CAW Locals 195

1
CAW Locals 195 2458University of Windsor
Retirement PlanA UNION PENSION PERSPECTIVE

• Cara MacDonald, National Representative
• CAW Pension Benefits Department
• April 2008, Windsor ON

2
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

3
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)

4
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

5
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

6
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

7
Funding Status, cont

• 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

8
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 Universitys Annual
  Information Returns which are filed with Revenue
  Canada. The 2006/07 figures were obtained from
  the 2007 valuation report.

9
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 Universitys 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.

10
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 Windsors 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!

11
Why be concerned about Erosion of Pension
Surplus?, cont

• Unfair treatment U of Windsor is funding
  facultys 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 Waterloo
• U of Toronto Trent U
• U of Guelph Queens U

12
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

13
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 _at_ 6 plus 5 years _at_ 4)
• Total 15,492 or 1290/month

14
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!!

15
At the bargaining table
16
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

17
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

18
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

19
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

20
Questions?
21
University of Windsor Key Pension Plan
Provisions Reference
22
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

23
Member Contributions

• 6 of earnings on first 3,500 (YBE)
• 4.2 of earnings in excess of YBE up to YMPE
  (Years 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

24
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

25
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

26
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.

27
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

28
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)

29
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

30
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.

31
Questions?, cont

• 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

32
Government Pension Reference
33
Public Pensions Canada Pension Plan

• 2008 Maximum monthly benefit - 884.58
• Maximum disability benefit - 1,077.52
• Dependent childrens 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

34
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

35
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

36
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

37
Public Pensions GIS Continued

• Income for the purposes of the means test
  includes
• CPP benefits
• Private pension income
• RRSPs that youve cashed
• UI benefits, WSIB and alimony
• Interest on savings
• Capital gains/dividends
• Rental income
• Income excludes
• OAS benefits, including OAS spousal allowance
  benefits

38
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 couples 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.

39
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

40
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

41
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