Account B

 

Actuarial Valuation Results – Account B (Province Account)

The most recent actuarial valuation of TRAF prepared by the independent plan actuary was as at January 1, 2018, which included an assessment of the financial condition of Account B. The valuation results for Account B (with and without certain funding assumptions for Account B discussed below) are summarized in the following table. The January 1, 2015 results are included for comparison.

ACCOUNT B PRO FORMA FUNDED STATUS as at Jan 1 18

The next actuarial valuation is scheduled to be performed as at January 1, 2021.

Actuarial valuations of the fund, including Account B, can be found here.

On a going-concern basis, as at January 1, 2018, Account B had an accrued deficit of $1,537.5 million (which is a deterioration from the $1,392.4 million accrued deficit at January 1, 2015). This equates to an accrued funded ratio of the Province of Manitoba Trust Account (PMTA) assets to the Account B liabilities of 61.3%.

It is noted that Account B is not pre-funded under The Teachers’ Pensions Act (TPA), and that the funded ratio of Account B under the Act (without Account B funding assumptions, ie. excluding the PMTA) is technically 0%, as illustrated above.

Account B Funding Assumptions

Account B is responsible for the Province’s 50% share of the pension obligation. Account B is not pre-funded and generally holds no assets. In essence, Account B serves as a “flow through” account to facilitate the reimbursement of Account A for the Province’s share of pension benefits. Notwithstanding the fact that there are no assets in Account B, the Province has established the PMTA with TRAF for the purpose of accumulating funds for the eventual elimination of the unfunded pension obligations of Account B. As Account B holds no assets, its funded status will always be 0%. Notwithstanding, a valuation is required to determine the liabilities and the magnitude of the underfunding in dollar terms.

In recognition of the fact that the legal agreement governing the PMTA states that the trust is irrevocable and that the assets of the PMTA cannot be used for any purpose other than to fund the Province’s liabilities under the TPA, our current practice is to present the funded status of Account B on the assumption that the PMTA assets form part of Account B. Consistent with TRAF’s historical valuation practices for Account A, we also present the “future” assets and liabilities of the members of the plan as at the valuation date. Although there is no statutory or contractual obligation to pre-fund Account B, for illustration purposes we have assumed that the Province will continue to deposit to the PMTA an amount equal to the aggregate contributions made by active members to Account A – a practice that has been in place since October 2007. However, as mentioned, there is no legal requirement for the Province to pre-fund any amounts in respect of the pension liabilities of Account B. Accordingly, these payments by the Province could be reduced or discontinued at any time. It is as a result of these two assumptions that Account B is shown to have any assets. It is also noted that, despite the fact that there is no legal obligation for the Province to pre-fund Account B, there is a statutory obligation under The Teachers’ Pensions Act for the Province to advance funds to cover any deficit in Account B. This type of arrangement is often referred to as a “pay-as-you-go” model.

Reconciliation to the Prior Valuation

The table below reconciles the items that contributed to the increase in the Account B accrued liabilities for both base pensions and cost of living adjustments (COLA).

RECONCILIATION OF ACCOUNT B LIABILITIES

The primary positive contributor to the liability reconciliation was the difference between the contributions made to fund Account B benefits and current service accruals. The contributions made were higher than the increase in the liabilities due to new benefit accruals during the period of 2015 - 2017. The impact in dollar terms was approximately $262.0 million.

The primary factor with a negative impact was the interest on the liability at the assumed discount rate. The other factor with a negative impact was the change in the assumed discount rate from 6.00% to 5.75%. This resulted in the Account B accrued liabilities increasing by approximately $121.1 million.

January 1, 2018 Extrapolated Results

The 2017 Annual Report indicated that the accrued funded ratio of Account B (with Account B funding assumptions) was 62.5%. This figure was based on an extrapolation of the January 1, 2015 funded status. An extrapolation incorporates actual investment results, contributions received and benefits paid since the last formal valuation. The limitations are that the plan's actual experience with respect to mortality, retirement and termination since the date of the last valuation will not be accounted for until the next formal actuarial valuation (ie. the extrapolation will continue to rely on assumptions for these variables). The formal actuarial valuation as at January 1,2018 revealed an accrued funded ratio of Account B (with Account B funding assumptions) of 61.3%. The primary reason for the decline is due to the change in the assumed discount rate from 6.00% to 5.75%.