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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
Enhancing Your Pension Benefit – Enhancing Your Pension Benefit – Purchase of ServicePurchase of Service
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
Enhancing Your Pension Benefit – Enhancing Your Pension Benefit – Purchase of ServicePurchase of Service
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
Enhancing Your Pension Benefit – Enhancing Your Pension Benefit – Purchase of ServicePurchase of Service
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
Post Retirement Group Post Retirement Group BenefitsBenefits
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
Post Retirement Group Post Retirement Group BenefitsBenefits
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
Basic Basic AccountAccount
SupplementalBenefitsAccount
InflationAdjustmentAccount
Employee ContributionsEmployee ContributionsEmployer ContributionsEmployer Contributions
Basic PensionBasic PensionBenefitBenefit
Pension Plan FundingPension Plan Funding
7.49% of salary
5% to 13% of plan members salaries
0.25% of salary
2626
Basic Basic AccountAccount
SupplementalBenefitsAccount
InflationInflationAdjustmentAdjustmentAccountAccount
Employee ContributionsEmployee ContributionsEmployer ContributionsEmployer Contributions
Future IndexingFuture Indexing
Pension Plan FundingPension Plan Funding
2.0% of salary
7.49% of salary
5% to 13% of plan members salaries
$
Basic PensionBasic PensionBenefitBenefit
0.24% of salary
2727
Basic Basic AccountAccount
SupplementalSupplementalBenefitsBenefitsAccountAccount
InflationInflationAdjustmentAdjustmentAccountAccount
Employee ContributionsEmployee ContributionsEmployer ContributionsEmployer Contributions
Future IndexingFuture Indexing Group BenefitsGroup BenefitsMSP PremiumsMSP PremiumsExtended HealthExtended Health
DentalDental
Pension Plan FundingPension Plan Funding
7.49% of salary
5% to 13% of plan members salaries
1.0% of salary
1.0% of salary+
0.24% of salary
Basic PensionBasic PensionBenefitBenefit
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%
Value of IndexingValue of Indexing
Pension Pension after 10 after 10
yearsyears
Pension Pension after 20 after 20
yearsyears
Pension Pension after 30 after 30
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
Value of IndexingValue of Indexing
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
Value of IndexingValue of Indexing
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
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 . . .
. . . 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
The Dilemma for TrusteesThe Dilemma for Trustees
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
The Cost of Group BenefitsThe Cost of Group Benefits
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
The Cost of Group BenefitsThe Cost of Group Benefits
. . . 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
The Cost of Group BenefitsThe Cost of Group Benefits
. . . 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!
The Cost of Group BenefitsThe Cost of Group Benefits
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%
The Cost of Group BenefitsThe Cost of Group Benefits
Group Benefit Costs of Employer IAA ContributionsGroup Benefit Costs of Employer IAA Contributions
4242
The Dilemma for TrusteesThe Dilemma for Trustees
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
The Dilemma for TrusteesThe Dilemma for Trustees
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