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The Retirees's Association ( Faculty, Librarian, Administrator), University of Windsor, Windsor, Ont. Canada
Vol X , No. 5, December 2000
PENSION (cont'd from p.6)
This is so because, as our scribe tells us, his monthly MGB cheque (and all MGB cheques) include a "subsidy" (some prefer to call it a supplement) paid by the University. The subsidy is necessary to top up his Money Purchase Pension, in order to ensure that he will receive his Minimum Guaranteed Benefit. He doesn't tell us why such a gap might exist in the first place, so let's look further.
Retirees recall all those pension deductions from payroll over the years, with the University throwing in matching amounts, and the total going into the Pension Fund in the individual person's name. Upon retirement, and in every pension year thereafter, each retiree's MPP is individually calculated; and the resulting MPP levels reflect how much was contributed to the fund in each person's name, along with the return which was earned on its investment.
Thus, in every pension year, every retiree has a Money Purchase Pension in his or her name, and every retiree receives that Money Purchase Pension in full each month. Some, as in the case of our Scribe in Verse 1, need to have that MPP topped up... How so? Why the topping up? And how much?
Here, re-enter the Minimum Guaranteed Benefit. A second calculation is made in every pension year, for every retiree. Most of us, long ago, knew the MGB formula by heart: years of service times an average salary, times etcetera. That calculation has nothing to do with the Pension Fund; rather it establishes a level below which your Money Purchase Pension will not be allowed to fall without its being "topped up" to the Minimum Guaranteed level, as we've seen happening in the case of Scribe One.
Our Scribe One clearly cherishes his "subsidy", even though he knows it will disappear if, as and when his MPP eventually overtakes his MGB. Until that time, however, he can bask in the satisfaction that, temporarily at least, he's getting more out of the system than he has put into it.
Best of all for Scribe One - when his subsidy finally does disappear, he will be able to climb aboard his new Money Purchase Pension and ride it through to who-knows-what dizzying heights. Which brings us to Verse Two.
Here Scribe Two breathes the bracing air of the Money Purchase Pension, unimpeded by any intrusions of MGB. His pension being propelled frequently upward by market forces, and unexpectedly downward at times, reflecting the earnings of the Fund in the preceding year, he experiences what he calls a constant roller-coaster ride.
Plaintively, our Scribe points out that this annoying aspect of the good life might be brought under a little control by some type of four-year averaging of the MPP. He might be interested to know that some six years ago, the Retirees' Association made strong representations to the Faculty Association and the University, pointing out "that four-year averaging would eliminate the severe changes in either direction without affecting the total increase". These wise counsels, alas, went unheeded at that time; but they might well be renewed now.
Perhaps the last four lines of Verse Two are closest to the spirit of our pension. Nowhere are we free from the instability of the market economy. But Scribe Two reminds us again of the comfort all of us can draw as retirees, from the knowledge that the MGB safety net is always there!
(Concluded on page8)