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The Retirees' Newsletter
The Retirees's Association ( Faculty, Librarian, Administrator), University of Windsor, Windsor, Ont. Canada
Vol VIII, No. 1, February 1998
|
SPECIAL PENSION SECTION |
(Fourth in a series, from a GUIDE being prepared by Norm Shklov,
explaining our Pension Plan, in principle and practice)
NORM SHKLOV'S REPORT ON SURPLUSES IN THE UNIVERSITY PENSION PLAN
As stated in earlier articles in this series, the University plan is of the type called "Money Purchase with a Minimum Guarantee". This means that the pension that a retiree receives is the pension that is bought by his or her contributions, and those of the University on his or her behalf, accumulated at the net rate of earnings of the Pension Fund, but with the guarantee that this pension will not be less than a minimum amount *. In order for all retirees to receive at least this minimum guaranteed amount, in some cases the pension bought by the accumulated contributions will have to be augmented. This is done in the following way.
Each year approximately 6% is deducted from the earnings of the Pension Fund before the earnings are distributed. For example, if the Pension Fund earns 19%, then 6% is deducted from this and the net earnings distributed are 13%. The 13% is added to the Money Purchase accounts of all retirees. This will leave many retirees with Money Purchase pensions above the Minimum Guarantee.
The others will have pensions still below the Minimum Guarantee. These will have to be augmented to bring them up to Minimum Guarantee level. This is done by using a portion of the remainder of the 6% that was kept back from the earnings of the fund. In addition, the University contributes an amount, periodically specified by the actuaries, for maintaining the minimum guarantee. (At present this amount is 1.7%). Now there may be more than enough money from these two sources to raise all the rest of the pensions to the Minimum Guarantee level. If this is the case, the sum left over is called a "surplus".
What happens, then, to these unused funds, which are now called "Surpluses"? This is a matter for negotiation. At the outset, it must be stated that Revenue Canada (the Department of the Federal Government that deals with pension matters) has decreed that all such surpluses must be distributed according to rules laid down by Revenue Canada. It also goes without saying that the distribution of a surplus must be negotiated with the University Administration.
There are several ways by which a surplus may be distributed to members of the University
Pension Plan. One method is to distribute certain amounts of money to those on the Minimum
Guarantee Pension. The rationale here is that because of the restrictions in the cost-of-living
indexing schedule for the Minimum Guarantee, these pensions have not kept pace with the cost of
living since retirement. Specifically, the C.O.L. indexing schedule of the University Pension Plan
specifies full indexing of Minimum Guarantee pensions for increases in the C.O.L. index of up to
2%, but only partial indexing for increases above 2%.
So surplus funds have been used to increase Minimum Guarantee pensions , because of the above argument. However, there is Revenue Canada Proviso which states that the increased pension in each case will be no more than the pension on retirement plus the Cumulative increase in the cost of living index since retirement.
As an example, in 1997 a 2.5 % increase in Minimum Guaranteed pensions was declared, as a means of distributed surplus. All retirees on Minimum Guaranteed pensions were told that they were going to get an increase of 2.5% in their pensions. However, due to Revenue Canada proviso just mentioned, many of those retirees were not eligible for the full 2.5%. In consequence of this the 2.5% increase was recalled and increases in accordance with the proviso were granted. In many cases the increases were much less than 2.5%.
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