Funding Position

The Plan’s liabilities are determined using an actuarial valuation, which provides an estimate based on assumptions and projections of the value of the Plan’s commitment to its beneficiaries. An updated actuarial valuation was completed on Dec. 31, 2010, by Morneau Shepell, the firm appointed by the Board of Trustees to provide the Plan’s actuarial services. The 2010 valuation reported Trust Fund assets totaling $108.1 million and liabilities of $60.7 million (after allowing $0.6 million for ad hoc indexing of benefits to Dec. 31, 2010), resulting in a surplus of $47.4 million and a 178% funded ratio.

In early 2009, substantial Plan changes were implemented. Plan modifications made at that time included significant improvements in benefits and reductions in premiums. The Plan’s financial position continued to strengthen with positive premium margins, lower than expected claims costs and investment gains. The
Plan’s financial position has improved from an estimated 128% funded ratio and a $16.6 million surplus at the end of 2008 to a 178% funded ratio and a $47.4 million surplus as of Dec. 31, 2010. The primary factors producing this $30.9 million improvement in funded level since the last valuation were:

As shown above, the financial position of the Plan has benefited from premiums received in excess of anticipated claims costs, net investment gains in excess of the 5.5% assumed in the 2008 actuarial valuation and continuing positive claims experience. While the Plan changes implemented in 2009 both increased expected benefit costs and reduced premiums, a positive margin still remains in the current premium level.

The investment gains earning was about 7% per year more than the 5.5% return assumed in the 2008 actuarial valuation over the past two years. Due to the significant $16.6 million surplus position with which the Plan entered 2009, even a 5.5% return would have produced surplus growth of $1.9 million. The Plan’s continuing success in claims management (both new claims and recovery rates of existing claims) is reflected in the net other experience factors gain of $7.7 million. Finally, the Board has conducted a review of the Trust Fund’s investment strategy and, in early 2011, decided to adopt a more conservative allocation of assets. The reduction in the valuation rate to 5% (0.5% lower than the 5.5% used in 2008) was made to reflect the anticipated impact that this decision will have on future investment returns earned by the Trust Fund.

In order to maintain maximum financial flexibility, since 2002 claims in payment have only been increased for inflation retrospectively after confirming the Plan’s continuing financial strength. The above liability value includes a provision that ad hoc indexing of claims that have been in force for 24 months or more as of Dec. 31, 2010, be indexed for CPI since the later of Dec. 31, 2009, or the date they passed 24 months on claim. Reflecting the very modest level of inflation recently, this change has increased Plan liabilities by $0.6 million.

The Plan has adopted a biennial schedule for valuations; accordingly, the next formal actuarial valuation of the Plan is scheduled for Dec. 31, 2012.