Our pension benefits are funded by employer and employee contributions, along with investment returns. PSPP has established policies and processes to manage the funding model.
PSPP’s Funding Policy directs the setting of benefits, contribution rates, and investment risk tolerances. Our Investment Policy directs the key capital market and implementation considerations underlying the investment program.
“PSPP means having a superior plan that will enable me to have a wonderful lifestyle when I take my retirement. I have worked for 40 years and feel the hard work and dedication I have given the Alberta Government was worth what I will receive in the future.”
PSPP has adopted a decision framework to ensure that accumulated assets and future contributions are sufficient to meet promised benefits on an ongoing basis.
PSPP’s Funding Policy highlights funding objectives and controls, and accounts for key factors relevant to the plan including the following principles:
Attention to the likelihood of continuing to be well-funded serves to facilitate the ongoing delivery of Plan benefits.
Attention to fairness in the sharing of the cost burden of benefit funding preserves equity across contribution cohorts.
Attention to applying reasonable expectations of funding from contributions and investment returns fosters certainty in contribution levels.
The policy also outlines the frequency of actuarial valuations. The valuation process is central to investment and contribution rate decision-making in support of meeting Plan funding objectives.
“PSPP gives me the feeling that all the years of hard work and dedication to one organization means that the pension I have earned provides me peace of mind knowing I can choose how to use my pension in retirement! Travel, start new hobbies, join a sports league, etc.”
Within the pension funding model, investment returns are expected to be the primary source of benefit funding. Objectives of the investment program are established by determining the appropriate level of risk to assume in capital markets within the context of the Plan funding model.
Investing in capital markets involves decision-making under uncertainty. To manage the risks of seeking returns in the financial marketplace, PSPP has adopted an industry best practice investment decision framework highlighted by the visiting and revisiting of key decisions.
Key elements of the framework include the asset mix decision, development of broad investment policy, and oversight to the implementation of the investment program.
Portfolio construction involves building an investment portfolio that is in line with established objectives and risk tolerances.
The ongoing sustainability of the pension funding model is monitored through the regular completion of actuarial valuations. A key element of the valuation process is to establish an assumption related to the long-term expected return from the investment portfolio.
Over the last 20 years, actuarial assumptions for expected annual portfolio returns, including a margin for conservatism, have decreased and have averaged 6.3%. The Plan’s actual long-term investment returns have exceeded long term expectations for funding. This means that the long-term objectives of the pension funding model have been met.
The most recent actuarial valuation that was filed with the regulators was completed as at December 31, 2021 and reported that the Plan was well funded with assets sufficient to fund 112% of pension obligations. The next actuarial valuation is being conducted as at December 31, 2024.
The results will be reported in the Fall of 2025; however, annual preliminary analysis has shown a steady improvement in the funded status over the past three years.
During this period investment returns have exceeded expectations increasing the surplus and the resulting funded status. The trend in funded status impacts funding requirements and the regular review of contribution rates.
Contribution rates are established as a percentage of a member’s pensionable earnings. Contributions are split between the member and employer, each paying an equal portion of the total rate.
Contribution rates have been trending downward over the past 12 years to the current combined rate of 17.91%. Changes to contribution rates flow through the processes supporting the ongoing attention to Plan funding.
Contribution rates payable by both the member and employer will remain unchanged for 2025.
Changes to contribution rates flow through the processes supporting the ongoing attention to Plan funding.
% of pensionable earnings
8.3%
Up to YMPE*
11.9%
Above YMPE*
The contribution rate for earnings up to the YMPE is lower than the contribution rate for earnings above the YMPE. This reflects PSPP’s benefit formula which provides a larger benefit for earnings above the YMPE.
The total contribution rate of 17.91% is an aggregate of the contribution rates applied to pensionable earnings both up to and above the YMPE and contributions made by both the member and employer.
“Security in retirement. Peace of mind especially when COLA is included.”
