previous fiscal year. If one takes into consideration the $1 billion-plus in the smoothing account, that 81 per cent figure would be even higher. It is expected that the plan will be worth more than $15 billion by 2020 and $20 billion by 2025. Any deficiencies should be eliminated by 2027.
One final thing all teachers should be aware of is that the plan benefits and cost-of-living adjustments continue to be based on a legislated formula rather than investment performance. Teachers have the security of knowing their defined pension and cost-of-living adjustment is secure for their retirement years.
Whether you are new to the profession, in your final years of teaching or already in receipt of a pension, your investment, your pension and your future are secure. ❚