university of windsor pre-retirement seminar

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University of Windsor Pre-Retirement Seminar

Welcome !Friday, March 17, 2006

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Presentation Overview Sources of Retirement Income Types of Pension Plans Plan Definitions Faculty Pension Plan Increased MGB Limits Life as an Active Member Normal Retirement Early Retirement Sample Pension Quotes Survivor Options Steps to commencing retirement Indexing of Monthly Pensions Net Replacement Ratio Disability Pension Terminating Membership Pension Plan Surplus Active Faculty and Librarian Benefits Benefits after retirement Benefit options and premiums for faculty retirees Group Health Care Plan for Retired Members Premium Subsidy

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Sources of Retirement Income

Main Government Plans

Canada Pension Plan (CPP) $10,134.96 2006 maximum

Old Age Security (OAS) $ 5,815.56 2006 1st Q maximum

Guaranteed Income Supplement (GIS) Allowance for spouses / survivors

Company Pension Plans

Personal Savings & RRSP’s

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Types of Pension Plans Defined Benefit Plans (DB)

Benefit is defined by a formula Pension at retirement is always known Benefit entitlement paid subject to maximums

Defined Contribution Plans (DC) Contributions are defined by a formula Pension at retirement is unknown Plan contributions subject to annual maximums

Hybrid Plan – a combination of DB and DC Attempts to provide the best of both worlds Primarily a DC plan with a DB minimum guarantee (safety net).

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Plan Definitions

BAE = 12 X average of Members monthly earnings in the 48 months of highest earnings, (not necessarily consecutive) prior to retirement.

Earnings = Member’s basic salary, excludes overload, allowances, bonuses or stipends, extramural etc.

YMPE = Year’s Maximum Pensionable Earnings in effect under the Canada Pension Plan.

(2006 = $42,100) (2005 = $41,100) (2004 = $40,500) (2003 = $39,900)

FYMPE = Average of YMPE during same period used to determine your BAE.

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Faculty Pension Plan

Hybrid Pension – Two Components comprised of a

Money Purchase (MPP) (Defined Contribution)

PLUS

Minimum Guarantee (MGB) (Defined Benefit)

You will always receive at a minimum the value of the MGB benefit

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Money Purchase (Defined Contribution)

6% Member Contribution PLUS 6% University Contribution credited to individual member accounts along with fund rate of return

Money Purchase Pension (MPP), payable monthly at retirement in the form of a variable annuity – subject to positive / negative rates of return

MPP = Total MPC Account at Retirement Actuarial Annuity Factor

Actuarial assumptions include mortality, retirement age, and spousal age.

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Minimum Guarantee (Defined Benefit)

1.5% of Best Average Earnings (BAE48) up to Final Average YMPE (FYMPE48)

PLUS 2 % of BAE48 above FYMPE48

Multiplied by Years (and part years) of Pensionable Service in the plan


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Additional Voluntary Contributions (closed program)Held in a separate account.

Two options at retirement Lump sum payment in cash or RRSP transfer OR Additional monthly pension provided by the lump sum above using the Actuarial Basis

in effect at time of retirement Same indexing provision as the MPP

Former employer transfers Treated as Additional Voluntary contributions – has no impact on your MPP or MGB benefits

Past Service Buybacks Defined Benefit MGB service only – does not affect MPP pension Certain restrictions apply


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Faculty Plan – Increased Limits

Federal Budget 2003 and 2005 announced increases in the Defined Benefit RPP limits for the Minimum Guarantee formula.

This is GOOD news for members! Year 2005 $2,000 per year of service Year 2006 $2,111 Year 2007 $2,222 Year 2008 $2,333

Example: $2,000 x 30 = $60,000 (BAE > $105,500) $2,111 x 30 = $63,330 (BAE > $115,500) $2,222 x 30 = $66,660 (BAE > $121,000)

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Life as an Active Member

Compulsory membership for full time Faculty, optional for Limited Term Appointments, Sessional Lecturers and Instructors. Once a member you may not opt out. Normally first of month after hire.

Contributions – 6% of normal salary, with matching University contribution. Special rules for certain types of leaves.

Pensionable earnings, service and contributions recorded monthly

Immediate Vesting – ownership of pension benefits

Pension Adjustment – T4 - deemed value of one year plan participation – reduces personal RRSP room

Annual Pension Statement – within 6 months of plan year end

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Normal Retirement Date: age 65 to receive an unreduced pension.

Effective Dates of Retirement – Faculty and Librarians

Hired Sept. 1, 1970 or earlier Sept. 1st following 65th birthday

Hired after Sept. 1, 1970 July 1st following 65th birthday

Faculty Pension Plan – Normal Retirement

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Faculty Pension Plan – Early Retirement By mutual consent of the Member and the University you may retire within

10 years of your Normal Retirement Date. There is no minimum service credit requirement.

You will receive the greater of your:

Money Purchase Account – based on account balance at early retirement, converted to a monthly pension

Minimum Guarantee Pension, reduced by an actuarial equivalent reduction before being compared to the MPP

Usually a 6% to 7% reduction per year away from your NRD

Sample reductions Age Reduction 55 70% 60 35% 62 21%

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Date of retirement = September 1, 2006 Pensionable Service = 35 years Best average earnings = $90,000 (highest 48months averaged) Final average YMPE = $40,900 MPC Account Balance = $530,000 Actuarial annuity factor = 10.2203 (age, spousal age, mortality)

MPP = $530,000 / 10.2203 = $51,858 per year

MGB = 35 x [0.015 x $40,900) + 0.02 x ($90,000 - $40,900)] = $55,842.50

MGB payable at retirement = $55,842.50 per year

Subject to Income Tax Limit of $2,111 X YOS ($2,111 X 35 = $73,885)

NRD 2006 Pension – MGB payable

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Date of retirement = July 1, 2006 Pensionable Service = 28 years Best average earnings = $96,029 (highest 48months averaged) Final average YMPE = $40,900 MPC Account Balance = $495,822 Actuarial annuity factor = 10.1585 (age, spousal age, mortality)

MPP = $485,788 / 10.1585 = $48,809 per year

MGB = 28 x [0.015 x $40,900 + 0.02 x ($96,029 - $40,900)] = $48,050

MPP payable at retirement = $48,809 per year

NRD 2006 Pension – MPP payable

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Date of retirement = July 1, 2008 Pensionable Service = 33.8333 years Best average earnings = $126,859 Final average YMPE = $42,716 MPC Account Balance = $799,684 Actuarial annuity factor = 11.0756

MPP = $799,684 / 11.0756 = $72,202 per year

MGB = 33.8333 x [0.015 x $42,716 + 0.02 x ($126,859 - $42,716)]= $78,615

MGB payable at retirement = $78,615 per year

Subject to Income Tax Limit of $2,333 x YOS ($2,333 X 33.8333 = $78,933)

NRD 2008 MGB Payable

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MPP = $723,226 / 11.5207 = $62,776 per year

MGB = 31.8333 x [0.015 x $40,525 + 0.02 x ($115,612 - $40,525)]= $67,156

Early Retirement Reduction = $67,156 *84.87% (15.13% reduction)=$56,997


Same Member- ERD 2006 MPP Payable

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MPP = $760,657/ 11.2996 = $67,317 per year

MGB = 32.8333 x [0.015 x $41,438 + 0.02 x ($115,612 - $41,438)]= $69,116

Early Retirement Reduction = $69,116 * 97.22% (2.78% reduction)=$67,196


Same Member- ERD 2007 MPP Payable

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Faculty Pension Plan – Survivor Options

Death while active – Greater of MPP account or MGB value Lump sum or Spousal Monthly Pension

Death after Retirement – based on option chosen at retirement If single at retirement or with spousal waiver

Life Only, Life 5, Life 10 or Life 15

If legal spouse at retirement or no spousal waiver on file Joint and Survivor 60, 66 2/3(Guar 5), 75 or 100%

Basic pension reduced 10% to 20% to provide spousal benefit

Spouse and member can waive 60% option

In ALL cases, options are permanent on 1st date of retirement

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Faculty Pension Plan – 8 Survivor Options

Single Life Pension (L0) Payable for your lifetime. Ceases upon your death. No beneficiary.

Single Life Pension – Guaranteed Five Years (L5) Payable for your lifetime. If you should die prior to receipt of 60 months of pension,

the balance of the remaining period paid to your beneficiary at 100%

Single Life Pension – Guaranteed Ten Years (L10) Payable for your lifetime. If you should die prior to receipt of 120 months of pension,


Single Life Pension – Guaranteed Fifteen Years (L15) Payable for your lifetime. If you should die prior to receipt of 180 months of pension,


Monthly pension paid to spousal beneficiaries, lump sum pay out to all others.Spousal pension ceases at the end of the guarantee period.

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Faculty Pension Plan – 8 Survivor OptionsExample:

Single Life Pension – Guaranteed Ten Years (L10)

Bob retires on July 1, 2005- passes away on June 15, 2008- 36 months of pension paid at date of death- 84 months of pension paid at 100% continue to spouse.- spousal pension ceases June 30, 2015

* If no spouse, the named beneficiary (or estate if none) receives 100% of the monthly pension X 84 months as a lump sum cash payment (taxable)

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For Members with a Spouse

All Joint and Survivor Pensions paid for your lifetime. Upon your death, your spouse – if living – receives a monthly pension for his/her lifetime based on the option chosen as outlined below.

Joint and Survivor Pension reducing to 60% (J&S 60%) 60% of the monthly pension in pay at the time of your death for his/her lifetime.

Joint and Survivor Pension reducing to 66.67 (J&S 66.67% - G5) If you die prior to receipt of 60 months of pension, the balance of the guarantee

period paid at 100% to your spouse. Then the pension reduces to 66.67% for his/her lifetime.

Joint and Survivor Pension reducing to 75% (J&S 75%) Payable for your lifetime. After your death, your spouse if living receives 75% of

the monthly pension in pay at the time of your death for his/her lifetime.

Joint and Survivor Pension reducing to 100% (J&S 100%) Payable for your lifetime. After your death, your spouse if living receives 100% of

the monthly pension in pay at the time of your death for his/her lifetime.

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Example: J&S 66.67 Guarantee 5 years (60 months)

Bob retires on July 1, 2005- passes away on June 15, 2008 (36 months pension paid)- 100% monthly pension paid to spouse until June 30, 2010 (24 months)- then 66.67% monthly pension paid to spouse until her death.

Bob retires on July 1, 2005- passes away on June 15, 2011 (72 months pension paid)- 66.67% monthly pension paid to spouse until her death.

Bob retires on July 1, 2005- spouse passes away on December 1, 2005- Bob passes away on June 15, 2008 (36 months pension paid) - 24 months remaining pension paid in a lump sum to his estate

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Steps to Retiring (Normal Retirement) Six months prior to NRD, a preliminary pension quote is prepared

Quote uses estimated final year earnings, contributions and fund returns

Pension quote will be provided to the member. Member will meet with Pension Manager to review the quote.

Member should review upcoming retirement with Department Head Two months prior to your NRD you and your spouse if applicable will

meet with the Pension Manager to choose your pension option and complete all paperwork.

Official last day is the last working day of the month A final pension calculation is done at plan year end with retro active

adjustments paid if necessary. Paid by direct deposit, first day of every month.

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Steps to Retiring (Early Retirement)

Member requests a pension quote (minimum age 55) – two months notice Quote uses estimated final year earnings, contributions and fund returns

Pension quote will be provided to the member. Member will meet with Pension Manager to review the quote.

Six months prior to early retirement member should review with Head, and send a formal written request for early retirement to VPA office.

IF accepted, two months prior to retirement you and your spouse if applicable will meet with Manager, Pensions and Benefits to choose your pension option and complete all paperwork.

Official last day is the last working day of the month A final pension calculation is done at plan year end with retro active

adjustments paid if necessary. Paid by direct deposit, first day of every month.

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Faculty Pension Plan – Indexing Monthly Pension

Both the MPP and MGB adjusted every July 1, with retroactivity if necessary

MPP adjusted by the fund rate of return less 6% with an additional adjustment for mortality experience – can increase or decrease. July 2005 adjustment was 2.38%

MGB increase based on the increase in the Consumer Price Index. July 2005 adjustment was 2.00%

After the MPP and MGB have been adjusted (plus or minus), we compare the two, the larger amount becomes the new pension payable starting at July 1st

Indexing rights passes to those with a Survivor pension

UNIVERSITY OF WINDSOR FACULTY PLAN

HISTORICAL FUND RATES OF RETURN

Fund Rate MPC MGBPERIOD of Return

Plan year ending June 30, 1968 3.00%Plan year ending June 30, 1969 3.00%Plan year ending June 30, 1970 3.00%Plan year ending June 30, 1971 3.00%Plan year ending June 30, 1972 4.50%Plan year ending June 30, 1973 6.68%Plan year ending June 30, 1974 -4.70%Plan year ending June 30, 1975 7.51%Plan year ending June 30, 1976 7.95%Plan year ending June 30, 1977 8.65%Plan year ending June 30, 1978 9.20%Plan year ending June 30, 1979 2.02%Plan year ending June 30, 1980 11.12% 5.12% 2.00%Plan year ending June 30, 1981 8.94% 2.86% 2.00%Plan year ending June 30, 1982 -3.61% -9.47% 2.00%Plan year ending June 30, 1983 39.03% 32.27% 2.00%Plan year ending June 30, 1984 -2.77% -8.58% 2.00%Plan year ending June 30, 1985 22.58% 16.22% 2.00%Plan year ending June 30, 1986 15.77% 10.20% 2.00%Plan year ending June 30, 1987 14.06% 8.44% 2.00%Plan year ending June 30, 1988 1.10% -4.89% 2.00%Plan year ending June 30, 1989 13.28% 7.65% 2.00%Plan year ending June 30, 1990 3.50% 0.00% 2.55%Plan year ending June 30, 1991 9.05% 2.97% 2.73%Plan year ending June 30, 1992 11.38% 5.39% 1.58%Plan year ending June 30, 1993 * 15.57% 9.47% 0.86%Plan year ending June 30, 1994 2.40% -3.61% 1.03%Plan year ending June 30, 1995 13.26% 7.25% 1.09%Plan year ending June 30, 1996 ** 13.06% 6.92% 1.83%Plan year ending June 30, 1997 19.45% 13.32% 1.77%Plan year ending June 30, 1998 8.94% 2.90% 1.19%Plan year ending June 30, 1999 1.87% -4.13% 1.09%Plan year ending June 30, 2000 11.36% 5.30% 2.00%Plan year ending June 30, 2001 0.85% -6.31% 2.00%Plan year ending June 30, 2002 0.05% -6.72% 1.66%Plan year ending June 30, 2003 1.39% -5.29% 2.00%Plan year ending June 30, 2004 15.87% 9.76% 1.51%Plan year ending June 30, 2005 9.28% 2.38% 2.00%

* adhoc increase to MGB at July 1, 1993: 5.0%** adhoc increase to MGB at July 1, 1996: 2.5%

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Net Replacement Ratios (NRR)

Valuable tool used to forecast retirement income

NRR compares pre-retirement income to post- retirement income

Highlights often forgotten taxes, deductions from gross pay

General rule – gross retirement income should equal 70% of final years salary.

CPP / OAS replace approximately 25% of pre-retirement income

Net Replacement Ratio CalculationAnnual Monthly

Before RetirementGross Salary--> 90,000.00 7,500.00

Income Tax 22,400.00 1,866.67CPP Contributions 1,910.70 159.23EI Contributions 729.30 60.78Pension Contributions - 6% 5,400.00 450.00Faculty Dues - .985% 886.50 73.88LTD Premiums - $0.97 / $100 873.00 72.75Take Home Pay 57,800.50 4,816.69

After RetirementPension Plan 47,865.00 3,988.75OAS & CPP 15,950.52 1,329.21

Total Gross Monthly Income--> 63,815.52 5,317.96

Income Tax 15,026.40 1,252.20Benefits (Couple, no drugs) 1,548.00 129.00

Take Home Retirement Income 47,241.12 3,936.76

Varience 10,559.38 879.95

Gross Replacement Ratio--> 70.91% 70.91%

Net Replacement Ratio--> 81.73% 81.73%

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Faculty Pension Plan – Disability Retirement

Available to members who:

Have attained age 50 with

A minimum of 15 completed years of continuous service who

Are not eligible or expected to be eligible in the future to receive salary continuance benefits under any insured plan sponsored by the University

Medical evidence of disability required

Benefit is calculated with actuarial reductions in entitlement

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Faculty Pension Plan – Terminating before Retirement

Termination Benefit is the Greater of: Money Purchase Component Account balance to-date Commuted value of Minimum Guaranteed Pension earned to-date

Transfer Options: Transfer termination benefit to a locked-in vehicle Leave benefit in plan for deferred pension at a future retirement date

In Lieu of Pension, Members MAY transfer entitlements from plan Considered a termination, not a retirement Forfeit Minimum Guarantee Pension, lifetime pension indexing rights Higher investment fees, potentially greater investment risk to member Forfeit all rights to University Benefits, Tuition Remission, H.K. memberships etc. Forfeit future Pension Surplus sharing Forfeit rights to Green Shield benefits (both University paid and retiree paid). Forfeit rights to Faculty Retiree Group Health Care Plan Subsidy

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Faculty Plan – Pensions 101

Thank You!

Questions?

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Faculty Plan – Benefits 101

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Active Faculty, Librarians

University Paid Health / Dental / Out of Country coverage

Short / Long Term Disability

Life Insurance - 3 X Annual Salary – Maximum $350,000

Employee Assistance Program

Health Care Spending Account for qualifying sessional instructors, in lieu of regular faculty health benefits.

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Benefits while activeHealth Green Shield University Paid Extended Health University Paid Semi Private University Paid Dental University Paid Vision University Paid Out of Province University Paid Drug University Paid Employee Assistance University Paid

Insurances LTD Employee Paid Life Insurance University Paid Accidental Death University Paid and Dismemberment

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Benefits while active

Optional Life Insurance Employee Paid Optional Accidental Employee Paid

Death and Dismemberment Pension Matched Payments Tuition Waiver (taxable benefit) University Paid St Denis Centre University Paid University Club Membership WUFA sponsored

At retirement these benefits continue

Library, Email and Internet University Paid Pre Paid Parking Coupons Retiree Paid Tuition Waiver (taxable benefit) University Paid Optional Life Ins to age 69 Retiree Paid St. Denis Centre (excludes the new Forge facility) University Paid Lifetime University Club Membership (Faculty & Librarians only) WUFA sponsored

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Retired Faculty, Librarians, Others Coverage ends for Short / Long Term Disability

Coverage ends for Life Insurance at NRD

University Paid Health and EAP Coverage ends

Dental coverage – premium shared equally by Univ/Retiree

Retirees Eligible to enroll in Green Shield Benefits Plan

Survivors Eligible to enroll in Green Shield Benefits Plan

Choice of Four packages – Can opt in and up, cannot opt down. No opting in and out – opt out is permanent

If enrolled in Green Shield benefits, eligible for Health Care Subsidy.

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Faculty Retiree Option 1

Option One S ingle Couple Fam ilyPresc ription Drugs 136.25 272.50 374.69Dental 22.88 45.75 62.90Semi-P rivate 7.15 14.28 19.63Extended Health 20.32 40.66 55.91Out of P rovince 14.10 28.20 28.20Monthly Total $200.70 $401.39 $541.33

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Option Two S ingle Couple Fam ilyPresc ription Drugs 136.25 272.50 374.69

Semi-P rivate 7.15 14.28 19.63Extended Health 20.32 40.66 55.91Out of P rovince 14.10 28.20 28.20Monthly Total $177.82 $355.64 $478.43

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Option Three S ingle Couple Fam ily

Dental 22.88 45.75 62.90Semi-P rivate 7.15 14.28 19.63Extended Health 20.32 40.66 55.91Out of P rovince 14.10 28.20 28.20Monthly Total $64.45 $128.89 166.64

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Option Four S ingle Couple Fam ily

Dental 22.88 45.75 62.90Semi-P rivateExtended HealthOut of P rovinceMonthly Total $22.88 $45.75 $62.90

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Health Care Premium Subsidy Established in the July 1, 2001 – June 30, 2004 Collective

Agreement. To provide premium subsidies for Faculty Retirees enrolled in the

Group Health Care Plan for Retired Members. Funded by University contributions only. Fund balance was

$1,690,900 at December 31, 2005. Assets invested consistent with Endowments Investment Policy and

Goals. 3 year rolling average investment return. Pro-rated participant subsidy equals one year investment return

allocation times participant pension service years over total participant pension service years.

Non cash subsidy, can only be used to reduce existing monthly retiree health benefit premium (Division 5231).

Non taxable to the participant. Details to be forthcoming within the next few months.

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Thank You!

Questions?

university of windsor pre-retirement seminar

Documents

retirement age

faculty pension planminimum

plan definitionsbae

dc plan

defined benefit1

average of ympe

best average earnings

member contribution