The Dynamic Reserve Ratio

The share of each member’s contribution that goes to each reserve is set by the Dynamic Reserve Ratio. Set at 40% at inception (meaning 40% of net contribution goes to the Fund Reserve, and 60% to the Benefits Reserve), the algorithm checks if the Fund Reserve remains at a sufficient level to protect the longevity of the fund.

The algorithm checks whenever a new contribution is made, if the share it allocates to the Fund Reserve needs to be increased, then the share allocated to the Benefits Reserve is decreased as a result. Changing the share of the net contribution going to the Fund Reserve does not change a member’s Benefit Multiplier, but makes sure reserves are ‘earned’ at a slower average rate, since the Fund Reserve is only earned with a 1-year delay compared to the Benefit Reserve (see next section). It also has some effect on the BM.A, since only 70%% of the Fund Reserve is taken into account in methods 1 and 3, while the Fund Reserve is not taken into account for method 2.