The pension plan commissions an independent actuary to conduct a funding valuation each year. The actuary determines how much money is required to pay pensions by making assumptions about the future inflation rate, future return on invested assets, future salary increases, age at retirement, life expectancy and other factors.
The assumption setting process is extremely robust and includes an annual in-depth analysis of plan experience. If assumptions show a pattern of deviating from actual experience, they are reviewed and may be adjusted. The independent actuary must confirm that the assumptions are appropriate and works closely with board members in the assumption setting exercise. The Canadian Institute of Actuaries Standards of Practice require that each assumption is independently reasonable and that assumptions are appropriate in aggregate.
Annual market fluctuations may cause the plan's investment performance to vary considerably compared to expected annual returns. Teachers' uses a smoothing method to mitigate short-term volatility in asset values.
As noted above, the plan's demographic assumptions are reviewed annually and the January 1, 2018, valuation reflects refinements to the ratio of credited service to qualifying service assumed for future pension accruals as well as the retirement assumptions. Both of these changes were as a result of a study performed focused on the longer period of time required for members to reach full-time employment.