Transcript Multi-Sector Pension Plan

Multi-Sector Pension Plan
Outline
1. Retirement Income Sources
2. Types of Pension Plans
3. Outline of the MSPP – Eligibility,
Benefits, etc.
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Retirement Income in Canada
Canada’s 3 sources of Retirement Income
• Public Pension Plans
– Canada Pension Plan (CPP)
– Old Age Security (OAS)
– Guaranteed Income Supplement (GIS)
• Workplace Pension Plans
– Defined Benefit
– Defined Contribution
• Personal Savings (RRSP)
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Why a Workplace Pension Plan?
• Average monthly benefits paid from public
plans:
Canada/Quebec Pension = $501.82
Old Age Security = $489.57
Total = $991.39
(Jan. 2009)
• Many, especially women will not receive
maximum benefit from public pension
plans.
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Workplace Pension Plans
Defined Benefit (DB)
Defined Contribution
(DC)
Group RRSP
Contributions
Contributions
Contributions
Set by the terms of the Set by the terms of the As per the collective
agreement.
plan
plan
Employer contributions are
considered taxable income
Benefits
Pension wage is
based on a formula
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Benefits
Pension wage depends on
the amount of money in
individual’s account. Based
on amount contributed,
gains/losses on market and
fees to purchase pension
Benefits
Same as DC
Defined Benefit (DB)
Defined Contribution
(DC)
Group RRSP
Risk
Shared between the
employer and plan
members
Risk
The employee faces
the risk alone, through
potentially poor
investment returns, or
retiring at the wrong
time (i.e. after the
market drops or when
interest rates are low)
Risk
This is not a pension
plan, it is individual
savings. The
individual faces
market risk alone.
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Problems with DC Plans
• Employees must face risk alone
– Market fluctuations on investments
– Interest rates on annuities
• No guarantee of retirement benefits
• Members are not professional investors
• Must pay fees on investments
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The Multi-Sector Pension Plan
Multi-Sector Pension Plan (MSPP)
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•
•
•
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Defined Benefit Plan – with hybrid features
Collective Approach
Retirement wages based on set formula
100% union-run (CUPE and SEIU)
The Proposal
This proposal is only for members who are
on the DC Plan, not for members who are
on the DB Plan (i.e. those hired before July
1, 1992)
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The Proposal
Current DC Plan: Contributions
Proposed MSPP + DC: Contributions
6% Employee Contribution
6% Employee Contribution
6% Employer Contribution
6% Employer Contribution
Total: 12% contribution
Total: 12% contribution
Current DC Plan
Proposed MSPP + DC
10.5% to the MSPP
12% to the DC Plan
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1.5% to the DC Plan
The Proposal
• All of the benefits from the MSPP will be in
addition to what you have already accrued
in the DC plan and with your own RRSPs
• There is no change to what you have
saved under your current pension plan
• CPP is not affected by participation in the
MSPP: i.e. CPP benefits are in addition to
the MSPP
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MSPP – Eligibility
• Everyone in the bargaining unit must be
covered after 500 hours of employment
– Some exceptions can be made (e.g. if some
are on superannuation, they can stay there)
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MSPP – Benefits:
Future Service Credit
• $100 of contributions = $1.55 monthly retirement wage at age 65
• Roughly equivalent to 1.95% of salary per year of service
Contribution
$20,000
$40,000
$100,000
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Monthly Retirement
Wage
$310.00
$602.00
$1,550.00
MSPP - Benefits
Accruing Contributions: assuming full contribution level
(10.5%) and wage increase of 3% per year
Annual
Wage
Annual
Contribution
5 years of
10 years of
25 years of
contributions contributions contributions
$40,000
$4,200
$22,298
$48,148
$153,129
$50,000
$5,250
$27,873
$60,185
$191,411
$60,000
$6,300
$33,448
$72,222
$229,693
$70,000
$7,350
$39,022
$84,260
$267,976
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MSPP – Benefits:
Past Service Credit
• A unique feature of the plan may increase
your retirement wage by as much as
$186.20 per month at age 65.
• Based on years of service with your
employer at the time the employer
commences participation in the MSPP.
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MSPP – Benefits:
Past Service Credit
• $26.60 per year of service to a maximum
of 7 years ($186.20) at age 65
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MSPP - Benefits
Some Examples:
Total
Contributions
$20,000
Future
Service
$310.00
Past Service
$186.20
Retirement
Wage
$496.20
$40,000
$620.00
$186.20
$806.20
$100,000
$1,550.00
$186.20
$1,736.20
**These examples are in addition to CPP and to any RRSP coverage
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MSPP - Benefits
Retirement rates: comparison between annuity rates and MSPP
benefits, assuming $100,000 contribution
Data as of May 29, 2009
Company
Guarantee?
Age 55
Age 60
Age 65
Sun Life
None
$568
$613
$678
BMO
Insurance
None
$576
$642
$701
Standard
Life
None
$527
$577
$646
MSPP
5 years
$835
$1,158
$1,550
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MSPP – Retirement Options
• Must be “vested” to retire (24 months of
contributions or Age 65)
• “Normal” retirement is Age 65
• Can retire as early as Age 55 (6%/year
reduction)
• Several guarantee options available:
– Joint and survivor benefits (50%, 60%, 75%, 100%)
– 5-year, 10-year or 15-year guarantee
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MSPP – Leaving before Retirement
If you have 24 months of “vesting service”, you
can:
1. Collect pension at a later date
2. Move value to locked-in pension vehicle
3. Move value to new employer’s plan if the new
plan accepts the pension transfer
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MSPP – Leaving before Retirement
With less than 24 months of “vesting
service”, your contributions are refunded
with interest accrued.
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MSPP – Plan Statistics
As of May 2009:
• 80+ participating employers
• 5,600+ plan members
• ~60 pensioners
• $26 million in fund assets
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MSPP – Plan Statistics
Issue of under-funding
• Young pension plans all face under-funding
issues
• MSPP based on Nursing Home plan:
– 20 years – never cut benefits
• Plan profile is excellent for the current downturn
– growing plan with low retiree numbers
• Pooled risk vs. individual risk
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MSPP – Additional Information
www.mspp.ca
Questions/comments:
Email Seth Sazant – [email protected]
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