The Pension Account is the account in the Pension Fund from which pensions are paid. Prior to 1993, when a member retired, all funds were transferred out of the Pension Fund. The Pensioner Account was designed to allow members to leave their funds in the Pension Plan not only to provide them with a retirement income but also to share in the investment performance of the Pension Plan in a manner similar to the way they did prior to retirement.
The Account operates as follows:
- When a member retires and elects to receive a pension from the Plan, that member's accounts are transferred into the Pensioner Account.
- The Pensioner Account is credited with interest in the same manner as all the other accounts in the Plan and is debited with the monthly pensions paid.
- Each year, effective April 1, the pensions in payment are eligible for an increase based on the excess of the average rate of return in the preceding four years over a "base rate" (the "excess interest" increase). The base rate is the rate of interest used in the initial pension calculation.
- However, before the increase is granted, the Plan's actuary conducts a valuation of the Pensioner Account in which the Account's assets are compared with the Account's liabilities i.e. how much will be required to provide the pensions of the current pensioners until the last pensioner dies. If the actuary determines that the Account's assets are sufficient, the increase is granted in full. If not, the increase may be reduced or eliminated.
- Based on the 2006 valuation, there were insufficient funds in the Pensioner Account to grant an increase.