1 Winter 2014 Building Blocks – York’s Pension Plan.

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Winter 2014

Building Blocks – York’s Pension Plan

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Purpose of this Seminar

• Pension plan contributions

• Minimum Guarantee Pension (MGP)

• Money Purchase Component (MPC)

• MGP vs. MPC – how they fit together

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Pension Plan ContributionsJanuary 2014 - 4.50% up to the YMPE and 6.00% above the YMPE;

March 1, 2014 - 4.95% up to the YMPE and 6.63% above the YMPE;

September 1, 2014 – 5.40% up to the YMPE and 7.26% above the YMPE;

March 1, 2015 – 5.85% up to the YMPE and 7.89% above the YMPE;

September 1, 2015 – 6.30% up to the YMPE and 8.52% above the YMPE;

March 1, 2016 – 6.75% up to the YMPE and 9.15% above the YMPE

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Pension Contributions

• Pension contributions are deducted from your pay before income tax.

• As a result of the increased pension contributions the amount of income taxes being deducted will be reduced.

• The net affect to your pay will be determined by your salary rate and TD1 Personal Tax Credits.

• The increase in employee and employer pension contributions will increase the money purchase funds.

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YMPE (Years Maximum Pensionable Earnings)

• The dollar amount set each year by the Canada Revenue Agency (CRA) which determines the maximum amount on which to base contributions to the Canada Pension Plan. The YMPE specifies the earnings amount that can be used in calculating pension contributions for each year.

• The 2014 figure is $52,500.

• The YMPE changes each year and CRA normally announces the new figure in November.

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Non Reduction Reserve - Retirements before January 1, 2015• When you first retire, the actuarial factors used to

calculate the money purchase pension assume the Pension Fund will earn 6% annually throughout your retirement. Your retirement pension may be adjusted at the beginning of each calendar year if the moving four-year average fund rate of return is in excess of 6% at that time. In the event the moving four-year average fund rate of return is below 6%, no reduction will be made to your pension; however, this deficit will be tracked and future adjustments (positive or negative) will be applied to the reduced amount. You won’t receive any further increments until the deficit is paid up.

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Non Reduction Reserve – retirements January 1, 2015 onward

• The moving four-year average fund rate of return will be lengthened to a moving five-year average fund rate of return with the fund rate of return equal to 6.0% for the Plan years in the five-year average up to and including the Plan Year in which the date of pension commencement occurs.

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Pensioner increment - exampleYear Current calculation New calculation

2006 13.9244% 6.0000%

2007 -0.5356% 6.0000%

2008 -19.2428% 6.0000%

2009 15.9818% 6.0000%

2010 9.7617% 6.0000%

This is for illustrative purposes only. Actual results will vary.

The volatility of the pensioner adjustment is reduced with the change

Pensioner Increment Old New

2010 -4.2457% 0.0000%

2011 -5.1327% -1.4000%

2012 -4.9429% 0.7900%

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Minimum Guarantee Pension (MGP)

1.4% of your final average earnings at retirement up to the average YMPE for those years

plus

1.9% of your final average earnings at retirement above the average YMPE for those years

multiplied by

Your credited service in the pension plan

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Final Average Earnings (FAE)

Your FAE is the five highest years of earnings prior to retirement.

They do not have to be consecutive.

We work backwards in twelve month periods.

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FAE example (May 1, 2014 retirement)

12 month period Annual Earnings Average Annual YMPE

04/30/2014 – 05/31/2013 $48,264.09 * $50,100.00 **

04/30/2013 – 05/31/2012 $47,521.50 * $48,900.00 **

04/30/2012 – 05/31/2011 $50,883.86 * $47,566.67 **

04/30/2011 – 05/31/2010 $48,760.17 * $46,000.00 **

04/30/2010 – 05/31/2009 $44,990.28 $45,366.67

04/30/2009 – 05/31/2008 $48,951.86 * $44,100.00 **

04/30/2008 – 05/31/2007 $42,844.77 $42,633.33

Final Average Earnings * added together / 5

$48,876.30

Final Average YMPE** added together / 5

$47,453.33

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Credited Service• There is a difference between credited service and

continuous service:

• Credited Service – The total number of years of pension plan membership. You can not earn service if contributions by you or the University are not maintained at the full rate for each month in the calendar year.

• Continuous Service – Your unbroken service with the University including vacation, authorized sick leave, and authorized leaves of absence.

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MGP and early retirement

• If you elect to retire prior to your normal retirement date there is a reduction in the pension amount.

• A reduction of 3% per year or part year for retirement between age 60 and 65 and a further reduction of

• 6% per year for each year or part year for retirement between age 55 and 60

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Money Purchase Component (MPC)

• The mandatory contributions made by the employee along with the matching employer contributions and any accumulated rate of return are used to determine the MPC of your pension

• The MPC is affected by:

• amount of funds as per the above,

• age at retirement,

• marital status at retirement, if married, the age of your spouse at retirement,

• Annuity/mortality table being used.

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Money Purchase

• Marital status and the age of your spouse can have a significant impact to the money purchase pension. For example:

NRD July 2041 (joint & survivor 50% with no guarantee)

Spouse 2 years younger: $996 per month

Spouse 5 years younger: $985 per month

Spouse 10 years younger: $968 per month

Spouse 20 years younger: $941 per month

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Annuity/mortality table• The Canadian Institute of Actuaries (CIA) has a number of actuarial tables.

The mortality experience of the plan helps determine which table is used in the calculation of a money purchase pension.

• York uses a customized table based on 70% of mortality rates in the standard 1994 Group Annuity Mortality table (GAM 1994) plus a projection scale AA with mortality improvements limited to 1% per annum starting in 2000.

• In August 2013 the CIA published a draft report which includes proposed mortality tables. The information is being reviewed by the Plan actuary.

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MGP vs. MPC – How they fit together

Each time the system produces a pension estimate it actually runs three calculations at the same time:

1. Money Purchase Component Pension

2. Minimum Guarantee Pension

3. Canada Revenue Agency (CRA) has a maximum pension permitted under the MGP portion of the pension plan

You receive the higher of one or two. If your pension is based on the Minimum Guarantee Pension then we have to ensure it is not greater than the CRA maximum.

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CRA Maximums

• While the CRA removed the 35 year maximum in their calculation the York University Pension Plan text includes a 35 year maximum.

• The 2014 maximum is $2,770.00 for each year of service up to the 35 year maximum.

• For example: $2,770.00 X 35 = $96,950.00 per year or $8,079.17 per month.

• The CRA maximum typically applies to employees with a final average earnings greater than approximately $155,000

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Pension exampleNormal retirement date: July 1, 2013Retirement date: July 1, 2013Marital status: married – spouse 14 years youngerCredited service: 29.7493 years

Money Purchase account balance at July 1, 2013Your contributions $199,674University contributions $202,880Total $402,554

Benefits from York University Pension Plan Money Purchase Component $2,389

Minimum Guarantee $2,926Supplementary Pension $ 537Total Monthly Pension $2,926

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Calculating the Minimum Guarantee

Time Period Salary YMPE

July 2012 – June 2013 $78,205.36 $50,600

July 2011 – June 2012 $76,678.03 $49,200

July 2010 – June 2011 $75,182.47 $47,750

July 2009 – June 2010 $72,978.31 $46,750

July 2008 – June 2009 $70,695.07 $45,600

July 2007 – June 2008 $69,016.73 $44,300

July 2006 – June 2007 $66,604.92 $42,900

Final Average Earnings $74,747.85

Final Average YMPE $47,980

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Calculating the MGP

FAE = $74,747.85 FAYMPE = $47,980

Credited Service = 29.7493 years

$47,980 X 1.4% = $671.72

$74,747.85 – $47,980 = $26,767.85 X 1.9% = $508.59

$671.72 + $508.59 = $1,180.31 X 29.7493 = $35,113.40

$35,113.40 /12 = $2,926.12 per month

CRA check$2,770.00 X 29.7493 = $82,405.56 / 12 = $6,867.13 per monthWill therefore receive the $2,926.12 per month since below the CRA maximum.

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Need to contact Pension & Benefits?

• E-mail [email protected]

• Call 416-736-2100 extension 27572 (askpb) – the phone line is open from 8:30 am to 4:30 pm Monday to Friday. For Fridays in June, July and August the phone line closes at 3:30 pm.

• Please have your employee ID ready when you call us.

• Any form or document that we may need from you can be completed, scanned and emailed to [email protected].