McMaster University Retirees Association
(MURA)




MURA Home Page


























SALARIED PENSION TRUST COMMITTEE

MURA enjoys representation on those committees which oversee our pensions.


The SALARIED PLAN is administered by the Salaried Pension Trust Committee. Bob West  is the current MURA voting member on that body.

Check the MURAnews Archives for additional reports from Les Robb, our previous reperesentative on the Salaried Pension Trust Comittee.

Reports from previous MURA Salaried Pension Trust Committee Representative, Les Robb

January 2012 Report

January 2009 Report

January 2008 Report

May 2007 Report

January 2007 Report



January 2009 Pension Increase
for the Salaried Pension Plan

Contributed by Les Robb,
MURA representative on the Pension Trust Committee

Your Current Year Increase

You should have received a letter from Retirement Support Services letting you know that the basic pension increase for the current year (starting payment on January 2009) will be the same as the reference rate of inflation, 2.18%. This note explains the calculation of this increase.  The note following explains how there will also be a supplementary increase as well in January.   If you have been reading my regular reports, you know that these increases are based on performance of the investment fund for the 5 years prior to last July 1.

Needless to say, with the recent disastrous performance of stock markets (and hence our investment fund), these are likely to be the last increases we receive for some time. 

The current year pension increase calculation is based on the difference between the 5 year average rate of return (net of investment costs) and 4.5%. The calculation for the 2008 increase is as follows:

Calculation of Five Year Average (for 01/01/09 increase)     %
2008 Rate of Return (ending June 30, 2008)                   (3.98)
2007 Rate of Return (ending June 30, 2007)                   14.45
2006 Rate of Return (ending June 30, 2006)                     5.93
2005 Rate of Return (ending June 30, 2005)                   10.00
2004 Rate of Return (ending June 30, 2004)                   14.84

Total Return for Last Five Years                     41.24%



Five Year Annual Average Return (Total Return / 5) =          8.25%
(A) Rate of Return in Excess of 4.5% (8.25% - 4.5%) =      3.75%
(B) Average Consumer Price Index to June 30, 2008 =        2.18%

Increase to Pensions (the lesser of A and B) =             2.18%



Supplementary Increase

3.75% is available for indexing but only 2.18% is needed to provide the increase to cover inflation.  That leaves another 1.537% for indexing to cover shortfalls in indexing over the last three years for those eligible for the increases. (Note that the 1.537% compounded with the 2.18% yields 3.75%.)   Although there were no shortfalls in last year’s increase, there were shortfalls in the two years before that of about 3 %.

 A member retiring on or before July 1, 2005 will be eligible for the 1.537% catch up, bringing the total increase to 3.75% for such individuals.  Those retiring between July 1, 2005 and June 1, 2007 will be eligible for a partial catch up.  Retirees on or after July 1, 2007 have not had a shortfall as there was full CPI indexing last year.  And, of course, those retiring on July 1, 2008 or later are not eligible for any pension increase until January 1, 2010.

The exact amounts of the supplements for various retirement dates are shown in the table below. 



McMaster Salaried Pension Plan -
Supplementary Increase Calculated for 2007/2008 Plan Year
 
Date of
Retirement 
CPI increase to Jun30 07 Actual increase  in last 3 years Potential
supp Increase*
 
   Available Supp    Increase**Supp increase   Payable
1-Jul-046.432%2.820%3.512%1.537% 1.537%
1-Aug-046.251%  2.804%  3.353%1.537%1.537%
1-Sep-04                    6.070%2.788%3.193%1.537%1.537%
1-Oct-04      5.890% 2.772%3.034%1.537% 1.537%
1-Nov-04                   5.709%2.755%2.874%1.537%1.537%
1-Dec-04                    5.528%2.739%2.715%1.537%1.537%
1-Jan-05                 5.347%2.723%2.555%1.537%1.537%
1-Feb-05                  5.167% 2.707%2.395%1.537%1.537%
1-Mar-05                   4.986% 2.690%2.235%1.537%1.537%
1-Apr-05                   4.805%2.674% 2.076%1.537%1.537%
1-May-05               4.624%2.658%1.916%1.537%1.537%
1-Jun-05              4.440%  2.642%1.756%1.537%1.537%
1-Jul-05                    4.263%      2.625%1.596%1.537%1.537%
1-Aug-05               4.051% 2.550%1.464%1.537%1.464%
1-Sep-05                    3.839%2.474%1.332%1.537%1.332%
1-Oct-05                   3.627%2.399%1.199%1.537%1.199%
1-Nov-05                    3.415%2.324%1.067%1.537%1.067%
1-Dec-05                  3.203%2.248%0.934%1.537%0.934%
1-Jan-06                  2.992% 2.173%0.801%1.537%0.801%
1-Feb-06                    2.780%2.097%0.668%1.537%0.668%
1-Mar-06                 2.568%2.022%0.535%1.537%0.535%
1-Apr-06                   2.356%1.946%0.402%1.537%0.402%
1-May-06                   2.144%1.871%0.268%1.537%0.268%
1-Jun-06                 1.932%1.795%0.134%1.537%0.134%
1-Jul-06                  1.720%1.720%0.000%1.537%0.000%
1-Aug-06                   1.577%1.577%0.000%1.537%0.000%
1-Sep-06                    1.433%1.433%0.000%1.537%0.000%
1-Oct-06                    1.290%1.290%0.000%1.537%0.000%
1-Nov-06                    1.147%1.147%0.000%1.537%0.000%
1-Dec-06                   1.003%1.003%0.000% 1.537%0.000%
1-Jan-07                   0.860%0.860%0.000%1.537% 0.000%
1-Feb-07                  0.717% 0.717%0.000%1.537%0.000%
1-Mar-07                  0.573%0.573%0.000% 1.537%0.000%
1-Apr-07                   0.430%0.430%0.000%1.537%0.000%
1-May-07                  0.287%0.287%0.000%1.537%0.000%
1-Jun-07                   0.143% 0.143%0.000%1.537%0.000%
                   
Notes:      
 * this is the increase that could be awarded if excess returns were sufficiently large

 ** this is the amount of excess returns available for indexing   
                   

January 2008 Pension Increase for the Salaried Pension Plan

Contributed by Les Robb

MURA representative on the Pension Trust Committee

 

Your Current Year Increase

You should have received a letter from Retirement Support Services letting you know that the pension increase for the current year (starting payment on January 2008) will be 1.72%. This note explains the calculation of this increase. The note following explains how there will also be a supplementary increase as well in January

The current year pension increase calculation is based on the difference between the 5 year average rate of return (net of investment costs) and 4.5%. The calculation for the 2007 increase is as follows:

Calculation of Five Year Average (for 01/01/08 increase) %

2007 Rate of Return (ending June 30, 2007 ) 14.45

2006 Rate of Return (ending June 30, 2006 ) 5.93

2005 Rate of Return (ending June 30, 2005 ) 10.00

2004 Rate of Return (ending June 30, 2004 ) 14.84

2003 Rate of Return (ending June 30, 2003 ) (2.57)

 

Total Return for Last Five Years 42.65

 

Five Year Annual Average Return (Total Return / 5) = 8.53%

(A) Rate of Return in Excess of 4.5% (4.69% - 4.5%) = 4.03%

(B) Average Consumer Price Index to June 30, 2006 = 1.72%

 

Increase to Pensions (the lesser of A and B) = 1.72%

As I anticipated in a recent article in the Fall 2007 MURA News there is excess return that is not needed to provide the current year increase - in particular the difference between 4.03% and 1.72%. This difference amounts to 2.271% (not the simple arithmetic difference between 4.03 and 1.72 which would be 2.31%). The reason it is not the simple arithmetic difference is because of compound interest. The 1.72% is applied first and then the 2.271% is applied to this new level of pension and this leads to an overall increase of 4.03% (1.0172 * 1.02271 = 1.0403).

Your Supplementary Increase

So, there is an additional 2.271% available to be applied against past losses. Who gets this increase? Well, it depends on how much you were 'shortchanged' in recent years.

Let me start with a table that shows the increases that can be expected on January 1 for those who retired on July 1 (the so-called "normal" retirement date in our Plan). .

 

Retirement Date

 

Increase for the current year

Supplementary

Increase

July 1, 2004 *

1.72%

2.271%

July 1, 2005

1.72%

1.596%

July 1, 2006

1.72%

0.000%

* applies to all dates before July 1, 2004 also.

This table shows that those who retired on July 1, 2004 or earlier will receive the full 2.271% that is available. Those retiring the following July 1 will get a smaller 'catch up' because this is all they would have been eligible for had they received full indexing in the past. Those who retired on July 1, 2006 will get no supplementary increase as they are not deemed to have missed out on any indexing to which they were entitled. And, of course, those retiring on July 1, 2007 or later are not eligible for any increase until January 1, 2009 .

What about those who retired on dates other than July 1? Well, pension rules only allow one to 'catch up' for what was deemed to be lost, so someone retiring on, say, Jan 1 of a year is eligible for half of the increase for the year in question that was received by those retiring the previous July 1. To be more exact, those retiring before March 2005 are deemed to have lost at least 2.271% over the past three years (the time frame we look at for this calculation) and are thus eligible for the full 2.271% supplementary increase. Those retiring between that date and July 1, 2006 will receive a 'catch up' that reflects how much they are deemed to have lost. This catch up declines to 1.596% by July 1, 2005 and by 1/12 th of 1.596 (or 0.133%) each month that retirement was delayed after that date.

In the following article you will find a more complete table of the exact percentages that can be expected for each retirement date and a more complete explanation of the increase calculation.

 

 

Detailed Explanation of Supplementary Increase

Les Robb

In the January issue of the MURA News and in the article immediately above I reported on the increases to pensions in pay this year. In this article I go into a bit more detail for those who are interested in exactly how this all works and for those who can't get enough of compound interest.

Let me start with a recap of changes in CPI, changes to our pensions (increases received) over the past 3 years (and the current year) and the indexing shortfall. Three years is the period for which individuals can receive 'catch up' if there has been an indexing shortfall (as has been the case for the last 3 years).

Period Ending

CPI for 12 months

Increase received for 12 months - effective the following Jan 1

Indexing shortfall for the period

June 30, 2004

1.73%

0.00%

1.730%

June 30, 2005

2.08%

0.19%

1.886%

June 30, 2006

2.50%

0.89%

1.596%

June 30, 2007

1.72%

1.72%

0.000%

 

First, the second and third columns in the above table are the data we start with for the supplementary calculation. The fourth column ('shortfall') is the difference between columns 2 and 3 - though it is the geometric difference rather than simply the subtraction of column 3 from column 2 because of compound interest. The explanation of this whole 'catch up' issue requires repeated applications of 'compound interest' so I will elaborate a bit on it here. Consider the second row of the table above. We received .19% as our increase. If we get another increase of 1.886% on top of this, we would then have received a 2.08% increase which is what is needed to restore the purchasing power of our pensions for that year (1.0019 X 1.01886 = 1.0208, for those of you checking the calculation).

Now, looking at the last row of the table above, we can see that everyone so entitled will receive full indexing this January. Eligible individuals are those who started retirement on or before July 1, 2006 . Note that each row of the table applies to those who retired a year before the 'ending period' so that the first row of the table applies to individuals who retired on or before July 1, 2003 , the second row to individuals retiring on or before July1, 2004, etc.

Next, looking at the second last row of the table, those individuals who started retirement on or before July 1, 2005 lost out on 1.596% indexing to which they were entitled for that year (if returns had permitted), those retiring on July 1, 2004 lost out on both the 1.596% last year and 1.886% the previous year and those retiring on July 1, 2003, or any date before that) lost in all three years (1.596% , 1.886% and 1.730%). The total shortfall for those retiring at various dates involves compounding the losses and is shown in the cumulative indexing shortfall of the following table which shows the supplementary increases for 'normal' (ie. July 1) retirements.

 

Retirement Date

CPI for 12 months

Ending the

Next June 30

Increase for 12 months corresponding to the period at left

Indexing shortfall for the period

Cumulative Indexing shortfall

 

Supplementary

Increase

On or before July 1, 2003

1.73%

0.00%

1.730%

5.303%

2.271%

 

July 1,

2004

2.08%

0.19%

1.886%

3.512%

2.271%

July 1,

2005

2.50%

0.89%

1.596%

1.596%

1.596%

July 1,

2006

1.72%

1.72%

0.000%

0.000%

0.00%

 

The cumulative loss of 5.303% is calculated by applying sequentially 1.730%, 1.886% and 1.596% (1.0173*1.01886*1.01596 = 1.05303). Similar calculations apply to the other cumulative losses/shortfalls.

Now, the actual supplementary increase is calculated as the minimum of the cumulative loss and the amount available for the supplementary increase (2.271%). The result is shown in the last column.

So, that covers retirees with a July 1 retirement date. What about individuals who retired at a date other than July 1? Individuals retiring at a date other than July 1 are treated differently in their initial year of indexing ( this is true for 'current year indexing' as well as for any 'catch up'). So, for example, somebody who retired between July 1, 2003 and July 1, 2004 would have been eligible for only partial indexing of the 1.73% CPI increase that would have been applied (had the fund earned sufficient interest). This is a regulatory requirement and not just something in the McMaster Plan. Individuals are only eligible to catch up what is deemed to have been lost and if you are only retired for part of the year you are deemed to have lost only part of the indexing (in spite of the fact that our salaries only have a general increase once a year). Someone retiring half way through the year, for example, would have been eligible for half the indexing for that year, or .865%. They would then, of course, be eligible for the full 1.886% catch up the next year, and so on.

Below I provide a table (taken from the Human Resources presentation at the Pension Trust Committee) that shows what should be expected for each retirement date from July 1, 2003 to June 1, 2006 .


McMaster Salaried Pension Plan - Supplementary Increase Calculated for 2006/2007 Plan Year

 

 

 

 

 

 

Date of

CPI Increase to

Actual Increase

Potential

Increase

 

Retirement

June 30, 2006

In last 3 years

Supp. Incr.

Payable

 

 

A

B

C

D

 

1-Jul-03

6.442%

1.082%

5.303%

2.271%

 

1-Aug-03

6.291%

1.082%

5.154%

2.271%

 

1-Sep-03

6.140%

1.082%

5.005%

2.271%

 

1-Oct-03

5.990%

1.082%

4.855%

2.271%

 

1-Nov-03

5.839%

1.082%

4.706%

2.271%

 

1-Dec-03

5.688%

1.082%

4.557%

2.271%

 

1-Jan-04

5.537%

1.082%

4.408%

2.271%

 

1-Feb-04

5.386%

1.082%

4.258%

2.271%

 

1-Mar-04

5.235%

1.082%

4.109%

2.271%

 

1-Apr-04

5.085%

1.082%

3.960%

2.271%

 

1-May-04

4.934%

1.082%

3.811%

2.271%

 

1-Jun-04

4.783%

1.082%

3.662%

2.271%

 

1-Jul-04

4.632%

1.082%

3.512%

2.271%

 

1-Aug-04

4.454%

1.066%

3.353%

2.271%

 

1-Sep-04

4.277%

1.050%

3.193%

2.271%

 

1-Oct-04

4.099%

1.034%

3.034%

2.271%

 

1-Nov-04

3.921%

1.018%

2.874%

2.271%

 

1-Dec-04

3.744%

1.002%

2.715%

2.271%

 

1-Jan-05

3.566%

0.986%

2.555%

2.271%

 

1-Feb-05

3.388%

0.970%

2.395%

2.271%

 

1-Mar-05

3.211%

0.954%

2.235%

2.235%

 

1-Apr-05

3.033%

0.938%

2.076%

2.076%

 

1-May-05

2.855%

0.922%

1.916%

1.916%

 

1-Jun-05

2.678%

0.906%

1.756%

1.756%

 

1-Jul-05

2.500%

0.890%

1.596%

1.596%

 

1-Aug-05

2.292%

0.816%

1.464%

1.464%

 

1-Sep-05

2.083%

0.742%

1.332%

1.332%

 

1-Oct-05

1.875%

0.667%

1.199%

1.199%

 

1-Nov-05

1.667%

0.593%

1.067%

1.067%

 

1-Dec-05

1.458%

0.519%

0.934%

0.934%

 

1-Jan-06

1.250%

0.445%

0.801%

0.801%

 

1-Feb-06

1.042%

0.371%

0.668%

0.668%

 

1-Mar-06

0.833%

0.297%

0.535%

0.535%

 

1-Apr-06

0.625%

0.222%

0.402%

0.402%

 

1-May-06

0.417%

0.148%

0.268%

0.268%

 

1-Jun-06

0.208%

0.074%

0.134%

0.134%

 

 

Notes from the report to the MURA AGM, May 30, 2007
by Les Robb

(Also published in MURAnews, June 2007)

I am your representative on the Pension Trust Committee of the Salaried Pension Plan at McMaster. I thought today I would spend a few minutes on the nature of that Committee.

This Committee has prime responsibility for overseeing the Pension Plan and, in particular, the investments of the Plan. The Committee has 16 members, of which 8 are representatives of various Plan member groups: Faculty and Librarians (3), CAW (2), TMG (1), CFA (1), and Retirees (1). The Finance Committee of the Board appoints 4 members and there are 4 ex-officio members (the Board Chair & Vice Chair, the President and the VP Administration).

Although the Committee only makes recommendations to the Finance Committee and thence to the Board of Governors, in many instances changes can only be made on the basis of recommendations from the Pension Trust Committee. In short, representatives of Plan members can, and do, have considerable say in the operation of our plan. If the investments of the Plan do poorly part of the responsibility is that of the Plan member representatives.

The returns of the McMaster Plan have been weak for the last few years and, as you are all aware, our indexing has fallen short of keeping pace with the cost of living. The poor indexing result is partly due to a formula that has a five year memory so that the negative returns of 2002 and 2003 have continued to hurt us. The other fact that has not helped us is that our fund performance is only average compared to the other university pension plans in Canada. Had we performed in the top quarter of Canadian University Pension funds over the last five years our indexing would have been better.

Some years ago the Committee made the decision to invest more than average (for Canadian pension plans) in international markets. In the last few years this allocation has hurt our performance (relative to those funds more heavily invested in Canadian equities). However, the Committee continues to believe that this diversification is a good decision for the long run.
We on the Pension Trust Committee are working hard to do better in the future, both absolutely and relatively, and to that end we have made changes to some of our investment managers and invested in new ways in recent years. We have replaced one underperforming manager and reallocated international funds that were previously index funds (because of previous legal requirements) to active investment managers. I am optimistic that we will perform better relative to our peers in the future.

So, now to the question you have been waiting for: what does indexing for next January look like at this juncture? I am quite confident that we will get full indexing for the current year next January. A massive market collapse before the end of June could, of course, prove me wrong. By the time you read this you will probably know whether that has happened. Last spring I thought we were going to do quite well too, but a falling market in May and June meant we ended up with less than full indexing last January. However, I am more confident this time around. In the first nine months of our year (since July 1, last) our funds have earned about 13 and one-half percent (net) and I calculate that we need only about a 5% return in the current year to achieve full indexing (if inflation continues to run around 2%). So, I’m looking forward to good news in the fall.


Les Robb's report, January 2007

(originally published in MURAnews).

By now you should have received a letter from Retirement Support Services letting you know that the pension increase for January 2007 is 0.89%. This article explains the calculation of this increase.

The pension increase calculation is based on the difference between the 5 year average rate of return (net of investment costs) and 4.5%. Based on this, the calculation for the 2007 increase is as follows:

Calculation of Five Year Average for 01/01/07 increase) %
2006 Rate of Return (ending June 30, 2006) 5.93
2005 Rate of Return (ending June 30, 2005) 10.00
2004 Rate of Return (ending June 30, 2004) 14.84
2003 Rate of Return (ending June 30, 2003) (2.57)
2002 Rate of Return for 6 months (Jan 1/02 to June 30/02) (2.81)
2001 Rate of Return for 6 months (July 1/01 to Dec. 31/01) 1.57

Total Return for Last Five Years 26.96

Five Year Annual Average Return (Total Return / 5) = 5.39%
(A) Rate of Return in Excess of 4.5% (5.39% - 4.5%) = 0.89%
(B) Average Consumer Price Index to June 30, 2006 = 2.50%

Increase to Pensions (the lesser of A and B) = 0.89%

As I have explained in the past, the calculation includes two half year periods for 2001/02 because there was a change in the reporting period in 2002 (from January to July). With everything taken into account the 5 year average comes out at only 5.39%, 0.89% above the 4.5% benchmark which must be earned before indexing begins. A year ago I was looking forward to an increase more in line with inflation, but the investment experience for the 12 months ending June 30, 2006 turned out to be much lower than expected. The second quarter of 2006 was particularly disappointing. So we’re left with a 0.89 % pension increase for 2007.
Next year’s outlook is better. The calculation will drop the two six month periods from 2001/02; we will then have only a single negative carry forward from the past. If the rate of return next year is as good as this year, 5.93%, our pensions could increase by as much as 2.3% (remember, the increase is limited by inflation). Even a zero rate of return next year would give us a bigger increase than this year. With the two recent return rates of 10% and almost 15%, the five-year averaging will begin to help raise the 5 year rate, just as in the reverse way the negative returns from 4 and 5 years ago have hurt us in the last few years. If there are no major surprises in the investment market, the prospect of a better pension increase next year is positive.