Andrew Huculak is the Chair of the Saskatchewan Healthcare Employees’ Pension Plan (SHEPP) Board of Trustees for 2013. As chair he serves the needs of over 49,000 Plan members working in the healthcare industry across Saskatchewan.
Andrew is a long standing member of the SHEPP Board of Trustees, and we recently caught up with him to discuss his thoughts on the Plan and what’s on the minds of Plan members.

Q. There is a lot of talk about pensions in the news lately. People say that defined benefit plans like SHEPP are unreasonable. What should members know when they see stories about pensions in the news?

The average SHEPP pension is currently $18,746.64 per year, hardly unreasonable or “gold-plated” as some might suggest. A member of our Plan who earns $75,150 annually will accrue a pension at the approximate rate of 1.6% of her highest four-year average earnings for each full-time year of Plan membership. This means that after 25 years of full-time credited service this member has accumulated a lifetime pension of around 40% of her highest average earnings. So, it is important for members to remember that accumulating a substantial lifetime pension under a defined benefit pension plan doesn’t happen overnight. It takes an extended career of pensionable service to build a good pension.
Also, under our Plan the earliest date a member can take early retirement without penalty is when her age plus credited service totals 80 or more years. This is a reasonable and substantial early retirement eligibility provision that requires a minimum of 25 years of credited service to take retirement at age 55 without a penalty.
Another important item under SHEPP is that only regular pay is pensionable. Premium earnings such as overtime and shift differential are not pensionable which means that a member’s highest average earnings on retirement are meaningfully regulated by the Plan and their pension is reflective of their current wage.

Q. Ancillary benefits like cost-of-living increases to pensions in payment and bridge benefits from early retirement to age 65 seem to draw a lot of media attention. Are these features of SHEPP?

Our Plan does not provide for automatic indexing of pensions and no contribution has ever been made to the Plan to fund cost-of-living increases.
Members who take early retirement after meeting the rule of 80 years do receive a bridge benefit from early retirement to age 65. The bridge benefit tops-up the member’s pre-age 65 pension to 2% of highest average earnings for each full-time year of Plan membership. This is a meaningful and reasonable benefit given that Canada Pension Plan benefits are not payable without a penalty until age 65.

Q. What would you say to the pension critics?

The most recent data from Statistics Canada indicates that only 39% of working Canadians participate in a company pension plan. This means that 61% of working Canadians bear the full responsibility and risk for filling their retirement income needs above CPP and OAS. In other words, 61% of Canadian workers not only need the disposable income to contribute regularly to a registered retirement savings plan or be able to borrow the funds, but most importantly, take the responsibility to do so. It strikes me that the lack of meaningful workplace pension plans is the real pension issue in Canada. As a society we should be striving to ensure adequate retirement income for all Canadians through a combination of meaningful workplace pension plans as well as improvements to the Canada Pension Plan.
While we’re talking statistics I would note that 83% of unionized workplaces enjoy company pension plans. I believe that SHEPP’s employers and unions alike should take great pride in the fact that 37,000 SHEPP members are included in the 39% of working Canadians participating in company pension plans and the 83% of unionized workplaces.
In terms of plan design, I believe there is simply no more efficient or effective way to deliver decent pensions to people than the defined benefit model. SHEPP is a multi-employer Plan with professional administration, joint governance, a sound and dynamic investment strategy including mandatory contributions by members and employers that has provided retirement income security to members since 1962 and we look forward to doing exactly the same long into the future.

Q. The December 31, 2010 valuation filed with the Superintendent of Pensions showed the Plan had an unfunded liability of $741 million. What steps has the Board taken to help secure future benefits for members?

The primary objective of the Board’s funding policy is to secure member benefits. The first order of Board business is to carefully monitor the Plan’s funded status with the Plan actuary. Working upon the recommendations of the Plan actuary the Board has raised the combined member and employer contribution rate in three stages from 14.84% of payroll in 2008 to 18.3% of payroll effective the beginning of 2014. This action will ensure that the unfunded liability is paid off well in advance of the 15-year deadline required under provincial pension regulation.
The Board has also spent significant time and effort reviewing and refining its investment policy. The SHEPP Fund is fully invested and is now well over $4 billion. We want these invested assets to work hard for the members. The better the investment performance of the Fund the less pressure there is on contribution rates.
The challenge in investing the Fund is to get the right balance between risk and reward. The Board’s priority is to look first for opportunities to reduce investment risk without sacrificing return. We did this in late 2011 when we reduced our allocation to public equities while increasing our allocation to real estate (owning and leasing office, commercial and retail shopping buildings) and infrastructure (owning and/or operating assets such as airports, sea ports, electrical transmission lines and pipelines, amongst other assets and concessions).
Our business operates over very long time horizons, 50 to 70 years. We have 20-year old members in the Plan today who we expect to retire in 40 years and to whom we expect to pay lifetime pensions for 30 or more years following their retirement. The Board is working hard to design investment and risk management strategies that will safely guide the Plan through the many business cycles we will experience over the next seven decades.

Q. What is the funding arrangement for the Plan?

The Board is responsible for administering the Plan in an “as is” condition. This means that the Board cannot change the benefit provisions of the Plan if it causes a change in the contribution rate. A benefit change that causes a change in the contribution rate can only occur if the Union Partner and the Employer Partner agree to such a change in writing.
It is important to note, though, that if the Plan actuary determines that the Plan’s current benefit funding requirements change, the Board is required to consider any contribution rate increase or decrease recommended by the actuary. During its consideration of such recommendations, the Board has two main action levers at its disposal, actuarial analysis and funding margins, both of which help ensure we meet benefit funding requirements and are prepared for any future volatility.
The contribution rate is shared between the members and the employers. Members are required to pay 47% of the required contributions and the employers are required to pay 53% of the required contributions. This arrangement is often described as the employers paying $1.12 for every $1.00 of member contributions.

Q. Has there been any discussion around adjusting member benefits in order to reduce the costs of the Plan?

The Board has no authority to adjust member benefits to reduce the costs of the Plan. Such a change is considered a Fundamental Change which can only occur on the agreement in writing between the Union Partner and the Employer Partner.

Q. What do you think will be the biggest challenge for SHEPP in the next few years?

We must continue to operate our business with a very long view of things, looking both forward and backward. We are working hard to bring SHEPP back to fully funded status with meaningful and reasonable surplus funding margins. When those heady days return we must keep the financial crisis of 2008 well in mind and govern ourselves accordingly with respect to future improvements, called tertiary objectives. The overarching objectives of SHEPP are to ensure benefit security and contribution stability.

Q. SHEPP just celebrated its 50th anniversary last year. What do you think has been the Plan’s greatest accomplishment?

Our greatest accomplishment is to have kept the members’ interests at the forefront of everything we do. This is an integral and fiduciary duty that I and my fellow Trustees have to our members but is also ingrained in the fabric of our organization’s culture. Member service is our core business and we strive to deliver high quality services at a low cost. Our members have very high expectations of us and we have high expectations of ourselves.

Q. Do you see good days ahead for plans like SHEPP?

Yes. Large multi-employer defined benefit pension plans like SHEPP serving strong industries such as healthcare have worked hard to build the expertise and capacities to take on the assignment of effectively delivering meaningful and secure retirement income.
It’s a task we cherish.

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