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2018 Agreement

Pension Indexation For CUPE Retirees 2018 Agreement

Indexing And Our Pension Plan (archive information)

March 2015

The CUPE Employees Pension Plan (CEPP) is a healthy, defined benefit pension plan with a net value of over $600 million dollars. Our Pension Plan is negotiated by CUPE and the staff unions, and administered by the Joint Board of Trustees (JBT).

In the current round of bargaining, there is lots of discussion about pensions among active members and retirees. Achieving inflation protection is a key issue.

Didn’t we used to have indexed pensions?

In previous years CUPE and the staff unions negotiated collective agreement provisions that provided annual indexing of our pensions on an “ad hoc” basis during the term of the agreement. The increased cost to the Plan was covered by the available solvency surplus and did not require any increase in plan member or employer contribution rates.

Just before the global economic downturn hit in 2008, it was recognized that the Plan was heading toward a solvency deficiency that would trigger additional employer funding obligations. As one of the consequences, the ad hoc indexing provision was not renewed.

Retirees have not had a full cost of living adjustment since then. (In 2009 and 2010 there were partial adjustments of only 50% of inflation.) During the last seven years inflation has slowly eroded retirees’ buying power. In 2007, the cost of the Statistics Canada basket of goods was $100. In 2014, the same basket cost $111.16, an increase of 11.2% in 7 years. That represents a noticeable decline in buying power for current and future retirees.

Is our Plan healthy?

There are two ways to measure the financial health of a pension plan:

  1. ‘Going concern valuation’ – this assumes the Plan will continue indefinitely. It compares total assets to total liabilities – our Plan has a SURPLUS of $95,405,400.

  2. ‘Solvency valuation’ – this calculates what needs funding if the Plan wraps up tomorrow. It compares the total assets to the liabilities which, in this case are the costs of providing pensions to all existing retirees, surviving spouses, and what is promised to active Plan members – our Plan has a DEFICIT of $69,446,000. (Data Source: 2013 CEPP Report to Members)

If we look at “going concern” assets versus liabilities, the Plan is in a “going concern” SURPLUS position.

If we look at solvency (can everything be funded if the Plan ended tomorrow), the Plan has a funding DEFICIT.

Can our Plan provide indexing?

Our Plan has a generous surplus that can sustain cost of living payments for all current and future retirees on a “going concern basis” (an actuarial term for a plan that remains in effect over the long term). This has been confirmed by the Plan actuary.

So why can’t we have indexing now?

Ontario pension legislation that governs our Plan requires the “solvency valuation” to be in surplus before indexation can be implemented. (As noted above, our Plan currently has a “solvency valuation” deficit of $69 million). A request by the Joint Board of Trustees (JBT) for exemption from that legislated solvency funding obligation was dismissed by the Ontario government last year.

Given this legislated condition, the staff unions and CUPE agreed in negotiations that, once the Plan “solvency valuation” reaches 105% (with the 105% to include the additional cost of permanent indexing), the JBT will be able to implement cost of living adjustments.

Under the solvency measure, the Plan is currently funded at about 90% (which does not include the cost of permanent indexing). Conditions that affect the solvency rate are: • cost of Plan provisions; • contribution levels by the plan members and CUPE; • level of Plan investment returns; • changes to mortality rates that have resulted in longer benefit payout projections; • long term interest rates.

As you can see, the outlook for cost of living adjustments under existing conditions is a complex issue. Even though there is enough in the existing “going concern” surplus to pay for ad hoc cost of living adjustments, until the issue of the solvency deficit is resolved, we can expect to see no inflationary protection.


For the past two rounds of bargaining, the Employer has introduced a proposal to convert our Plan from a Single Employer Pension Plan (SEPP) to a Jointly Sponsored Pension Plan (JSPP).

What is ‘JSPP’?

A Jointly Sponsored Pension Plan (JSPP) is a pension plan where the employer and the plan members, represented by their unions, share responsibility for the governance and funding of the pension plan.

Governance – The CUPE Employees Pension Plan (CEPP) already shares governance responsibilities through the Joint Board of Trustees (JBT). Each of the existing Settlors – CUPE, CSU, and COPE – has a representative and alternate on the governing body. Retirees elected our representative (Gary Johnson) and alternate (Barry Thorsteinson).

Funding – Under our current SEPP, the Employer is legally responsible for making up any shortfalls in the Plan funding. Under a JSPP, the Employer and plan members must share the obligation to make up any shortfall, with the specific details negotiated by the parties within the constraints of the Ontario Pension Benefits Act and the JSPP legislation.

If we converted to a JSPP, what might change?

The Ontario Government recently introduced draft rules/regulations for converting a SEPP to a JSPP. Right now the impact of those regulations on our Plan is being assessed by the parties and their actuaries. In the meantime, there are several questions.

  1. Protection – Converting to a JSPP would remove our Plan from the Pension Benefits Guarantee Fund (PBGF) which offers protection for plans like ours in the event of plan insolvency e.g. bankruptcy. Question: What is the impact of this loss of protection under a JSPP?

  2. Decision making – Question: Do the rules governing JSPPs restrain the decisions about solvency, surpluses and deficits administered by the governance structure – in our case the JBT? If so, that would represent significant change. Those decisions are currently being made at the bargaining table with all the dispute settlement mechanisms available.

  3. Cost of Living Adjustments (Indexing) – Converting to a JSPP would remove the Plan from the provincial regulations that currently restrict cost of living adjustments. However, recently released regulations suggest that existing solvency deficiencies would still need to be funded before indexing could be achieved. Question: Will the final JSPP regulations allow indexing in the short term? Will they include other constraints that could adversely affect our goal of achieving inflation protection?

  4. Solvency – Under our SEPP we have a 105% solvency condition negotiated between the parties. Question: Since JSPPs require that funding liabilities for both current service and special payments must be shared by both the Employer and the plan members in some fashion, how does that affect current negotiated conditions? And how does it affect the staff unions’ ability to negotiate pension plan issues in future?

  5. Liability – With a JSPP, the Employer and plan members must share the cost of making up any shortfall in the Plan. When our Plan faced a financial shortfall in 2008 due to the global financial crisis, the Employer and the staff unions negotiated a sharing arrangement to address it. Question: Does JSPP legislation diminish our ability to negotiate the specific terms of a sharing arrangement in the event of a funding shortfall? (While it may be that details of an obligatory sharing arrangement would be subject to negotiation, the draft regulations currently appear to require an automatic cost share formula that would immediately go into effect when triggered by a shortfall.)

  6. Defined Benefit Plan – Question: Do the Ontario rules for conversion from a SEPP to a JSPP, require the new Plan to become a Target Benefit Plan? (Target Benefit Plans allow for the reduction of benefits to current retirees as an option to fund a shortfall.)

Converting to a JSPP may, at first, seem to be a solution to the cost of living issue. But even the few questions raised here show that it, too, is a highly complex issue that requires considerable research and discussion.


Pensions are complicated, and all of the issues must be weighed carefully. While all parties want to see permanent cost of living increases as an integral part of the CEPP for existing and future retirees, the CRA strongly urges the parties to consider the impact no cost of living increases for seven years is having on existing retirees.

The CRA wants to see inflationary protection for retirees.

This goal can be achieved with the active participation and collective strength of the CRA and its members.

Please get involved in the discussion. Talk to CUPE staff and your unions about the need to find a solution now. Talk with and write to the National Officers and National Executive Board members.