vancouver webcast pension and other benefits 4th annual general meeting october 15, 2005

Vancouver Vancouver WebcastWebcast

Pension and Other BenefitsPension and Other Benefits

4th Annual General 4th Annual General MeetingMeeting

October 15, 2005October 15, 2005

22

AgendaAgenda

Basic pension benefitsBasic pension benefits

Purchase of servicePurchase of service

Retirement group health benefitsRetirement group health benefits

33

Your Basic Pension BenefitYour Basic Pension Benefit

Basic pension is a “defined” benefitBasic pension is a “defined” benefit

Annual pension is based on:Annual pension is based on: 5-year highest average salary (HAS)5-year highest average salary (HAS) Pensionable service up to 35 yearsPensionable service up to 35 years

Not dependent on contributionsNot dependent on contributions

Not dependent on investment performanceNot dependent on investment performance

Highest Priority for TrusteesHighest Priority for Trustees

44

Protection Against InflationProtection Against Inflation

Inflation protectionInflation protection

Members and employers each contribute 1% Members and employers each contribute 1% to inflation protectionto inflation protection

Not guaranteed. Not guaranteed. Adjustments dependent on Adjustments dependent on available fundingavailable funding

High priority for trusteesHigh priority for trustees

55

Protection Against InflationProtection Against Inflation

Municipal Plan has provided full CPI Municipal Plan has provided full CPI inflation protection since 1982inflation protection since 1982 adds considerable value to your basic benefitadds considerable value to your basic benefit

Pension DatePension DateOriginal Original PensionPension

Indexing Indexing AddedAdded

Current Current PensionPension

IndexingIndexing

%%

January 1985January 1985 $15,000$15,000 $10,372$10,372 $25,372$25,372 40.9%40.9%

January 1990January 1990 $15,000$15,000 $5,461$5,461 $20,461$20,461 26.7%26.7%

January 1996January 1996 $15,000$15,000 $3,012$3,012 $18,012$18,012 16.7%16.7%

66

Other Pension BenefitsOther Pension Benefits

1.1. Contribution protection when you are disabledContribution protection when you are disabled

2.2. Disability pensionsDisability pensions

3.3. Death benefitDeath benefit

MPP provides benefits to protect your MPP provides benefits to protect your pension in times of illness or death:pension in times of illness or death:

77

1. 1. Protection When You Are Protection When You Are DisabledDisabled

If you are off work because of illness or If you are off work because of illness or injury injury andand

You You qualify qualify for long term disability benefits for long term disability benefits from a plan approved by the Pension Plan:from a plan approved by the Pension Plan:

Pensionable and contributory service Pensionable and contributory service continues to accumulate as if you were continues to accumulate as if you were workingworking

No pension contributions are requiredNo pension contributions are required

Your highest average salary is indexed to Your highest average salary is indexed to keep pace with the cost of livingkeep pace with the cost of living

88

1. 1. Protection When You Are Protection When You Are DisabledDisabled

If you are off work because of illness or If you are off work because of illness or injury injury andand

You You do notdo not qualifyqualify for long term disability for long term disability benefits or benefits or if that coverage endsif that coverage ends . . . . . .

You may be eligible for a You may be eligible for a Disability PensionDisability Pension from the Municipal Pension Plan . . .from the Municipal Pension Plan . . .

Monthly income while you are totally or Monthly income while you are totally or permanently disabled, permanently disabled, andand

not entitled to LTD benefitsnot entitled to LTD benefits

99

2. 2. Disability PensionDisability Pension

RequirementsRequirements Must have two years of contributory serviceMust have two years of contributory service Must be under age 60 (55)Must be under age 60 (55) Must apply within two years of your last Must apply within two years of your last

contribution to the Plan (including the period contribution to the Plan (including the period on LTD when no contributions paid)on LTD when no contributions paid)

Medical certification that you are Medical certification that you are permanently and totally disabledpermanently and totally disabled

Employer confirmation no position is Employer confirmation no position is availableavailable

Must terminate employmentMust terminate employment

1010

3. 3. Pre-Retirement Death BenefitPre-Retirement Death Benefit

If you die before retirement If you die before retirement and and

Have contributions in the Municipal Plan . . .Have contributions in the Municipal Plan . . .

Your Your spouse or estate are eligible for aspouse or estate are eligible for a Pre- Pre-retirement Death Benefitretirement Death Benefit

refund of contributions plus interestrefund of contributions plus interest

commuted value of your current pension commuted value of your current pension entitlement at retiremententitlement at retirement

immediate pensionimmediate pension

1111

3. 3. Pre Retirement Death Pre Retirement Death BenefitBenefitSpousalSpousal BenefitBenefit

Age at Death

< 2 Years Service

Two or More Years of Service

Under 55

Contributions Contributions plus interestplus interest

Immediate Immediate PensionPension

Greater of:Greater of:

Contributions Contributions plus interestplus interest

Commuted Commuted value of value of accrued accrued pension pension benefitbenefit

55 to 59 Contributions Contributions plus interestplus interest

Immediate PensionImmediate Pension

60 or older Immediate Immediate PensionPension

Immediate PensionImmediate Pension

1212

Enhancing Your Pension Benefit – Enhancing Your Pension Benefit – Purchase of ServicePurchase of Service

You may be able You may be able to increase your future to increase your future pension benefitspension benefits by purchasing time you by purchasing time you worked for a Plan employer . . . but when no worked for a Plan employer . . . but when no contributions were made to the Plan. . .contributions were made to the Plan. . .

ArrearsArrears Probationary periods, casual hoursProbationary periods, casual hours Leaves of Absence ending after January 1, Leaves of Absence ending after January 1,

19911991

. . . or . . . or time you have withdrawntime you have withdrawn from the from the Plan and wish to reinstatePlan and wish to reinstate

1313


Leaves of Absence and Probationary/Casual Leaves of Absence and Probationary/Casual periodsperiods

Service before April 1, 2002 Service before April 1, 2002 must be purchased by March must be purchased by March 31, 200731, 2007

Service after March 31, 2002 Service after March 31, 2002 must be purchased by the must be purchased by the earlier of:earlier of:

5 years from the end of the leave, or5 years from the end of the leave, or

termination of employment with current employertermination of employment with current employer

There is a five year “rolling window” for There is a five year “rolling window” for purchases. purchases.

Once the window is Once the window is closed, the opportunity is lostclosed, the opportunity is lost

1414


Simplified rules for calculating cost Simplified rules for calculating cost

Most members pay both employer Most members pay both employer and member shares at the time and member shares at the time service is purchasedservice is purchased

Employer may share in cost of Employer may share in cost of purchasepurchase check with employer or unioncheck with employer or union

1515


Arrears Arrears Periods when Periods when contributions should have been contributions should have been

made but were notmade but were not incorrect enrollmentincorrect enrollment contributions stoppedcontributions stopped

Purchase of arrears periods can increase your Purchase of arrears periods can increase your service and your pension benefitservice and your pension benefit

1616

Purchase of ServicePurchase of Service

ArrearsArrears

Service before 1988Service before 1988 Must pay member Must pay member

contributions to get contributions to get full service creditfull service credit

If you payIf you pay, , your your employer must payemployer must pay the employer’s sharethe employer’s share

Full service creditedFull service credited

Service after 1987Service after 1987 50% service credit just 50% service credit just

for applyingfor applying

Plan bills employer for Plan bills employer for employer’s shareemployer’s share

50% service credit 50% service credit ifif you decide to pay you decide to pay members contributionsmembers contributions

1717

Purchase of ServicePurchase of Service

Purchase of Service may affect your income tax!Purchase of Service may affect your income tax! Additional contribution may exceed annual limit on Additional contribution may exceed annual limit on

retirement contributionsretirement contributions

includes RRSP and registered plansincludes RRSP and registered plans

Past Service Pension AdjustmentPast Service Pension Adjustment may result in:may result in:

additional income tax owedadditional income tax owed

reduced RRSP roomreduced RRSP room

Discuss impacts with Municipal PlanDiscuss impacts with Municipal Plan

Seek advice from your financial advisorSeek advice from your financial advisor

1818

Online Tools at Online Tools at pensionsbc.capensionsbc.ca

Purchase EstimatorPurchase Estimator estimate purchase of service cost estimate purchase of service cost

Pension EstimatorPension Estimator determine pension benefit change with determine pension benefit change with

additional serviceadditional service

Online Application FormOnline Application Form to apply to purchase past serviceto apply to purchase past service

1919

PensionPensionfactsfacts Online at Online at pensionsbc.capensionsbc.ca Long Term Disability Benefits Long Term Disability Benefits

Disability PensionsDisability Pensions

Pre Retirement Death BenefitsPre Retirement Death Benefits

Purchasing Non-contributory ServicePurchasing Non-contributory Service

Purchasing Leaves of AbsencePurchasing Leaves of Absence

Purchasing ArrearsPurchasing Arrears

Reinstating a RefundReinstating a Refund

Your Pension and the Canada Revenue AgencyYour Pension and the Canada Revenue Agency

or contact the Municipal Pension Plan for or contact the Municipal Pension Plan for informationinformation

2020

Non-Pension BenefitsNon-Pension Benefits

Post Retirement Group Benefit Post Retirement Group Benefit ProgramProgram

1.1. What is providedWhat is provided

2.2. How are the Benefits Funded?How are the Benefits Funded?

3.3. The Dilemma for TrusteesThe Dilemma for Trustees

4.4. Board of Trustees ReviewBoard of Trustees Review

2121

Post Retirement Group Post Retirement Group BenefitsBenefits

The ProgramThe Program

Offered to Plan retirees, spouses and Offered to Plan retirees, spouses and dependentsdependents

Benefits Benefits are not guaranteed:are not guaranteed: funding arrangement outside Basic funding arrangement outside Basic

Pension BenefitPension Benefit

provided on a provided on a “funding available”“funding available” basis basis

2222


The ProgramThe Program 50% of Medical Services Plan premiums50% of Medical Services Plan premiums

paid from employer contributions to Basic paid from employer contributions to Basic AccountAccount

Extended Health BenefitsExtended Health Benefits

prescription drugs, para-medical, opticalprescription drugs, para-medical, optical

Dental BenefitsDental Benefits

check ups, basic care, crowns, denturescheck ups, basic care, crowns, dentures

2323


Costs shared between Plan and retireesCosts shared between Plan and retirees Premiums paid for participationPremiums paid for participation

Co-insurance/deductiblesCo-insurance/deductibles

MSPMSP $28 million annually$28 million annually

Split evenly between plan and retireesSplit evenly between plan and retirees

Extended Health/DentalExtended Health/Dental $27 million net cost to Plan$27 million net cost to Plan

2004 Cost to Plan2004 Cost to Plan

$41.4 million$41.4 million

2424

Basic Basic AccountAccount

SupplementalSupplementalBenefitsBenefitsAccountAccount

InflationInflationAdjustmentAdjustmentAccountAccount

Employee ContributionsEmployer Contributions

Pension Plan FundingPension Plan Funding

Basic PensionBasic PensionBenefitBenefit

Future IndexingFuture Indexing Group BenefitsGroup Benefits

2525


SupplementalBenefitsAccount

InflationAdjustmentAccount

Employee ContributionsEmployee ContributionsEmployer ContributionsEmployer Contributions



7.49% of salary

5% to 13% of plan members salaries

0.25% of salary

2626


SupplementalBenefitsAccount



Future IndexingFuture Indexing


2.0% of salary

7.49% of salary


$


0.24% of salary

2727


SupplementalSupplementalBenefitsBenefitsAccountAccount



Future IndexingFuture Indexing Group BenefitsGroup BenefitsMSP PremiumsMSP PremiumsExtended HealthExtended Health

DentalDental


7.49% of salary


1.0% of salary

1.0% of salary+

0.24% of salary


2828

Group Benefits FundingGroup Benefits Funding

FundingFunding Employer contributes 1.0% of active Employer contributes 1.0% of active

members salary to the IAA members salary to the IAA

intended to fund future inflation adjustments intended to fund future inflation adjustments for for active membersactive members

Group Benefit costs are “carved” from the Group Benefit costs are “carved” from the 1.0% of employer contributions and 1.0% of employer contributions and directed to the Supplemental Benefits directed to the Supplemental Benefits AccountAccount

to the benefit of to the benefit of retired membersretired members

2929

The Dilemma for TrusteesThe Dilemma for Trustees

1.1. Given that the employer’s contribution to the Given that the employer’s contribution to the IAA is intended to fund future indexing costs . . .IAA is intended to fund future indexing costs . . .

. . . How much should be diverted to pay the . . . How much should be diverted to pay the current costs of Post Retirement Group current costs of Post Retirement Group Benefits?Benefits?

2.2. Given that the cost of the Post Retirement Given that the cost of the Post Retirement Group Benefit Program is rising much faster Group Benefit Program is rising much faster than the growth in employer contributions . . .than the growth in employer contributions . . .

. . . How should the Post Retirement Group . . . How should the Post Retirement Group Benefit Program be structured in terms of Benefit Program be structured in terms of benefits and shared costs?benefits and shared costs?

3030

Value of IndexingValue of Indexing

Municipal Plan has been able to provide full Municipal Plan has been able to provide full CPI inflation protection since 1982CPI inflation protection since 1982

adds considerable value to your basic benefitadds considerable value to your basic benefit

Pension DatePension DateOriginal Original PensionPension

Indexing Indexing AddedAdded

Current Current PensionPension

IndexingIndexing

%%

January 1985January 1985 $15,000$15,000 $10,372$10,372 $25,372$25,372 40.9%40.9%

January 1990January 1990 $15,000$15,000 $5,461$5,461 $20,461$20,461 26.7%26.7%

January 1996January 1996 $15,000$15,000 $3,012$3,012 $18,012$18,012 16.7%16.7%


Pension Pension after 10 after 10

yearsyears


yearsyears


yearsyears100% of CPI100% of CPI

all yearsall years$24,532$24,532 $34,605$34,605 $48,814$48,814

Full indexing 15 Full indexing 15 years, then 25% of years, then 25% of

CPICPI$24,532$24,532 $30,434$30,434 $33,204$33,204

Full indexing 5 Full indexing 5 years, then 25% of years, then 25% of

CPICPI$21,575$21,575 $23,539$23,539 25,68225,682

This table illustrates the value of full indexing.

Starting annual pension of $18,000 3.5% CPI per year.

3232


The IAA is not managed on a fully actuarial basisThe IAA is not managed on a fully actuarial basis contributions are not tied to long term costscontributions are not tied to long term costs no guarantee that full indexing will be no guarantee that full indexing will be

available in the futureavailable in the future insufficient funding to provide full CPI indexing insufficient funding to provide full CPI indexing

in the futurein the future actuary indicates shortfall exceeds $5.0 billionactuary indicates shortfall exceeds $5.0 billion

Shortfall acknowledged inShortfall acknowledged in Joint Trust AgreementJoint Trust Agreement transitional financial arrangements require transitional financial arrangements require

$500 million of surplus to be directed to the $500 million of surplus to be directed to the IAAIAA

3333


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2004 2008 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048

Year

$ T

ho

usa

nd

s

Indexing will continue but will be limited to previous year's contributions plus interest.

Actuarial BaseActuarial Base CaseCase

Projections for indexing Projections for indexing

3434


1.1. Given that the employer’s contribution to the Given that the employer’s contribution to the IAA is intended to fund future indexing costs . . .IAA is intended to fund future indexing costs . . .

. . . and given that there is insufficient funding . . . and given that there is insufficient funding to provide full CPI indexing into the future . . .to provide full CPI indexing into the future . . .

. . . How much should be diverted to pay the . . . How much should be diverted to pay the current costs of Post Retirement Group current costs of Post Retirement Group Benefits?Benefits?

3535


2.2. Given that the cost of the Post Retirement Given that the cost of the Post Retirement Group Benefit Program is rising much Group Benefit Program is rising much faster than the growth in employer faster than the growth in employer contributions . . .contributions . . .

. . . How should the Post Retirement Group . . . How should the Post Retirement Group Benefit Program be structured in terms of Benefit Program be structured in terms of benefits and shared costs?benefits and shared costs?

3636

$30.9$34.9

$39.6

$51.0

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

1999 2000 2001 2002

The Cost of Group BenefitsThe Cost of Group Benefits

Group Benefit Costs increased 65% from 1999 to Group Benefit Costs increased 65% from 1999 to 2002 . . .2002 . . .

$ m

illio

ns

3737


Cost drivers of group benefits:Cost drivers of group benefits:

demographicsdemographics

retirees are living longer retirees are living longer

increasing numbers of retirees in relation to number of increasing numbers of retirees in relation to number of active members . . .active members . . .

. . . available funding remains the same while costs . . . available funding remains the same while costs increaseincrease

increasing cost of drugsincreasing cost of drugs

provincial offloading of MSP costsprovincial offloading of MSP costs

MSP premiums increased by 50% by provincial MSP premiums increased by 50% by provincial government; Pharmacare changes in 2002government; Pharmacare changes in 2002

changes in Pharmacare coveragechanges in Pharmacare coverage

3838


. . . and we’re in danger of exceeding the available funding. . . and we’re in danger of exceeding the available funding

0%

50%

100%

150%

200%

250%

2002 2003 2004 2005 2006 2007 2008

% o

f E

mp

loy

er

IAA

Co

ntr

ibu

tio

ns

Us

ed

Projected Group Benefit costsexceed available funding

Group Benefits Costs as a % of Employer IAA Contributions

3939

$30.9$34.9

$39.6

$51.0$52.6

$41.0

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

1999 2000 2001 2002 2003 2004


. . . forcing the Trustees to change the Program beginning in 2003. . . forcing the Trustees to change the Program beginning in 2003

$ m

illio

ns

4040

benefit changes in 2003/2004 only delayed critical point!benefit changes in 2003/2004 only delayed critical point!


Group Benefits Costs as a % of Employer IAA Contributions

0%

50%

100%

150%

200%

250%

2002 2003 2004 2005 2006 2007 2008

% o

f E

mp

loye

r IA

A

Co

ntr

ibu

tio

ns

Use

d Projected Group Benefit costsProjected Group Benefit costsexceed available fundingexceed available funding

4141

The plan rules The plan rules require that post require that post retirement group retirement group benefit costs not benefit costs not exceed 100% of exceed 100% of employer IAA employer IAA contributionscontributions

% o

f Em

plo

yer

IAA

% o

f Em

plo

yer

IAA

Con

trib

uti

on

s

Con

trib

uti

on

s

Used

Used

ActualActual ForecastForecast

00

2020

4040

6060

8080

100100

120120

20032003 20042004 20072007 2008200820052005

94%94%

YeaYearr

Funding Policy Maximum Funding Policy Maximum (100%)(100%)

77%77%

52%52%64%64%

111%111%


Group Benefit Costs of Employer IAA ContributionsGroup Benefit Costs of Employer IAA Contributions

4242


the Group Benefit Program is not financially the Group Benefit Program is not financially sustainable beyond 2007/2008sustainable beyond 2007/2008 even if the full 1% employer contribution is even if the full 1% employer contribution is

availableavailable

Trustees cannot increase the available Trustees cannot increase the available fundingfunding only the plan sponsors can change the fundingonly the plan sponsors can change the funding

Registered Pension Plan contributions cannot Registered Pension Plan contributions cannot be used to fund group benefitsbe used to fund group benefits income tax rules do not permitincome tax rules do not permit

4343


a Benefit Trust is not a short term option a Benefit Trust is not a short term option (funding, tax and governance challenges) (funding, tax and governance challenges) nor one within the authority of trusteesnor one within the authority of trustees

Trustees must balance Trustees must balance the need forthe need for inflation inflation protectionprotection for current and future retirees for current and future retirees versus versus thethe cost of Group Benefitscost of Group Benefits

whether the program is subsidized by whether the program is subsidized by current contributions or paid in full by current contributions or paid in full by retirees, what Group Benefits would be of retirees, what Group Benefits would be of value to members? value to members?

4444

The Future of Group BenefitsThe Future of Group Benefits

Benefits Committee undertaking an Benefits Committee undertaking an extensive review of optionsextensive review of options

Based on benefit prioritiesBased on benefit priorities

1.1. ensure basic pension benefit can be providedensure basic pension benefit can be provided

2.2. maximize capacity to provide inflation maximize capacity to provide inflation protectionprotection

3.3. continue to offer non-pension benefitscontinue to offer non-pension benefits

Decision by Trustees in 2006Decision by Trustees in 2006

for implementation in 2007for implementation in 2007

4545

The Future of Group BenefitsThe Future of Group Benefits

The PrinciplesThe Principles take advantage of risk pooling and group take advantage of risk pooling and group

purchasing powerpurchasing power longer term financial solutionlonger term financial solution protection against catastrophic coverageprotection against catastrophic coverage may require changes to:may require changes to:

benefit eligibilitybenefit eligibility available coverageavailable coverage premium subsidy arrangementspremium subsidy arrangements deductibles and co-insurance levelsdeductibles and co-insurance levels

will include member inputwill include member input

4646

Municipal Pension PlanMunicipal Pension PlanPO Box 9460PO Box 9460Victoria BC V8W 9V8Victoria BC V8W 9V8

VictoriaVictoria 250 953-3000250 953-3000Lower Mainland Lower Mainland 604 660-5366 604 660-5366Toll-free in BC Toll-free in BC 1 800 668-63351 800 668-6335Fax Fax 250 356-9592250 356-9592WebsiteWebsite pensionsbc.capensionsbc.caE-mailE-mail [email protected] [email protected]

Contact InformationContact Information

Vancouver Vancouver WebcastWebcast

Pension and Other BenefitsPension and Other Benefits

4th Annual General 4th Annual General MeetingMeeting

October 15, 2005October 15, 2005

vancouver webcast pension and other benefits 4th annual general meeting october 15, 2005

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