Last week on October 4th, APSA held an APSA Member exclusive Pension Town Hall meeting where members could bring their questions and concerns directly to the APSA Board of Directors.
We are pleased to report we had a full house of members who came with excellent question.
Or you can read below to see most of the questions and their answers. Please note that these are not taken verbatim nor are they in order. Some questions were combined due to their similarity.
If there is enough interest, APSA will host a second town hall meeting at the beginning of November.
DISCLAIMER – The meeting started with a reminder that, for decision making purposes, you should rely only on information that comes in writing from the University or the Pension Administrator. The SFU Staff Pension website is a source approved by the University.
Where can I find the full text of the Memorandum of Agreement between the EJPC and the University Administration?
The MOA will be available on the SFU Staff Pension website in the beginning of November, because of this delay, the Pension vote has been delayed to the end of November.
Why does the current pension plan have inequitable rates of accrual?
Currently, your pension plan only accrues 1.2% of salary below the YMPE, and 1.7% of salary above YMPE. The current plan was set up during the 70s under the idea that the a lower rate for salary already covered by Canada Pension Plan (CPP), and a higher rate for salary not covered by CPP.
Under the proposed pension plan changes, your pension will accrue at a flat 1.85% of salary
Why is that no longer a valid pension strategy as CPP hasn’t changed?
Total retirement income is supported by a “3 legged stool”. CPP, Personal Savings, and Pension Plans. The EJPC believes that every dollar earned should earn the same amount of pension for everyone.
We were told eight years ago that our pension was in dire straits, and we needed to revisit it. But the website says the pension is in good shape. So what is the motivator to look at the pension again. Why break a good thing?
A pension is considered sound if it is expected to provide the pension benefit. The soundness does not tell you if that benefit will be enough income to support you during retirement.
The University’s goal is predictably stable pension costs. The cost of the current pension plan is going up, in part due to the trend to lower and lower interest rates. Interest from investments are what help pay for the pension plan. 30 years ago, investment income accounted for 85% of the cost of the pension. Now it only accounts for 75% of the cost. This drives up the contribution rate. This also starts to cause solvency issues and increases the employer’s contributions even further, and the University did not want to keep increasing their contributions.
The EJPC used this as an opportunity to negotiate a better pension for everyone while maintaining a defined benefit plan.
I am concerned that the 6.75% salary increase to pay for the initial pension contributions will have an undesirable effect on the results of the upcoming Market Survey. It appears that while the salary increase is “net zero”, it will artificially inflate our wages in comparison to the rest of the market.
The salary increase, as well as the new pension plan changes will not come into effect until January 2020. The University has already sent out it’s market survey and when the survey returns, member’s salaries will not yet be affected by the 6.75% wage increase.
However, APSA would like the University to conduct market survey’s on an ongoing basis. And whether the survey is for total compensation or just salary, both surveys would compare benefits including pension as well.
Will the 6.75% salary increase be included when calculating the Public Sector Employees Salary Database?
If the salary increase puts your gross salary over the reporting threshold of $75,000, then yes.
Will the 6.75% salary increase have any effect or connection to the results of the SFU Job Evaluation Project?
The University is adopting a new process for evaluating where jobs should fall on the Salary Scale. This does not link back to pensions, nor the salary increase.
The 6.75% salary increase is coming January 2020, won’t that affect getting a general wage increase in the next round of Salary & Benefits negotiations?
No, the next round of contract negotiations will begin in 2019, and will not be affected by the pension changes.
Now that SFU employees are taking on 40% of the risk, is there any historical data to guess at the probability of a large rate increase in the future?
Unfortunately, there is no way to see into the future. We also can’t really quantify or calculate what a “worst case scenario” is. Every 3 years, there is an actuarial evaluation which sets the contribution rate for the next 3 years. What this means is that SFU staff are taking on 40% of the total contribution rate.
Currently, the contribution rate is 18.3% of salary. This means that SFU staff will be contributing 40% of that 18.3%. If there is an increase of 2% to the contribution rate after an actuarial evaluation, the staff portion of that increase would be 0.8% of salary before tax. The net of tax pay impact will be smaller.
There are a lot of different percentage numbers floating around. In terms of the day to day, how much will I be paying off of every paycheque to go towards my pension?
After the transition period, you will be paying a total of 7.43% (6.33% plus 1.1%) of your pay before tax. The first 6.33% of your new base salary is 6.75% of your current base salary. The remainder 1.1% will come out of future general wages increases over time.
Magic 80 is going away under the new plan, but doesn’t this notion of “Early Retirement for All”, hurt those who are within 5 years of retirement?
No. Magic 80 doesn’t represent what’s actually going into your pocket. It’s important that you look at the calculators on both HR’s website for the current plan, and SFU Staff Pension website’s calculator to compare the two. Even a “reduced” pension with the new plan will likely still be an increased monthly benefit to you.
All of the vested benefits you have earned under the current plan do not go away. If you currently have 20 years of service, and plan to retire in 5 years. You will have 22 years of service under the current plan, with the current accrual rate and rule of 80, and 3 years of service under the new plan, with the new accrual rate and rule of 90.
Most people who reach Magic 80 under the current pension plan cannot actually retire because the benefit is too small.
By taking out the anomalies, we can give everyone a better pension.
The proposed pension plan changes allows people to make flexible choices. You can retire whenever the benefit is enough for YOU to retire on.
When you say that the vested benefits earned under the current plan do not go away, does that mean I can still take the commuted value until the new plan comes into effect on Jan 1st 2020? What about if I retire after Jan 1st 2020? Can I take the commuted value of what I’ve earned up to the point the new plan comes into effect.
Commuted Value is not a vested pension benefit. It’s just a pay-out method. Few pension plans allow for it after age 55, and that’s because every time someone takes the commuted value out of the plan, it drives up the cost of the plan and creates too many cost fluctuations.
If you retire before Jan 1st, 2020 you can take the commuted value. However, if you retire after December 31, 2019 you cannot.
The only exception is if you terminate (quit, laid off, fired, ect) from the University before you turn 55. You can choose to take the commuted value or leave the money in plan to draw on once you retire. This is a legal requirement.
I am retiring in 5 years and I have a financial plan in place. This plan includes taking the commuted value and I don’t have enough time to work to increase my monthly benefit. Why not grandfather the Commuted Value for people currently in the plan?
Commuted Value is not a vested benefit of the current pension plan, and giving up commuted value was part of how the EJPC was able to negotiate a better pension plan and benefit.
The commuted value also cannot be grandfathered in because everyone will be contributing to the plan. This creates a situation where the people who leave their money in the plan, and take the monthly benefit, are subsidizing those who take the commuted value. This would not be equitable.
Does this mean I have to work longer in order to receive an unreduced pension?
Yes, but it’s immaterial. Look at the calculator and plan for the date you want to retire. Your reduced pension will likely still be a better benefit under the proposed plan. Make your decision on when to retire based on how much money you want to take home.
I’ve used the calculator on both HR’s website and the SFU Staff Pension website. But each calculator asks different questions and gives me different numbers. Can you explain why?
Each calculator uses different methodologies. The HR calculator only uses your current wage, whereas the SFU Staff Pension website calculates your wage going up over time. Other assumptions are made as well so that the comparison between the current and the new plan are “apples to apples.”
Independent actuary Eckler Ltd. Developed the calculator on the SFU staff pension website.
Why is there a rush to vote on this new plan that could affect us for 30 years if you’re also advising us to talk to a financial planner?
We are suggesting that you contact a financial planner if the commuted value is key to you making a decision.
Can you make changes to the calculator to include my specific situation or options, or to go out further than what’s been provided?
Unfortunately, there is only so much the calculator can do. If you would like to see results on your specific situation and option choices, please contact Pierre Etienne Banville in the Pensions & Benefits office.
You only really need to talk to a financial planner if you want to take the commuted value before the new plan comes into effect, or if you terminate from the university before you turn 55.
If you don’t plan to access that, then you only need to decide based on what your monthly benefit will be in the new plan vs the old plan. Also keep in mind, that RRSPs do not have inflation increases. Your benefit that pays out is static.
What is the benefit to members for changing the voting structure to 75% of plan members to approve changes. Doesn’t this make it harder for future members to make changes?
Currently, instead of each plan member getting a vote, each employee group gets 1 vote, and every employee group must approve the changes. APSA and CUPE each have about 1000 members, and Poly Party has about 100. So if one employee group votes no, no changes can be made to the plan, even if a majority are in favour of the changes. This also creates inequity between the employee groups.
Under the new plan, no employee group can hold the others hostage. Each plan member gets one vote.
Can you speak to the tax / RRSP implications? Will this affect our annual RRSP contribution limits?
Yes. Better Pension benefits lowers the amount of RRSP room you get. This is good because the pension plan is now covering a larger amount of the total retirement income you needed for retirement. You can now use the money destined for RRSP for other purposes.