Teachers’ Pension Plan Unfunded Liability

How the Teachers' Pension Plan Was Funded Prior to September 1, 1992

1939 – Teachers and Alberta Government each contribute 3% of salary.

1948 – Teachers and Alberta Government each contribute 4% of salary.

1952 – Teachers and Alberta Government each contribute 5% of salary.

1956 – Legislation is amended to provide “pay-as-you-go” funding by the Alberta Government under which the Alberta Government pays half the cost of annual benefit payments and administration costs, and guarantees all benefit payments. Between April 1956 and the fall of 1966, these payments were made from a fund consisting of the net value of Alberta Government contributions made before April 1956.

1966 – Teachers contribute 3.5% up to Year’s Maximum Pensionable Earnings (YMPE) under the Canada Pension Plan (CPP) and 5% on earnings above the YMPE (benefits and contributions were integrated with the introduction of the CPP).

1987 – Teachers contribute 3.85% up to YMPE and 5.5% above the YMPE.

1992 – Teachers contribute 4.55% up to YMPE and 6.5% above the YMPE until August 31, 1992.

The funding structure of the plan from September 1, 1992 to August 2007 is outlined below at  “September 1992 Funding Agreement between the ATA and the Alberta Government.”

The Reasons for the Pre-September 1992 Unfunded Liability

There are two main reasons for the existence of the unfunded liability.

1. Benefits for pensionable service before September 1992 were not being fully funded. The contributions of teachers and payments by the Alberta Government were not sufficient to establish adequate money in the fund to pay for benefits being earned. From 1956 to 1992, the Alberta Government paid 50% of the Plan’s annual expenditures.
2. Neither teachers nor the Alberta Government made any funding contributions toward the annual retired member cost-of-living adjustments that were granted by the Alberta Government from 1975 to 1992. In addition, significant early retirement benefits were implemented in the 1970s with no commensurate changes to funding contributions.

The unfunded liability with respect to benefits earned for service before September 1992, based on a 5.0% discount rate, was estimated at $7.540 billion as at March 31, 2011.

The funding structure of the plan from September 2007, based on the November 15, 2007 Memorandum of Agreement between the Alberta Government and The Alberta Teachers’ Association, is outlined in the “November 2007 Funding Agreement between the ATA and the Alberta Government.”

September 1992 Funding Agreement Between the ATA and the Alberta Government

(revised by November 2007 Funding Agreement)

(A) Post-August 1992 Service Funding

1. Active teachers contributed one-half the cost of benefits, including the 60% cost-of-living adjustment for pensions.
2. The Alberta Government contributed the other half of the cost of benefits.
3. Active teachers contributed 100% of the cost of an additional 10% cost-of-living adjustment for pensions related to pensionable service after 1992.
4. The funding of any deficiency was shared equally between the Alberta Government and teachers. However, teachers alone were required to fund all the added cost with respect to that portion of the deficiency related to the additional 10% cost-of-living benefit for pensionable service earned after August 1992.

(B) Unfunded Liability for Pre-September 1992 Service

1. The unfunded liability was being amortized as a level percentage of active teachers’ pensionable salaries on or before August 31, 2060.
2. Active teachers contributed 32.65% of the amortization cost.
3. The Alberta Government contributed 67.35% of the amortization cost and guaranteed all related benefit payments.

November 2007 Funding Agreement Between the ATA and the Alberta Government

(A) Post-August 1992 Service Funding

1. Active teachers contribute one-half the cost of benefits, including the 60% cost-of-living adjustment for pensions.
2. The Alberta Government contributes the other-half of the cost of benefits.
3. Active teachers contribute 100% of the cost of an additional 10% cost-of-living adjustment for pensions related to pensionable service after 1992.
4. The funding of any deficiency is shared equally between the Alberta Government and teachers. However, teachers alone are required to fund all the added cost with respect to that portion of the deficiency related to the additional 10% cost-of-living benefit for pensionable service earned after August 1992.

(B) Unfunded Liability for Pre-September 1992 Service

1. From September 2007 to August 2009, the Alberta Government contributed 100% of the cost to amortize the unfunded liability as a level percentage of active teachers’ pensionable salaries on or before August 31, 2060.
2. Effective September 2009, unfunded liability contributions ceased and Alberta Government moved to pay-as-you-go funding by advancing sufficient funds to the plan to pay for all benefits as they come due.