A Pension Primer

Pensions - Such large sums of money given so little thought by so many - until they?re about 64 1/2 years old.

The following articles were written by Susan Taylor, former Executive Director of the SFU Faculty Association, and appeared in the Association?s Newsletter from 1994 to 1996. This guide was last reviewed in 1999. Conseqeuntly, the details are no longer current, but the general principles are still applicable. Please consult the information available from Human Resources for current details. The Faculty Association gratefully acknowledges the assistance of the past and present Managers of the Academic Pension Plan - Ron Ramsay and Alan Black who reviewed the articles for accuracy and clarity before they were published.

The Basics

This is the first in a series of short articles on pensions for members whose eyes glaze over at the mention of the word pension. In this issue?The Basics

As I have worked to become familiar with pensions and in particular SFU?s Academic Pension Plan, over the past several years, it?s been dismaying to see how few of our members are interested in their Pension Plan and more importantly, knowledgeable about their own future pension benefits. I decided to try to do something to improve this situation and during a recent study leave wrote several articles that will appear in the SFUFA newsletter in the coming months.

I?ll begin with three reasons to pay attention to your pension plan.

1. SFU?s Academic Pension Plan is currently worth approximately $173,709,108. The money in the Plan is made up of the employer?s contributions on behalf of members, some voluntary contributions by members and the earnings made on all of these contributions through a variety of investments. In the calendar year 1998, the Plan earned 8.34% net.

2. The employer?s contributions to the Plan on your behalf are ten percent of your basic salary less $419.40, which is part of the employer?s contribution to your Canada Pension Plan account. The employer makes the contributions to the Plan on a bi-weekly basis. If your basic salary last year was $65,000, the employer put roughly $6208 into the Plan on your behalf and that $6208 earned roughly $536.37.

3. SFU?s Plan has an immediate vesting provision which means that the employer?s contributions to the Plan on your behalf are yours right away. That?s not to say that you can draw on them at will but they will provide a future entitlement whether you quit, retire or die. Some plans have vesting only after a number of years of employment.

Here are some more basics about your Pension Plan.

You are entitled to have the employer make contributions to the Academic Pension Plan on your behalf if you have a full or part time appointment of longer than one year or once you have worked for more than one year within a four year period.

There is no required employee contribution to the Plan, but you may make voluntary contributions if you wish. I suggest reviewing the Plan?s earning performance and comparing it with the performance of other investments you might make within a Registered Retirement Savings Plan. The Plan?s annual investment returns are printed in the Annual Report of the Pension Plan. Contact Human Resources for a copy of the report if you don?t have a copy.

The day to day administration of the Plan is the responsibility of the Manager of Pensions and Benefits in Human Resources. The administration of the Plan is done in accordance with the Pension Plan text, a 44 page necessarily legalistic document which you should know exists, but you probably won?t need or want to consult until you become interested in the finer points of the Plan. There is a Board of Pension Plan Trustees who, among other things, oversees the maintenance of the Plan and individual records, hires the investment managers and authorizes all payments from the Plan. The trustees? full responsibilities are spelled out in a document called the Trust Agreement. The Board has eight members, four appointed by the university administration and four elected by members of the Plan for staggered two year terms. The Manager of Pensions, with the Chair of the Board of Trustees, produce the Annual Report of the Plan which is annually sent to each Plan member along with the member?s annual pension statement, usually in May. The annual statement reflects the contributions made to the Pension Plan on your behalf during the past calendar year, capital Appreciation/Depreciation, and the current value of your SFU pension account. You also receive an invitation to attend the annual general meeting of the Pension Plan members which usually takes place in June. Attendance at this meeting is historically and disappointingly sparse. It?s an excellent opportunity to find out more about the Plan. Why not plan to attend this year? The Faculty Association has a Pension Committee made up of individuals keenly interested in pension matters and in particular, in achieving improvements to the Plan. Its members are appointed by the Association executive. If you are interested in working on this committee please contact the Association office.

In future articles, I?ll give you an abridged history of SFU?s Pension Plan, explain what?s meant by Open Group and Closed Group, discuss decisions you may make as you near retirement age to guarantee your retirement income, tell you about your options when you retire, when you quit, when you go on leave or if you become terminally ill, what happens if you become disabled, what happens to your pension account when you die...

An Abridged History of the SFU Pension Plan for Academic Staff

This is the second in a series of articles on pensions. In this article?An abridged history of the SFU Pension Plan for Academic Staff.

The first pension contributions were made by the employer on behalf of SFU Academic staff in 1964, and until 1969 those contributions went into the TIAA/CREF Plan. In 1969, SFU introduced a Formula Benefit pension plan. It guaranteed a pension based on a formula that included the average salary over one?s five consecutive years of highest salary and one?s years of service at SFU. It also guaranteed annual indexation of that pension by the cost of living or 3% whichever is less. Anyone who was in TIAA/CREF in 1969 was given the option of enrolling in the SFU Plan or remaining in the TIAA/CREF Plan. Effective January 1, 1996, the TIAA/CREF Plan was transferred to Sun Life of Canada and became known as the Pension Plan for Certain Members of the Staff of Simon Fraser University.

In 1973 the pension plan for academic staff was changed to a Money Purchase Plan. The name describes how the plan works. On retirement the employee takes the money, i.e. the employer?s contributions plus the earnings that have accumulated through investment, and purchases an annuity or a Registered Retirement Income Fund (RRIF). The money available to purchase an annuity will depend on one?s SFU career earnings and on how well the Plan?s investments have performed. Anyone who was in the Formula Benefit Plan before the 1973 plan change is entitled to either the Formula Benefit pension or the Money Purchase Plan annuity, whichever is greater. A person in this situation is described in SFU pension parlance as being in the Closed Group , so named because with the 1973 plan change the group was closed to anyone subsequently hired. The latter are described as the Open Group . There are about 133 Closed Group members and 600 Open Group members.

From 1973 until mid 1981, funding to guarantee the Formula Benefit pension option for members of the Closed Group was accumulated by means of a surcharge on the employer?s pension contribution of ten percent for all plan members. In other words, about eight percent was contributed on behalf of the member and about two percent was put aside to guarantee that funding would be available for the formula benefit pension for Closed Group members. The surcharge on Open Group members? contributions was stopped in 1981, but continued until early 1990 for members of the Closed Group.

It was in the late 1980s that I became very interested in pensions. The Faculty Association?s negotiators had been trying for several years to negotiate improvements to the pension plan but were repeatedly greeted with the administration?s protestations that there was no money available to make the improvements. It was the 1989 Actuarial Valuation Report of the Academic Pension Plan that got the Faculty Association started on what turned out to be the most rewarding and educational negotiations to which I have been party. Every three years the administration is required by the Income Tax Act to produce a valuation of the plan. In other words, an Actuary provides a statement of the dollar value of the pension plan?s assets given defined assumptions about many diverse factors, ranging from the performance of the plan?s investments to the percentage of members with spouses entitled to receive death benefits. Each factor has an impact on the apparent financial health of the plan. The underlying assumptions made about each factor affect the final valuation of the plan. Seemingly slight changes in assumptions can make a plan look healthy or unhealthy. The 1989 valuation made the plan look a bit under the weather. Faculty Association negotiators, led by Edgar Harden (English), started to question the assumptions. The work was enormously complex. We hired an Actuary who assisted us in negotiating agreements with the administration that would return 100% of the surcharge monies (plus investment earnings) levied on Open Group members between 1973 and 1981 and 63.3% of the surcharge monies (plus investment earnings) levied on Closed Group members between 1973 and 1990. Revenue Canada approved the agreements in 1992 and $3 Million has now been returned to Open Group members? accounts; $4.6 Million to Closed Group members? accounts. At last tally $ 3.3 Million remains in the account set up in 1973 to guarantee the formula pension option for Closed Group members. Our negotiated agreement calls for a joint review of that account after each triennial actuarial valuation. The review will determine the monies needed to guarantee the formula pension for Closed Group members and what further amount, if any, may be returned to Closed Group members.

A negotiated deal that finally in 1993 put a total of $7.6 Million back into our members? individual pension accounts convinced me that our members need to pay attention to their pension plan. Yes, pensions are complicated and acquiring knowledge about them is time consuming, but think of pensions as future earnings. Your SFU pension is likely to be your primary source of income for a couple of decades after you retire.

Options at Retirement

This is the third in a series of articles on pensions. If you? re planning to retire, either at the "normal" age of 65 or early, this article is for you. (If you want to pursue a post-retirement contract, you should refer to SFU Policy A 12.10.)

Retirement at 65

Mandatory retirement at age 65 is the rule at SFU .If you hold a position in one of the teaching ranks, your "normal" retirement date is the September 1 following your 65th birthday. If you?re a librarian or an archivist, your "normal" retirement date is your 65th birthday if your birth date is the first day of a month or in every other case, the first day of the month following your 65th birthday. Early retirement becomes an option at 55.

If you were appointed after March 19, 1973, you are in what is known as the Open Group . Your retirement funds are accumulating in what is known as a Money Purchase Account. With these funds, you will be entitled to purchase a lifetime annuity or a Registered Retirement Income Fund (RRIF) or a Life Income Fund (LIF).

One factor to keep in mind is whether you need an annuity just for yourself for as long as you live or whether you need an annuity that will also provide your spouse with income in the event of your death. If you need the latter, your annuity will be lower. On January 1, 1993, the B.C. Government enacted the Pension Benefits Standards Act (PBSA). If you are married at retirement, you must elect a benefit that provides a 60% survival benefit. Otherwise, your spouse must complete a prescribed "spousal waiver" form. Another factor to consider is whether you want to purchase annual indexation for your pension in order to offset the effects of inflation.

If you?re in the happy position of not needing income from your SFU pension account right away, pension benefits earned before December 31, 1992 can be transferred to a non locked-in Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF), but pension benefits earned after December 31, 1992 can only be transferred to a locked-in RRSP or a Life Income Fund (LIF). This difference in how the monies may be invested is due to federal and provincial legislation.

In addition to your SFU Pension Plan benefits, you are eligible for Canada Pension Plan and possibly *Old Age Security benefits and you should apply for these six months before you reach age 65. The current maximum CPP payment is $751.67 per month and the maximum OAS payment is $410.82 per month. You must utilize these funds by the last month in the year you attain age 69.

If you were appointed before March 20, 1973 and are not among the members who stayed in the TIAA-CREF Plan, you are a Closed Group member and have an additional option. That is, you can purchase an annuity or a RRIF or LIF just as an Open Group member can. Or you can claim the pension defined by a formula which includes your average salary over your best paid consecutive five years and your years of service. (Refer to the Annual Report of the Pension Plan for an example of the formula calculation or consult with the Plan Administrator.)

This option includes an automatic pension for your spouse in the event of your death. It is worth 60% of your pension but it can be reduced to 50% if your spouse signs a form waiving his/her rights to the additional 10%. The automatic survivor pension reduces the value of the annuity from what it would be without the survivor benefit so if you don?t have a spouse, the formula option may not be for you. This option also includes automatic indexation each January 1 which increases your pension by the national cost of living or 3% whichever is less.

Just as an Open Group member, if you choose to purchase an annuity, you should consider whether you want one with a survivor benefit for your spouse and whether you want indexation.

Retirement Before Age 65

If you don?t want to wait until you?re 65, you may choose to retire early once you have reached age 55. If you are considering this, you should consult the Enhanced Early Retirement Policy, A 21.06. You can attempt to negotiate an Early Retirement Enhancement, which under this policy can be worth no less than 14 months of salary and benefits. But after age 60 the minimum enhancement is reduced by 20% per year.

Closed and Open Group members who choose to retire early have the same options as detailed above. Obviously, your money purchase account balance would be less than if you worked to age 65. For Closed Group members, the formula is discounted by approximately 1/2 of one percent for each month before age 65.

Planning Well Ahead

The value of your Money Purchase Account depends on your salary, your years of service and the investment performance of the Plan. The return on the Plan investments can vary greatly from year to year. Open Group members, and Closed Group members who choose the Money Purchase Account option, can minimize the risk of retiring in a low return year by transferring all or part of the account balance into either a Guaranteed Income Fund or by making deferred annuity purchases when the rates are attractive. You can make transfers to a Guaranteed Income Fund beginning at age 55 and purchase deferred annuities starting at age 60. (Refer to the Annual Report of the Pension Plan for details of these investment options or consult with the Plan Administrator.)

Leaving the University Other than at Retirement

This is the fourth in an occasional series of articles on pensions. If you want to know your pension options/entitlements should you quit, become ill, go on leave of absence or die, read on. Options for those retiring either at the "normal" age of 65 or early were described in the third article in this series. Finally, in response to members? requests, I?ll describe benefit coverage for retirees at the end of this article.

If You Quit

In order to "retire" you have to be at least 55 years of age. If you?re less than 55 and you leave SFU you are "quitting". If you quit, no matter whether you?re in the Open or Closed Group , you have the following options for the monies in your Money Purchase Account:

i) leave your balance in the fund until your normal retirement date or at the latest, age 69. It will continue to earn its proportionate share of the net gain (loss) of the fund;

ii) transfer your balance to the Registered Pension Plan of a new employer;

iii) transfer your pre-1993 balance to an RRSP or RRIF and your post-1992 balance plus earnings to a locked-in RRSP;

iv) transfer your entire balance to a locked-in RRSP.

If you have made contributions to a voluntary account in the SFU Pension Plan, you have the following options:

i) leave your balance in the fund until your normal retirement date;

ii) withdraw the balance in your account and receive it as a taxable lump sum payment;

Lump Sum withholding Tax is as follows:

• $0 ? $4,999 10% Tax
• $5,000 ? $15,000 20% Tax
• $15,000 ? up 30% Tax

iii) transfer your balance to another Registered Pension Plan or Registered Retirement Savings Plan.

If You Become Ill

While you are on sick leave your salary and the employer?s required contributions to your pension account continue. If you are still ill after your sick leave entitlement ends and you qualify for the Long Term Disability benefit (LTD), (i.e. 70% of your pre-disability salary), the employer?s required contribution to your pension account continues and is based on your pre-disability salary. When you reach "normal" retirement age (65), the Long Term Disability benefit ends and you have the usual options available at retirement.

If You Go On Leave

If you take a leave of absence with pay (e.g. a study leave at 80% salary) the employer?s contribution to your pension account continues and is based on your nominal salary.

If you take a leave of absence without pay, the employer?s contribution to your pension account ceases for the duration of your leave. If you wish, you may prepay the equivalent of the employer?s contribution to your pension account before you go on leave. The same holds for all of your other benefit coverage.

If You Die

Whether you?re in the Open or Closed Group , if you die, either after "quitting", or while on sick leave, or LTD, or a leave of absence, your designated beneficiary will receive the amount in your Money Purchase Account at your date of death plus interest and the amount in your voluntary contribution account, if you had one, at your date of death, plus interest.

Also, if you are in the Closed Group and married, your spouse is eligible for a benefit under Schedule Y of the Plan.

If you die after you retire and you are a Closed Group member receiving a supplementary pension and you predecease your spouse, he/she will receive 60% or 50% or 100% of your pension, depending on the option selected, for the remainder of his/her life.

If you purchased an annuity with your Money Purchase Account balance when you retired, your beneficiary will be entitled to the payments remaining, if any, under the annuity option you selected.

Your Beneficiary

Do you remember who you designated as your beneficiary(ies) for SFU pension purposes? If you don?t or if your personal circumstances have changed since you made your designation, you may wish to contact Human Resources to check or change your beneficiary.

The material in these articles has been drawn from information provided to me and I believe it to be correct. If there is any inconsistency between the contents of these articles and the Pension Plan Text, Trust Agreement or legislation, the Text, Trust and legislation will prevail.

Susan Taylor
Former SFUFA Executive Director

Revised by Alan Black (1999/02/25)
Manager, Pension and Benefits, Human Resources