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Converting a DC Plan into a Target Benefit Plan: The Wave of the Future?The BCGEU Plan Conversion: A Case Study
Paul Finch, BCGEU
SHARE BC Pension Forum, February 24, 2017
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Topics
Why the BCGEU Wanted to Convert its Plan
Plan Design
Member Communications
Conversion Process
Target Benefit Administration
Plan-Based Risk Management
The Future
2
About the BCGEU
Represents more than 72,000 workers
¾ of members belong to DB plans
for other BCGEU members,
the BCGEU has sponsored its own DC plan since 1988
3
Why the BCGEU Wanted to Convert its Plan
To improve lifetime income security for BCGEU members
Target Benefit was the answer:
lifetime income security
fixed cost
4
PBSA—no target benefit Income Tax Act—no target benefit
How Was Conversion Possible?
SMEP
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Timeline
Converted July 1, 2016—the first in Canada?
2013 & 2014
Design
2015
Build,
Communicate
2016
Implement
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Key Design Decisions
Post-conversion benefits = % of contributions
Cost-neutral retirement age
No lump sums after 55
Voluntary contributions allowed
Benefit adjustments: adjust benefits to stay in desired funding range
1. indexing rate
2. benefit rate
July 1, 2016
Convert DC account to TB (default)
or
withdraw DC account
Automatically TB
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Member Communications
4 Bulletins
Town Hall
Conversion packages:
“Read This First”
Personalized pre-conversion statements
Election Form to transfer out (+ supporting forms)
Plan Summary
Return envelope
Pension hotline—for members and financial institutions
Personalized post-conversion statements
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Conversion Process
Administration challenges
– Unlocatable members
– Missing dates of birth
– Marriage breakdowns
– Late contribution remittances
– Investment risk during conversion period
Plan documents
– Plan Text
– SIPP
– Funding/Benefits Policy
– Governance Policy
Initial actuarial valuation
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Technical and Actuarial Issues
Legislative status:
CB MEP TB DC DB SMEP
Valuations—3 types:
1. Benefit adjustments
2. Compliance
3. Long term outlook
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Administration Implications
Complex benefit calculations, due to:
– Service breakpoints (two, so far)
– Member choice
– Voluntary contributions
– Immediate vesting
Data—more complex than DC
Changes to member communications
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Individual vs. Plan-Based Risk Management
Accumulation
Phase
Decumulation
Phase
Government
Plans
Workplace
Retirement
Plans
Other
Sources
12
Uncertain Rate of Return
Source: Canadian Institute of Actuaries, Report on Canadian Economic Statistics
12.5%
10.9%
5.6%
3.7%
12.2%
10.6%
5.6%
4.7%
13.0%
11.1%
7.4%7.4%
6.2%
2.1% 2.1%1.6%
1980’s 1990’s 2000’s 2010–2015
Starting Long Canada Bond Yield Canadian Equity Returns Long Bond Returns Inflation
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Uncertain Lifespan
20 year increase in life expectancy in a lifetime!
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Advantages of Collective Risk-Bearing
100%
Contributor
Risk
100%
Benefit Recipient
Risk
Collective
Risk-
Bearing
Individual
Risk-
Bearing
DB/DC
Hybrids
Bruce Kennedy’s “Risk-Bearing Space” concept was articulated in Benefits and Pensions Monitor September 2013.
Target
Benefit
Defined
Contribution
Defined
Benefit
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The Future
new Plan name
expansion of Plan membership
new communications
online pension estimator tool
Declaration of Trust:
– formalize relationship between board and Plan sponsor
– new board appointment process
– provide avenue for board representation as new units join the Plan
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About Me
Paul Finch, was elected Treasurer of the B.C. Government and
Service Employees’ Union (BCGEU) at the BCGEU’s 49th
Constitutional Convention in May 2014.
The BCGEU is the most diverse labour union in British Columbia,
representing over 72,000 members at 550 different employers and
government ministries.
As Treasurer, Paul works closely with the President of the BCGEU
and serves as the Union’s Chief Financial and Administrative
Officer.
He serves as the Plan Partner for the BCGEU and as a Trustee
for the BC Public Service Pension, and as Chair of the Board of
Trustees for the BC Target Benefit Pension Plan.