Special Actuarial Report 2024 on the financial position of the Public Service Pension Fund as at 31 March 2024

List of Tables

• Table 1 Balance sheet of the PSPF
• Table 2 Reconciliation of financial position of the PSPF for plan year 2024
• Table 3 Experience gains and losses for plan year 2024
• Table 4 Reconciliation of balance in the PSPF
• Table 5 Actuarial value of PSPF assets
• Table 6 Actuarial asset value
• Table 7 Funded status
• Table 8 Sensitivity of valuation results as at 31 March 2024 of the PSPF to one-time salary adjustment during plan year 2025
• Table 9 Sensitivity of valuation results as at 31 March 2025 of the PSPF to one-time salary adjustment during plan year 2025
• Table 10 Scenario 1: Funded status of the PSPF with plan year 2025 salary increase 1% higher than best estimate
• Table 11 Scenario 2: Funded status of the PSPF with plan year 2025 salary increase 3% higher than best estimate
• Table 12 Scenario 3: Funded status of the PSPF with plan year 2025 salary increase 5% higher than best estimate
• Table 13 Scenario 4: Funded status of the PSPF with plan year 2025 salary increase 7% higher than best estimate
• Table 14 Scenario 5: Funded status of the PSPF with plan year 2025 salary increase 9% higher than best estimate

1 Highlights of the report

2 Introduction

This special actuarial report on the financial position of the Public Service Pension Fund (PSPF) was prepared pursuant to the request made by the President of Treasury Board under subsection 44.4 (5) of the Public Service Superannuation Act (PSSA). This special actuarial report also includes the sensitivity analyses of various salary adjustment scenarios requested by the President of Treasury Board.

This actuarial valuation is as at 31 March 2024 and is in respect of pension benefits defined by Parts I, III and IV of the PSSA and the Pension Benefits Division Act (PBDA).

This special report will not change the scheduled review dates of the statutory triennial actuarial reviews conducted in accordance with section 6 of the Public Pensions Reporting Act (PPRA). The most recent statutory triennial actuarial review was prepared as at 31 March 2023 and the next one is scheduled as at 31 March 2026.

2.1 Purpose of actuarial report

The purposes of this actuarial valuation are to:

• Confirm whether a non-permitted surplus exists within the PSPF as at 31 March 2024;
• Present the financial position of the PSPF as at 31 March 2024;
• Perform a short-term deterministic projection of the PSPF; and
• Perform the sensitivity analyses of various salary adjustment scenarios.

2.2 Scope of the report

This special report is based on membership data and actuarial assumptions from the statutory valuation as at 31 March 2023 as they relate to the PSPF and assets as at 31 March 2024. This special report does not include a cost certificate, and it does not include the financial position, nor a deterministic projection, nor sensitivity analyses of salary adjustment scenarios of the Superannuation Account, and the Retirement Compensation Arrangement No.1 and No.2 Accounts.

3 Valuation basis

3.1 Valuation inputs

This report is based on pension benefit provisions enacted by the legislation, summarized in Appendix A of the 20th Actuarial Report on the Pension Plan for the Public Service of Canada as at 31 March 2023 (20th actuarial report). The actuarial liability as at 31 March 2024 is projected from the 20th actuarial report using the method described in Appendix B of this report.

This valuation is based on PSPF invested assets that the government has earmarked for the payment of benefits for service since 1 April 2000.

The pension assets are summarized in Appendix A of this report.

3.2 Subsequent events

Certain occupational groups who promote the safety and security of Canadians are eligible to early retirement: retirement after 25 years of service without a pension reduction. The government has announced on 13 June 2024 its intent to expand this early pension eligibility for frontline and security workers under the PS pension plan. Since the details are not yet available and legislative changes have not been introduced yet, we have not reflected any of these potential changes in this report. Pursuant to section 4 of the PPRA, a report on an actuarial review of the PS pension plan could be required when the legislative changes are introduced.

The Pay Equity Act, which came into force on 31 August 2021, applies to all federally regulated employers with 10 employees or more. On 19 August 2024, the Pay Equity Commissioner has granted Treasury Board Secretariat the requested extension of 3 years to post a final pay equity plan for employees of Core Public Administrations by 31 August 2027. Since federal employers are at various steps of the pay equity process, the details of the expected changes to compensation are not known, and the impact of the implementation of the Pay Equity Act has not been considered in this report.

As of the date of the signing of this report, we were not aware of any other subsequent events that may have a material impact on the results of this valuation.

4 Projected valuation results

This report is based on the pension benefit provisions enacted by the legislation, summarized in Appendix A of the 20th actuarial report, and the membership data, summarized in Appendix D of the 20th actuarial report. The method of projection is described in Appendix B of this report. As such, there is no change to the cost of the plan presented in the 20th actuarial report.

4.1 PSSA – Financial position

Beginning on 1 April 2000, member and government contributions to the Public Sector Pension Plan (PSPP) are credited to the PSPF, and the total amount of contributions net of benefits paid and administrative expenses is transferred to the Public Sector Pension Investment Board (PSP Investments) and invested in the financial markets.

This section presents the financial positions for the PSPF as at 31 March 2024. The results of the previous valuation are also shown for comparison.

As at 31 March 2024, the PSPF has a surplus of $38,833 million and the funded ratio is 126.3%. As such, no special payments are required and there is a non-permitted surplus as defined by the subsection 44.4 (5) of the PSSA^{Footnote 1} of $1,943 million.

4.2 Reconciliation of the changes in financial position

Table 2 shows the reconciliation of the changes in the financial position of the PSPF. Explanations of the items largely responsible for the changes follow the table.

4.2.1 Experience gains and (losses)

Since the 20th actuarial report, experience gains and losses increased the surplus of the PSPF by $3,144 million. The main experience gain and loss items are shown in the following table followed by explanatory notes (i) and (ii). Gains are represented by positive numbers and losses are represented by negative numbers in parentheses.

4.2.2 Revision of actuarial assumptions

The actuarial assumptions for the valuation as at 31 March 2024 are the same as those for the valuation as at 31 March 2023.

5 Actuarial opinion

In our opinion, considering that this report was prepared pursuant to the request made by the President of Treasury Board under subsection 44.4 (5) of the Public Service Superannuation Act,

• the valuation data on which the valuation is based are sufficient and reliable for the purposes of the valuation;
• the assumptions used are individually reasonable and appropriate in aggregate for the purposes of the valuation; and
• the methods employed are appropriate for the purposes of the valuation.

This report has been prepared, and our opinion given, in accordance with accepted actuarial practice in Canada. In particular, this report was prepared in accordance with the Standards of Practice (General Standards and Practice – Practice-Specific Standards for Pension Plans) published by the Canadian Institute of Actuaries.

Subsequent events described in section 3.2 were not considered in this valuation since the details were not available at the time the report was prepared. To the best of our knowledge, after discussion with Public Services and Procurement Canada and the Treasury Board of Canada Secretariat, there were no other subsequent events between the valuation date and the date of this report that would have a material impact on the results of this valuation.

Assia Billig, FCIA, FSA
Chief Actuary

Alexandre Larose, FCIA, FSA

Alexandre Filiatreault, FCIA, FSA

Ottawa, Canada

27 September 2024

Appendix A – Assets and rates of return

A.1 Assets balance

The government has a statutory obligation to fulfill the pension promise enacted by legislation to members of the Public Service. Since 1 April 2000, the government has earmarked invested assets (the Pension Fund) to meet the cost of pension benefits.

A.2 Public service pension fund

Since 1 April 2000, PSSA contributions (except for prior service elections made prior to 1 April 2000) have been credited to the PSPF. The PSPF is invested in the financial markets with a view to achieving maximum rates of return without undue risk.

The PSPF has been credited with all PSSA contributions since 1 April 2000, as well as with prior service contributions in respect of elections made since that date. The PSPF is also credited with the net investment returns generated by the capital assets managed by PSPIB. It is debited with both the benefit payments made in respect of service earned and prior service elections made since 1 April 2000 and the allocated portion of the plan administrative expenses.

A.3 Sources of asset data

PSPF entries shown in section A.2 above were taken from the Public Accounts of Canada and the financial statements of PSP Investments.

Appendix B – Valuation methodology

B.1 Projected liability

Actuarial liability as at 31 March 2024 is projected based on the actuarial liability as at 31 March 2023 using the economic and demographic assumptions specified in Appendices F and G of the 20th actuarial report.

With the exception of prior service contributions recognized in the present value of prior service contributions as at 31 March 2023, prior service contributions made in plan year 2024 were added to the projected liability as at 31 March 2024.

The difference between the service cost contributions made to the PSPF in plan year 2024 and the projected service cost for plan year 2024 was not added to the projected liability.

B.2 Plan assets

For valuation purposes, an adjusted market value method is used to determine the actuarial value of assets in respect of the PSPF. The method is unchanged from the 20th actuarial report.

Under the adjusted market value method, the difference between the observed investment returns during a given plan year and the expected investment returns for that year based on the previous report assumptions, is recognized over five years at the rate of 20% per year. The actuarial value is then determined by applying a 10% corridor, such that the actuarial value of assets is within 10% of the market value of assets. The value produced by this method is related to the market value of the assets but is more stable than the market value.

The only other PSPF–related asset consists of the discounted value of future member and government contributions in respect of prior service elections^{Footnote 2}. The discounted value of future member and government contributions was calculated using the assumed rates of return on the PSPF.

The actuarial value of the assets, determined as at 31 March 2024, is $186,395 million. The calculation to determine this value is shown at Table 5.

Appendix C – Deterministic projection of the funded status

C.1 Public service pension fund projection

Starting 1 April 2000, the PSSA is financed through the PSPF. The PSPF is credited with employer and member contributions, investment earnings and with prior service contributions for elections since 1 April 2000. The PSPF is debited with benefit payments made in respect of service earned since that date and administrative expenses.

The following projection is a deterministic forecast of the baseline scenario used in Appendix L.2 of the 20th actuarial report. It was performed using the membership data, assumptions and methodology described in Appendices of the 20th actuarial report, and the asset data from this report. The projection shows the expected evolution of the financial position of the PSPF if all assumptions are realized. For the projection period from 1 April 2024 up to 31 December 2024 of plan year 2025, the difference, estimated at $254 million, between the service cost contributions made to the PSPF and the projected service cost was considered in the assets but not added to the projected liability. Emerging experience that differs from the corresponding assumptions will result in gains or (losses) to be revealed in subsequent valuation reports.

For this forecast it was assumed that:

• The funding status is continuously reassessed;
• Deficits are covered by additional government contributions; and
• Legislation under section 44.4 (1) of the PSSA is applied in case of non-permitted surplus (surplus in excess of 25% of liabilities). The pause in government contribution:
  • is based on whole months starting on 1 December 2024;
  • is applied until the non-permitted surplus is extinguished;
  • is applied to the contributions of any board, commission or corporation listed in a Schedule to the PSSA; and
  • is not applied to prior service buybacks.

Table 6 shows the projected actuarial value of assets if all assumptions are realized.

Table 7 shows the projected contributions and that the PSPF would reach a 125% funded ratio in plan year 2029.

Appendix D – Sensitivity analyses of various salary adjustment scenarios

D.1 Summary

As requested by the President of the Treasury board, this section shows five sensitivity scenarios of one-time salary adjustment during plan year 2025. The level of the adjustment is a one-time increase of 1%, 3%, 5%, 7%, and 9% higher than the best-estimate assumption. Table 8 shows the effect on the liabilities and on the funded ratio at the valuation date for the PSPF under those five scenarios. Although the scope of this report is solely an analysis for the PSPF, the scenarios presented would have an effect on the Superannuation Account, and the Retirement Compensation Arrangement No.1 and No.2 Accounts.

Table 9 shows the effect on the liabilities and on the funded ratio as at March 31, 2025 for the PSPF under the same five scenarios.

D.2 Sensitivity scenarios of salary adjustment

The tables in this section show the projected funded ratios using the same methodology as in Appendix C and using the one-time salary adjustment scenarios described in Appendix D.1. The projections show the expected evolution of the financial position of the PSPF when adjusting for the salary increase assumption in plan year 2025 and realizing all other assumptions. Table 10 shows the projected funded ratio if the salary increase in plan year 2025 is 1% higher than the best estimate assumption.

Table 11 shows the projected funded ratio if the salary increase in plan year 2025 is 3% higher than the best estimate assumption.

Table 12 shows the projected funded ratio if the salary increase in plan year 2025 is 3% higher than the best estimate assumption.

Table 13 shows the projected funded ratio if the salary increase in plan year 2025 is 5% higher than the best estimate assumption.

Table 14 shows the projected funded ratio if the salary increase in plan year 2025 is 9% higher than the best estimate assumption.

Appendix E – Acknowledgements

The following individuals assisted in the preparation of this report:

Linda Benjauthrit, ACIA, ASA
Simon Brien, ACIA, ASA
Julie Fortier
François Lemire, FCIA, FSA
Kelly Moore
Annie St-Jacques, FCIA, FSA