Multi-Sector Pension Plan

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Outline

1. Retirement Income Sources

2. Types of Pension Plans

3. Outline of the MSPP – Eligibility, Benefits, etc.

Retirement Income in Canada

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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.

Workplace Pension Plans

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Defined Benefit (DB) Defined Contribution (DC)

Group RRSP

Contributions

Set by the terms of the plan

Contributions

Set by the terms of the plan

ContributionsAs per the collective agreement.

Employer contributions are considered taxable income

Benefits

Pension wage is based on a formula

BenefitsPension 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

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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

The Multi-Sector Pension Plan

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Multi-Sector Pension Plan (MSPP)

• Defined Benefit Plan – with hybrid features

• Collective Approach

• Retirement wages based on set formula

• 100% union-run (CUPE and SEIU)

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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 ProposalCurrent 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 1.5% to the DC Plan

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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 Monthly Retirement Wage

$20,000 $310.00

$40,000 $602.00

$100,000 $1,550.00

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MSPP - Benefits

Accruing Contributions: assuming full contribution level (10.5%) and wage increase of 3% per year

Annual Wage

Annual Contribution

5 years of contributions

10 years of contributions

25 years of 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

Total Contributions

Future Service

Past Service Retirement Wage

$20,000 $310.00 $186.20 $496.20

$40,000 $620.00 $186.20 $806.20

$100,000 $1,550.00 $186.20 $1,736.20

Some Examples:

**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 – sazants@psac-afpc.com