Funding the Plans
The ATRF Board has established a funding policy focused on sustainability for both the Teachers' Pension Plan and the Private School Teachers' Pension Plan.
Plan Structure and Funding
The Teachers’ Pension Plan and the Private School Teachers’ Pension Plan have three unique funding arrangements and liability structures:
- Teachers’ Pension Plan pre-1992: A 2007 agreement between the Government of Alberta (GOA) and the ATA assigns government responsibility for liabilities associated with pensions for the period of service before September 1992.
- Teachers’ Pension Plan post-1992: The cost of pension benefits earned for service after August 1992 is shared between active plan members and the GOA. Funding deficiencies under the plan are amortized by additional contributions from active members and the Government of Alberta over a maximum 15-year period.
- Private School Teachers’ Pension Plan: In 1995, legislation established a separate plan for private school teachers. The funding of this plan mirrors the post-1992 portion of the Teachers’ Pension Plan, except the cost is shared between teachers and employers (private schools) instead of the Government of Alberta.
The ATRF Board has established a funding policy focused on sustainability to ensure the plans can pay pensions to members and their beneficiaries, today and over the long term.
The primary funding objective is the security of member benefits, which is a crucial element of a plan’s sustainability. This is achieved by doing regular funding assessments, with the goal of ensuring the plans are fully funded over the long term – meaning there will be enough money to pay current and expected pensions for all plan members.
The plan may not be fully funded in every year depending on the economic and demographic environments. The funding assessments take this into account and target, with a high probability, for the funded ratio to remain above a sufficient level every year to deliver the promised benefits while also ensuring contributions do not increase to unaffordable levels.
The second funding objective is keeping contribution rates stable. The goal is to ensure contributions remain relatively stable from year-to-year, avoiding large up and down adjustments in pension deductions on teachers’ pay.
The cost of the plans must also be sustainable over time, and should reflect the long-term view of the plans’ assets and liabilities. This supports the third funding objective of inter-generational equity. This means that, to the extent possible, each generation of active members funds the benefits accruing for that generation of active members.
To achieve these funding objectives, various risk management tools are used. For example, the funding valuation uses an actuarially accepted practice of smoothing fund returns over a five-year period to ‘even out’ the impact from the volatility of market returns on the plans’ funded status and contribution rates. This practice called asset smoothing, produces a funding value of assets that can be higher or lower than the market value in any given year.