CAW Locals 195 & 2458 University of Windsor Retirement Plan ‘A UNION PENSION PERSPECTIVE’
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Transcript of CAW Locals 195 & 2458 University of Windsor Retirement Plan ‘A UNION PENSION PERSPECTIVE’
CAW Locals 195 & 2458University of Windsor Retirement
Plan‘A UNION PENSION
PERSPECTIVE’
Cara MacDonald, National Representative
CAW Pension & Benefits Department
April 2008, Windsor ON
Main Discussion Items Pension Funding Status
University Contributions (Section 3.02 & 3.03)
Early Retirement Provisions & Indexation
Negotiating Pensions
U of Windsor Key Pension Plan Provisions Reference
Public Pensions Reference
Pension Funding Status Based on valuation report as at July 1, 2007
(prepared March 27, 2008). Valuation report provides a snapshot of the financial status of a pension fund at a particular point in time.
Plan includes members of CAW Local 2458, CAW Local 195, CUPE Local 1393 and full-time and part-time non-union administration employees. Faculty, librarians, senior management and CUPE Local 1001 are not members of this plan.
Plan is in surplus situation, at 121% funded (compared to 118% in each of 2006 and 2005)
Pension Funding Bases Three components comprising cost of pension plan: (1)
going-concern; (2) solvency; (3) current service cost
Going-concern – is the rate of contributions adequate enough to cover the pension promised, assuming the plan continues in existence? (shortfall is amortized over 15 years)
Solvency – are there enough assets to cover expected benefits if the plan were to wind up today? (shortfall amortized over 5 years)
Current service cost – cost of 12 months’ pension benefits
Total Annual Cost of Plan Going-concern surplus of $10.517 M (compared to
$7.183 M in 2006), hence no special payments are required
Solvency surplus of $23.557 M (compared to $18.290 M in 2006), hence no special payments are required
Current service cost of: $6,040,600 in 2007/08 $6,342,700 in 2008/09 $6,659,700 in 2009/10
Total annual cost of plan is equal to the annual current service cost
Member & University Contributions
Estimated member contributions: $1,919,100 in 2007/08 $2,015,100 in 2008/09 $2,115,800 in 2009/10
Estimated University contributions: $1,919,100 in 2007/08 $2,015,100 in 2008/09 $2,115,800 in 2009/10
Funding Status, con’t Difference between current service cost and
University & Member contributions:
$6,040,600 – ($1,1919,100 x 2) = $2,202,400
$6,342,700 – ($2,015,100 x 2) = $2,312,500
$6,659,700 – ($2,115,800 x 2) = $2,428,100
These amounts (over $2 M per annum) come out of the pension surplus
Erosion of Pension Surplus Partial ‘Contribution holidays’ or “application of funding excess against the estimated normal cost”. Whatever you call it, it means erosion of surplus monies.
All of above data (with the exception of 2006/07) obtained from the University’s Annual Information Returns which are filed with Revenue Canada. The 2006/07 figures were obtained from the 2007 valuation report.
PLAN YEAR NORMAL COST
MEMBERS’ CONTRIBUTIO
N
UNIVERSITY’S CONTRIBUTION
SURPLUS USED
2000/2001 3,176,342 1,405,636 567,098 1,203,608
2001/2002 3,167,590 1,105,178 761,100 1,301,312
2002/2003 3,330,093 1,267,681 0 2,062,412
2003/2004 3,929,800 1,376,067 0 2,553,733
2004/2005 4,680,199 1,638,725 1,410,228 1,631,246
2005/2006 5,161,326 1,739,726 1,737,284 1,684,316
2006/2007 5,590,400 1,797,300 1,797,300 1,850,000
University Contributions SECTION 3.02 University must contribute the amounts
required as recommended by the actuary, but no less than members’ aggregate annual contributions
SECTION 3.03 After matching members’ contributions, the University’s remaining contributions will be paid from the plan surplus, if surplus exists
SECTION 3.03 If plan is in deficit, member contributions will automatically increase by 50% of the additional cost so that both the University and members each pay 50% of the entire cost of the plan. So-called “cost-sharing” arrangement.
In effect, member contributions are tied to the existence of surplus in the fund.
Why be concerned about Erosion of Pension Surplus?
No surplus? Member contribution rates automatically increase (Section 3.03)
Limits ability to bargain improvements
Inadequate status quo:
U of Windsor’s non-existent early retirement provisions. VER expired as at June 30, 2005
Inadequate benefits including sub-standard indexation provisions. Retirees received no increase in 2003, 2004 and only 0.26% and 1% in 2005 & 2006 respectively!
Why be concerned about Erosion of Pension Surplus?, con’t
Unfair treatment – U of Windsor is funding faculty’s pension plan deficit, and is contributing at a much greater rate than faculty members (no ‘cost-sharing’)
Below Industry Standards – Other Universities with defined benefit pension plans contribute to their plans at rates that far exceed the members’ rate of contributions, especially when the plan is in a deficit position
McMaster U U of WaterlooU of Toronto Trent UU of Guelph Queen’s U
No Early Retirement Provisions
Voluntary Early Retirement Program expired as at June 30, 2005. Rule 75/55 with 0.725% bridge to age 65
Under current plan provisions, pension entitlement reduced by 6% of each year of retirement between ages 55 and 59 and by 4% for each year between ages 60 and 65
Example: Retire at age 62 – Pension reduced by 12% (3 years x 4%), and further reduced for survivor benefit if married/common-law
Benefit ExampleNO ‘VER’ PROGRAM
Member age 59 with 28 years’ pensionable service, retires as at January 1, 2009
Assume 5-year average earnings of $48,000 and 5-year average YMPE of $42,460
1.5% x $42,460 x 28 years = $17,833, plus 2.0% x $5,540 ($48,000 - $42,460) x 28 years =
$3102 Subtotal - $20,935 ($17,833 + $3,102) reduced
by 26% (1 year @ 6% plus 5 years @ 4%) Total = $15,492 or $1290/month
Benefit Examplewith ‘VER’ Program
Assume same member, age 59 with 28 years and assume VER is still available. Assume 5-year average earnings of $48,000 and 5-year average YMPE of $42,460
Under VER, annual benefit equal to:
Unreduced normal retirement benefit of $20,935 plus bridge benefit calculated as: 0.725% x $48,000 x 28 years = $9,744
Payable to age 65: $30,679 or $2557/month Payable after age 65 for life: $20,935 or $1745/month
Difference between having VER and not having VER is about $125,400 for this member in this example!!
At the bargaining table
Current Negotiation Structure
‘Ad hoc’ Joint Pension Plan Negotiating Committee comprising 2 members from each of the local unions and 2 elected members of non-union staff. Bargains with Administration.
Joint Retirement Committee, comprising 5 University reps, 4 union reps (from each union) and 1 non-union staff rep, responsible for interpretation and application of plan provisions and for making recommendations to University, Board of Governors and Pension Negotiating Committee
Inherent Structural Problems negotiating is ad hoc and dependent on University
agreeing to meet;
negotiations are not tied to collective bargaining process;
limited bargaining power;
improvements last negotiated in 2002, and only because the pension plan was in excess surplus and University wanted full contribution holiday
Bargaining Challenges Restrictive, Penalizing Plan Language:
Section 3.03 requiring that member contributions automatically increase in the event of deficit.
Where there is a surplus, allowing the University to use it towards the current service cost
Seriously adverse consequences to workers:
Erosion of surplus results in workers accepting sub-standard early retirement provisions
Expiry of VER and impact this has for members approaching retirement
Inadequate indexation provisions for retirees
Recommendations
Tie pensions to collective bargaining process
Incorporate plan text, by reference, into collective agreement and/or incorporate any changes that address Section 3.03
Address Section 3.03: Increase required University contributions (i.e. 150% of
members) Freeze member contribution rates Eliminate provision requiring automatic increase to
member contributions upon plan deficit
Renew Voluntary Early Retirement Program
Questions?
University of Windsor Key Pension Plan
Provisions Reference
Key Pension Provisions Contributory, defined benefit pension plan. Includes
both union and non-union groups.
Effective date: September 1, 1955
Contributions and benefit levels integrated with CPP
As of Sept. 1984, mandatory participation upon completion of probation. Prior to this date, required to join on March 1 or Sept.1 following 1 year of service and at age 25
Part-time employees can participate if earn 35% of YMPE or work 700 hours in each of two consecutive years
Member Contributions 6% of earnings on first $3,500 (YBE)
4.2% of earnings in excess of YBE up to YMPE (Year’s Maximum Pensionable Earnings - $44,900 in 2008)
6.0% of earnings in excess of YMPE
Earnings defined as base earnings plus overtime, shift premiums and weekend premiums
Voluntary member contributions permitted
Benefit Levels Normal Retirement Pension (annual pension equal
to): 1.5% of highest average 5-year consecutive
earnings up to average 5-year YMPE, plus 2.0% of highest average 5-year consecutive
earnings in excess of average 5-year YMPE Multiplied by pensionable service
Early Retirement Pension: As early as age 55, calculated as above, reduced
by ½ of 1% for each month between age 55 and 59 and by 1/3 of 1% for each month between 60 and 65, inclusive
Pensionable Service Service prior to Sept. 1 1955 (at 1% benefit level) Continuous service WSIB up to one year Periods of total disability while in receipt of LTD (member
contributions waived) Authorized paid leaves of absence Pregnancy/parental leave Service in Canadian Armed Forces Purchases of past service For each of the above, member must continue to
contribute, except for total disability
Unpaid leaves, layoffs, union leaves (amended?) are not covered
Disability Pension Eligible if:
Totally and permanently disabled (unable to perform any occupation)
Age 50 and older and with 15 or more years’ continuous service
Unreduced normal retirement pension benefit, payable for life (no re-calculation at age 65)
If totally disabled (unable to perform own occupation), pension service continues to accrue and member contributions are waived; earnings based on earnings at date of disability plus any negotiated wage increases. Ad hoc increases to disability benefit rates in previous years.
Forms of Payment If single retiree, 60-month guarantee is ‘normal
form’; optional methods if payment including no guarantee or guarantee for 10 or 15 years
If married/common-law, automatic 60% joint and survivor benefit, with lifetime benefit actuarially reduced, unless waived; option for 100% and 75% survivor benefit
Changes to options are permitted only prior to retirement
Pre-Retirement Death Benefits
Benefit amount equal to: 100% of member contributions made prior to Jan. 1
1987, with interest, increasing by 10% for each complete year of service in excess of 10 years, reaching 200% after 20 or more years of service, plus
Greater of: (1) above formula on contributions made on and after Jan. 1 1987 and (2) commuted value of pension accrued on and after Jan. 1 1987, plus
Additional voluntary contributions, if any
Payable as lump sum amount or as annuity (spouse only)
Termination Benefits Pre-1987 benefits:
Vested and locked-in if age 45 or older and have 10 or more years upon termination
If under age 45 or less than 10 years, lump sum refund of member contributions with interest
Post-1986 benefits: Vested and locked-in with 2 or more years of plan
membership If less than 2 years, refund of member contributions with
interest
50% cost rule (on service after 1986) and small (2% of YMPE) cash refunds
Questions?
What is the YMPE? YMPE is short for
Years’ Maximum Pensionable Earnings. The YMPE is the earnings on which CPP/QPP contributions and benefits are calculated. The YMPE changes each year according to a formula using average wage levels.
2008 $44,900
2007 $43,700
2006 $42,100
2005 $41,100
2004 $40,500
5-year average
$42,460
Questions?, con’t What is the maximum pension?
Under the Income Tax Act (ITA), the annual maximum pension is the lesser of: 2% of average best three earnings’ for each
year of pensionable service; and $2,333 per year of service (increasing by
$111 in 2009 and then indexed thereafter) Pre-1992 service is capped at 35 years For post-1991 service, the above maximum is
reduced by ¼ of 1% for each month of retirement prior to the earliest of age 60, 80 points and 30 years
Government Pension Reference
Public Pensions: Canada Pension Plan
2008 Maximum monthly benefit - $884.58 Maximum disability benefit - $1,077.52 Dependent children’s benefit - $208.77 Surviving spouse 65 and over - $530.75 Surviving spouse under age 65 - $493.28
Average benefit received in 2007 was $481.46, or about 55% of maximum benefit
Reduction of ½ of 1% for each month prior to age 65 (6% per year). For example, if you commence your CPP at age 60, your benefit is reduced by 30%.
Annual Indexation
Public Pensions: Old Age Security
Maximum monthly benefit - $502.31 (as of January 2008)
Must be age 65 to qualify. 10 year residency requirement for eligibility & 40 years’ residency for maximum benefit.
In 2008, clawback of 15% of excess income over $64,718 up to the full OAS benefits, with entire amount being clawed back at an annual retirement income of $104,903 or more
Public Pensions: Guaranteed Income Supplement
Maximum monthly benefit of (as of Jan. 2008): $634.02 for singles $418.69 for spouses of pensioners (if your
partner is receiving OAS) $634.02 for spouses of non-pensioners
Benefit income is non-taxable; qualify at age 65; quarterly indexation
Public Pensions: GIS Continued
GIS is subject to an income test. Cut-off thresholds are:
$15,240 for singles $20,112 for spouses of pensioners (combined income) $36,528 for spouses of non-pensioners (combined
income)
GIS benefits are reduced by $1 for every $2 of monthly income for singles and $1 for every $4 of income for married/common-law couples
Public Pensions: GIS Continued
Income for the purposes of the means test includes:
CPP benefits Private pension income RRSPs that you’ve cashed UI benefits, WSIB and alimony Interest on savings Capital gains/dividends Rental income
Income excludes: OAS benefits, including OAS spousal allowance
benefits
Public Pensions: Spouse Allowance
Maximum monthly benefit is $921.00 (as of Jan. 2008).
For spouses of an OAS pensioner, age 60 to 64
Income and residence test
Income of $28,176 combined or less to qualify for a spousal benefit. The benefit is reduced by $3 for every $4 of couple’s income from all sources (excluding OAS) until the amount of the reduction is equal to the OAS pension. Thereafter, the reduction is $1 for every $4 of income.
Public Pensions: Survivor Allowance
Maximum monthly benefit is $1,020.91 (as of Jan. 2008)
For spouses, age 60 to 64, who are widow of OAS pensioner
Income cut-off is $20,520 to qualify
Payable to the earlier of age 65, remarriage or death
Information on Retirement Planning
Government of Canada Retirement planning information and an income
calculator www.hrsdc.gc.ca Advocis (Financial Advisors Association of Canada)
www.advocis.ca Offers advice on selecting a financial planner
Annuity Rates www.moneysense.ca Investment education www.investored.ca Check out your local library for books and magazines Visit your local credit union or bank for investment
and retirement planning advice
Information on Government Pensions
Old Age Security, Canada Pension Plan Contact Social Development Canada “Income Security
Programs” (1-800 blue pages) or www.hrsdc.gc.ca Have your social insurance number ready You can get your OAS and CPP entitlement over the
phone but it will not include the child-rearing drop out for CPP
You should request a copy of your personal CPP contribution statement, if you do not receive it
Quebec Pension Plan Regie des rentes (1-800-463-5158) or
www.rrq.gouv.qc.ca