multi-sector pension plan. 2 outline 1.retirement income sources 2.types of pension plans 3.outline...
TRANSCRIPT
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Outline
1. Retirement Income Sources
2. Types of Pension Plans
3. Outline of the MSPP – Eligibility, Benefits, etc.
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Canada’s 3 sources of Retirement Income
• Public Pension Plans– Canada Pension Plan (CPP)– Old Age Security (OAS)– Guaranteed Income Supplement (GIS)
• Workplace Pension Plans – Defined Benefit– Defined Contribution
• Personal Savings (RRSP)
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Why a Workplace Pension Plan?
• Average monthly benefits paid from public plans:
Canada/Quebec Pension = $501.82 Old Age Security = $489.57
Total = $991.39 (Jan. 2009)
• Many, especially women will not receive maximum benefit from public pension plans.
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Defined Benefit (DB) Defined Contribution (DC)
Group RRSP
Contributions
Set by the terms of the plan
Contributions
Set by the terms of the plan
ContributionsAs per the collective agreement.
Employer contributions are considered taxable income
Benefits
Pension wage is based on a formula
BenefitsPension wage depends on the amount of money in individual’s account. Based on amount contributed, gains/losses on market and fees to purchase pension
Benefits
Same as DC
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Defined Benefit (DB) Defined Contribution (DC)
Group RRSP
Risk
Shared between the employer and plan members
Risk
The employee faces the risk alone, through potentially poor investment returns, or retiring at the wrong time (i.e. after the market drops or when interest rates are low)
Risk
This is not a pension plan, it is individual savings. The individual faces market risk alone.
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Problems with DC Plans
• Employees must face risk alone– Market fluctuations on investments– Interest rates on annuities
• No guarantee of retirement benefits• Members are not professional investors • Must pay fees on investments
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Multi-Sector Pension Plan (MSPP)
• Defined Benefit Plan – with hybrid features
• Collective Approach
• Retirement wages based on set formula
• 100% union-run (CUPE and SEIU)
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The Proposal
This proposal is only for members who are on the DC Plan, not for members who are on the DB Plan (i.e. those hired before July 1, 1992)
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The ProposalCurrent DC Plan: Contributions Proposed MSPP + DC: Contributions
6% Employee Contribution 6% Employee Contribution
6% Employer Contribution 6% Employer Contribution
Total: 12% contribution Total: 12% contribution
Current DC Plan Proposed MSPP + DC
10.5% to the MSPP
12% to the DC Plan 1.5% to the DC Plan
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The Proposal
• All of the benefits from the MSPP will be in addition to what you have already accrued in the DC plan and with your own RRSPs
• There is no change to what you have saved under your current pension plan
• CPP is not affected by participation in the MSPP: i.e. CPP benefits are in addition to the MSPP
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MSPP – Eligibility
• Everyone in the bargaining unit must be covered after 500 hours of employment– Some exceptions can be made (e.g. if some
are on superannuation, they can stay there)
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MSPP – Benefits: Future Service Credit
• $100 of contributions = $1.55 monthly retirement wage at age 65
• Roughly equivalent to 1.95% of salary per year of service
Contribution Monthly Retirement Wage
$20,000 $310.00
$40,000 $602.00
$100,000 $1,550.00
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MSPP - Benefits
Accruing Contributions: assuming full contribution level (10.5%) and wage increase of 3% per year
Annual Wage
Annual Contribution
5 years of contributions
10 years of contributions
25 years of contributions
$40,000 $4,200 $22,298 $48,148 $153,129
$50,000 $5,250 $27,873 $60,185 $191,411
$60,000 $6,300 $33,448 $72,222 $229,693
$70,000 $7,350 $39,022 $84,260 $267,976
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MSPP – Benefits: Past Service Credit
• A unique feature of the plan may increase your retirement wage by as much as $186.20 per month at age 65.
• Based on years of service with your employer at the time the employer commences participation in the MSPP.
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MSPP – Benefits: Past Service Credit
• $26.60 per year of service to a maximum of 7 years ($186.20) at age 65
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MSPP - Benefits
Total Contributions
Future Service
Past Service Retirement Wage
$20,000 $310.00 $186.20 $496.20
$40,000 $620.00 $186.20 $806.20
$100,000 $1,550.00 $186.20 $1,736.20
Some Examples:
**These examples are in addition to CPP and to any RRSP coverage
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MSPP - Benefits
Retirement rates: comparison between annuity rates and MSPP benefits, assuming $100,000 contribution
Data as of May 29, 2009
Company Guarantee? Age 55 Age 60 Age 65
Sun Life None $568 $613 $678
BMO Insurance
None $576 $642 $701
Standard Life
None $527 $577 $646
MSPP 5 years $835 $1,158 $1,550
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MSPP – Retirement Options
• Must be “vested” to retire (24 months of contributions or Age 65)
• “Normal” retirement is Age 65 • Can retire as early as Age 55 (6%/year
reduction)• Several guarantee options available:
– Joint and survivor benefits (50%, 60%, 75%, 100%)– 5-year, 10-year or 15-year guarantee
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MSPP – Leaving before Retirement
If you have 24 months of “vesting service”, you can:
1. Collect pension at a later date
2. Move value to locked-in pension vehicle
3. Move value to new employer’s plan if the new plan accepts the pension transfer
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MSPP – Leaving before Retirement
With less than 24 months of “vesting service”, your contributions are refunded with interest accrued.
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MSPP – Plan Statistics
As of May 2009:• 80+ participating employers• 5,600+ plan members• ~60 pensioners• $26 million in fund assets
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MSPP – Plan Statistics
Issue of under-funding• Young pension plans all face under-funding
issues • MSPP based on Nursing Home plan:
– 20 years – never cut benefits
• Plan profile is excellent for the current downturn – growing plan with low retiree numbers
• Pooled risk vs. individual risk
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MSPP – Additional Information
www.mspp.ca
Questions/comments:
Email Seth Sazant – [email protected]