This article is reprinted from the Faculty Association's publication NEWS, December, 1995. It is by Ed Henrie, who sits on that Association's Pensions and Benefits Committee, and who is a Faculty Association represnentative on the Board of Governors' subcommittee on pensions. The article is of interest to retirees.
THE POSSIBLE EFFECTS of restructuring and downsizing on our faculty have recently raised concerns regarding the soundness of our pension plan. In particular, will it still be around in the future? Would it be wise to withdraw before retirement and invest the money elsewhere?
YOUR UNIVERSITY PENSION is made up of two parts: the money purchase component and the minimum guarantee. Both parts are sound and have sufficient funds to cover all accrued benefits under the plan. The MONEY PURCHASE component is composed of your contributions and the University's match of your contributions. Once you retire, your money purchase pension does not rely on any additional contributions from the University. It increases or decreases with the investment return from the fund. For the plan year ending June 30, 1995, the amount invested on your behalf grew by 13.26%. This resulted in an increase in the money purchase component for retirees of over seven percent. Over half of our present retirees are receiving a pension from their money purchase component that is higher than the minimum guarantee provided by the plan.
THE MINIMUM GUARANTEE protects your pension from downside risk. The minimum guarantee funds come entirely from University contributions and are invested by the same managers who invest the money purchase component.
THE UNIVERSITY'S CONTRIBUTIONS to the minimum guarantee fund are determined by an actuary who reviews the fund every three years to ensure its soundness. The last valuation was prepared three years ago. The surplus in the fund at that time was used to improve the minimum guarantee formula, to provide an early retirement benefit and to increase the minimum guarantee by five percent for our retirees. After the improvements were made, the fund still had a surplus of approximately $2.1 million, which was more than sufficient to meet any unforseen liabilities.
. THE ACTUARY is presently preparing a new actuarial valuation on the minimum guarantee fund. The preliminary numbers indicate that the $2.1 million surplus has grown significantly since the last valuation. During the last negotiations the Faculty Association had a clause inserted in the pension plan requiring that the disposition of the surplus be jointly determined by the University and the Faculty Association. This means that the surplus in the fund cannot be used for any purpose without the approval of the Faculty Association!
The University's Voluntary Early Retirement plan provides for an extension of all benefits up to the normal retirement date. However, if you resign from the University before your normal retirement date without the benefits of VER, you are treated as a terminated employee. This means that you are not able to participate in the current medical benefit package and other benefits that the University gives its retirees, including library privileges, tuition remissions and access to Human Kinetics. Nor would you be eligible for any additional benefits that might be offered in the future. For example, you would not have received the five percent increase to your minimum guarantee nor the improved inflation protection that were negotiated for retirees in 1993.
THE BOARD OF GOVERNORS has established a subcommittee to meet with the fund's investment managers at least twice a year to ensure that the funds are being prudently invested. The Faculty Association has two members on this committee; they are currently Gordon Drake and myself.
Although the Faculty Association cannot recommend a course of action for you, you should not let unfounded rumours influence your decision. The University plan is well admininstered, prudently invested and sound.
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