MURAnews - Pensions

If you elect to start receiving your CPP earlier than age 65, it is reduced according to a formula set out in the Canada Pension Plan Act, currently by 0.6% for every month before you turn 65. In 1995-96 the McMaster University pension plan established a 'bridge' payment for those faculty and staff who retired before the age of 65, so that they could delay taking their CPP pension until they turned 65 and thus avoid having a reduced CPP pension. 

An employee who retires under the special retirement date provisions receives a bridge benefit equal to $19.00 per month per year of pensionable service up until June 30, 1996, to a maximum of 20 years of service. The bridge is paid as part of the McMaster pension from the age of 60, or from the date of retirement, whichever came later, and ceases the month after they turned 65. At that time, the pensioner can elect to start receiving their unreduced CPP pension. Of course, if they had elected to receive their CPP early, they would still be receiving a reduced CPP. If you are eligible for a bridge payment, and do not get the first payment in the month you turn 60, contact McMaster Human Resources.

MURA members who retired under the rule of 80/85 provision and have not yet reached age 65 are reminded that there may be a “gap” between receiving their last monthly bridge benefit from McMaster and their first Old Age Security (OAS) payment. This gap will also exist for the first Canada Pension Plan (CPP) payment for those who retired early and chose to have their CPP start at age 65.

Retirees approaching age 65 are advised to review their retirement documentation and prepare for a gap of up to 2 months between their last bridge payment and their first OAS (and possibly first CPP) payment.

One of our members who retired under the Special Retirement Date provision (rule of 80/85) wrote to MURA, having been surprised by the occurrence of this time gap. After investigating the issue, MURA has confirmed the following:

• The bridge benefit provided under the McMaster Salaried Pension Plan is payable until the month a retiree attains age 65. A retiree’s last bridge benefit payment is paid in advance on the first of the month in which the retiree turns 65 (e.g. 65th birthday between October 1st and 31st, last bridge payment on October 1st).
• The first OAS benefit payment will be received at the end of the month following the month an individual turns 65 (e.g. 65th birthday between October 1st and 31st; first OAS payment at the end of November).
• The first CPP payment for retirees opting to start CPP at age 65 will be paid with the same timing as OAS.

Human Resources has also confirmed that details of pension and bridge benefits and exact payments are explained verbally and in writing in retirement interviews, and that a document detailing the exact start and end date of the bridge is mailed to the retiree’s home shortly after retirement.

[First published Spring 2011, updated August 2019]

On December 15th MURA notified members (those who have provided MURA with an email address) of a 1.4% increase in pensions starting January 2017. This increase applies to both the Salaried Pension Plan and the Hourly Pension Plan.

The full increase of 1.4% applies to those who were receiving a pension from either of the plans on June 30, 2015, and is equivalent to the average monthly increase in the Consumer Price Index (CPI) for 2015/16. Those who retired between July 1, 2015 and June 30, 2016 received a pro-rated increase. Those who retired after June 30, 2016 received no increase. There were no supplementary increases this year.

Additional pension plan information can be found on HR's Retirement Plans page.
 

On December 15th, MURA notified members (those who have provided MURA with an e-mail address) of the 1.49% increase in pensions starting January 2016. The full increase applies to those who were receiving a pension from the Salaried Pension Plan on June 30, 2014, and is equivalent to the average monthly increase in the Consumer Price Index (CPI) for 2014/15. Those who retired between July 1, 2014 and June 30, 2015 received a pro-rated increase and those who retired after June 30, 2015 received no increase. Unlike the increase in January 2015, there is no supplementary increase this year.

The rate of return on pension assets for the year ended June 30, 2015 was 8.31%, the 5th consecutive year of positive returns. The 5-year average rate of return was 11.26%, considerably above the 4.5% threshold that is required before a pension increase is given. Investment markets for the first half of the 2015/16 year have been volatile and generally negative. While it is not possible to predict the rate of return for the full 2015/16 year, any negative return would have to be very significant before the 5-year average would be less than the 4.5% threshold and prevent an increase in January 2017.

The audited financial statements for the year ended June 30, 2015 and other information related to the Salaried Pension Plan can be found at HR's McMaster Pension Plans Documents page.

When will my pension end?

Have you ever asked yourself that question? The McMaster pension plan for salaried employees is a defined benefit plan. Under such a plan, employees contribute to the pension fund while they are working and receive a pension calculated on their years of service and best- 5-year average salary, for their lifetime after they retire.

At the time you retired, you chose the form of pension payments you will receive.

If you were single when you retired, you will receive the full amount of your pension during your lifetime. Your full pension is guaranteed for a minimum of 84 months. If you die before receiving 84 monthly payments (7 years), your pension will be paid to your beneficiary or to your estate until 84 payments have been made.

The normal pension choice for a member who has a spouse when he/she retires pays the full amount of the pension to the member for his/her lifetime, with the spouse, if still living when the member dies, receiving 50% of the pension for his/her remaining lifetime. As explained above, the full pension is guaranteed for a minimum of 84 months. If the member dies before receiving 84 monthly payments (7 years), the full pension will be paid to the spouse, if still living, or to your estate, until 84 payments have been made. After this period the 50% pension would be paid to the surviving spouse for the remainder of his/her lifetime. It’s important to note, however, that as a member with a spouse, you may have chosen an optional form of payment when you retired which could have increased or decreased the amount of your pension, the “guarantee period” and the amount your spouse will receive on your death. These options are found in Section 6.04 of the pension plan text.

R. A. West
MURA representative, Pension Trust Committee

In the new year of 2016, the Pension Committee of the Hourly Pension Plan is able to announce the increase that you may have noticed on your first pension cheques of the year. The increases were approved by the Board of Governors as its final step.

The increase will be a maximum of 1.49% related to the Consumer Price Index (CPI) assessed rate of inflation for the past year, plus a supplementary pension increase for the many years that the plan did not keep up. This supplementary increase will be to a maximum of 1.013%, giving a maximum total increase of 2.518%. This is the amount that retirees with a pension as of July 2011 will receive. If you retired after July 2011, there is a table giving a month by month reduction, down to retirement in June 2015 at which point an increase of 0.124 will apply (see McMaster Hourly Pension Plan - Supplementary Increase Calculated for 2014/2015 Plan Year or call HR at 905-525- 9140 ext. 22247 for more information). While increases may seem small they are limited by the Plan’s Governance and the interest rates earned by investments, which at this time are less than stellar. Your Pension Plan Committee works hard to obtain the best results possible. Thus we must give them thanks for their efforts.

While hopefully having the attention of hourly retirees, I/we would like to invite your participation, as retirees, in the activities of MURA, amongst which will be the upcoming AGM in early June. Notice for booking for this event will be included in the Spring issue of MURAnews.

Yours, Cliff Andrews

The essence of this brief report is that following a fairly good year of investments (to June 30, 2014) of 16.79%, our 5-year average rate of return reached 9.79%. This being 3.79% above our 6% assumption, allowed for all retirees within the Plan to receive the maximum CPI increase of 1.41%. There is also a supplemental increase of 2.347% totalling 3.79%. This amount of supplemental increase is for all who retired prior to July 1, 2010. For those who retired after this date up until June 1, 2013, there is a calibrated scale that reduces the supplement down to 0.081%. This is due to the 3-year average calculation of this benefit.

This is the first increase since 2008 and we must continue to hope for a continued improvement in the stock markets going forward.

From your pension reporter, Cliff Andrews, I take this opportunity to wish all a wonderful 2015.

It was certainly a “Merry Christmas” for retirees of the Salaried Pension Plan when the Board of Governors approved an increase of 6.39% in pension payments starting in January 2015. The full increase applies to those who retired on or before June 30, 2010, with lower increases for those retiring July 2010 and later. The total is made up of a 1.41% regular increase equivalent to the 2013/14 average increase in CPI plus a 4.98% supplementary “catch-up” increase for CPI not paid in the previous 3 years. The rate of return on pension assets for the year ended June 30, 2014 was 18.40% and, when added to the rates of return for the previous 4 years, gives a 5-year average rate of return of 10.89%. The pension plan provides that the average rate of return above 4.5% can be paid to retirees as a pension increase.

The rates of return on pension assets for the years 2011 to 2014 are 14.95%, 3.85%, 10.79% and 18.40% (average 12.00%). While it is not possible to predict the rate of return for 2015, it is likely that the 5-year average rate of return will be sufficient for a January 2016 pension increase equivalent to the increase in CPI. The current year’s investment return has gotten off to a modest start with a gross (before investment management fees and administrative expenses) rate of return of 0.8% for the first 3 months of 2014/15. Investment markets continue to be volatile and month-to-month variations in investment returns can be expected.

The audited fund financial statements for the year ended June 30, 2014 and other information related to the Salaried Pension Plan can be found on the on the HR Pension Plans Documents page.

We are still awaiting a decision by the Ontario government on the creation of a “Super Fund” to manage the pension fund investments of Ontario Universities. Some direction is expected in the Spring 2015 Provincial Budget. In the meantime, the Pension Trust Committee continues to monitor investment performance and makes recommendations for changes when appropriate.

The June 30, 2014 Actuarial Valuation of the Salaried Pension Plan will be completed soon, which will set the University contribution requirements for the next 3 years. The valuation will reflect any changes to the Pension Plan since the last valuation, including changes in employee contributions and benefits, projected salary increases and retirement dates and projected investment returns. The mortality rates will also be adjusted to reflect the longer lives (and thus longer period of pension payments) enjoyed by McMaster retirees. While other employers have moved to group RRSP or other forms of retirement plan, we should be grateful that McMaster has maintained a defined benefit pension plan for the majority of its salaried employees.

R.A. West
MURA representative, Pension Trust Committee

Les Robb (Pension & Benefits Committee)

The Fall 2008 MURAnews contained an article on this topic, detailing the extent to which Pensioner increases were keeping up with Inflation. To summarize, over the 10 years ending in June 2007 inflation was 23.5%. Salaried pension plan members received increases of 16.08%. Hourly plan members received 5.64%. Salaried plan members thus had about 2/3 of their purchasing power restored through indexing, while hourly plan members had just under 1/4 of their purchasing power restored. (The difference between the two plans arises because of different indexing provisions — ones that were put in place years ago.)

None of the poor market performance from the recent recession had happened in time to influence the results published in 2008, but it certainly influences the latest decade — the 10 years ending in June 2013 — on which we are now providing information. The major stock market correction that came with the recession, with the corresponding reduction in the rate of return in the plans, has meant that the indexing formulas provided much less increase in our purchasing power in recent years.

The tables below on indexing performance for the most recent decade (June 2004 to June 2013) show that cumulative inflation was about 20% over the period. The cumulative pension increase for Salaried Plan members was 9.5%. The increase for Hourly Plan members was 2.9%. Thus, during this period Salaried Plan members recaptured just under half of the cost increases due to inflation (47% of the 20%) from the indexing provisions, while the Hourly Plan members recaptured only about a seventh of the cost increases (14% of the 20%). Many of us thought the indexing provisions of the earlier period were inadequate, but the recent period makes it even clearer just how bad the provisions can turn out to be.

The following two tables, one for the Salaried Pension Plan and one for the Hourly Pension Plan, provide the details of the recent experience. The tables are courtesy of Michele Leroux of Human Resources.

Please note:

• The increase payable on January 1, 2008, represents a combination of the Annual Pension Increase (1.72%) and the Supplementary Pension Increase (2.271%).
• The increase payable on January 1, 2009, represents a combination of the Annual Pension Increase (2.18%) and the Supplementary Pension Increase (1.537%).
• The above information is intended to summarize the 5 Year Annual Average Return and Pensioner Increase Percentage History. As it is a summary only, this document is not intended to have legal effect. In the event of any discrepancy or inconsistency, the original documents (audited financial statements) will govern.

Please note:

• The above information is intended to summarize the 5 Year Annual Average Return and Pensioner Increase Percentage History. As it is a summary only, this document is not intended to have legal effect. In the event of any discrepancy or inconsistency, the original documents (audited financial statements) will govern.

Another way of looking at these results is shown in the third table, below, which shows how purchasing power changed over the two different time periods. To make things easy to understand, we look at what happens to the value of $10,000 of pension at the start of each period. Consider first the salaried plan in the earlier period -- after ten years, the $10,000 eroded in value to just under $9,400. In the more recent period, $10,000 eroded to about $9,100. The hourly plan, on the other hand, shows that $10,000 eroded to $8,550 in the first period and to about $8,570 in the second period.

Given the current indexing provisions of our pension plans, what might we expect in the future? Most analysts agree that the “great recession”, which in combination with continuing inflation gave rise to the recent poor indexing performance, was a rare event and unlikely to be repeated frequently. So, in my optimistic mode, I think we might expect indexing in the next decade to be more like the earlier decade than the more recent one, although only time will tell. It would be naïve, however, to think that a negative market correction of the size of the recent one will never happen again.

End Of Year Report to the Members of the Hourly Pension Plan 

Hello to all hourly staff retirees. Your pension plan investments are starting to keep pace with our escalating living costs. After a number of years of dismal returns, this year the plan did make an extremely good return of 12.9%. However, due to the 5-year formula, this still leaves us with a 5 year annualized result of 5.08%. This is below the threshold of 6% at which some indexing would occur. This lack is still due to the disastrous returns of the 2008-2009 period. The better news is that our plan is still being maintained by the University’s input of approximately 2.8 times the members' contributions. This includes an additional $20,000.00 per month top up by the University. At present the committee is looking at possible ways to enhance the pension in the future, which we look forward to.

I wish everyone a good year following this harsh winter. I hope to meet many of you at the upcoming AGM. It offers a free lunch and generally an interesting talk.

There are a number of avenues to become active in MURA, the retirees association for all McMaster University retirees. During the course of the year trips and outings are organized and available to all who would like to join in. There is also an annual Christmas lunch, which is a little less formal than the AGM.

Your pension and benefits representative,

Cliff Andrews

You have by now received your January 2014 pension payment, which included an increase of 0.37% (prorated if you started receiving your pension in 2013). While this is a very small increase, it is better than the zero increase for the past 4 years. The rate of return on pension assets for the year ended June 30, 2013 was 10.79% and, combined with the rates of return for the previous 4 years, provided a 5-year average of 4.87%, 0.37% greater than the 4.5% threshold necessary before pensions are increased. This is the last year in which the 5-year average rate of return will include the negative 11.69% return in 2009, which has kept the average rate low. Thus, we can look forward to higher increases in the future. While the pension increase each year is restricted to the 5-year average increase in the Consumer Price Index (CPI), if the average investment rate of return exceeds the average CPI, the plan provides for a supplementary increase to capture some of the shortfall of previous years. It is thus possible that any increase in January 2015 may exceed CPI.

The current year’s investment return has gotten off to a good start with a gross (before investment management fees and administrative expenses) rate of return of 3.9% for the first 3 months of 2013-2014.

The audited fund financial statements can be found on HR's McMaster Pension Plans Documents page.

The implementation of decisions to diversify a portion of fund investments into long-term bonds, real estate and infrastructure has been further deferred as the current unusually low interest rates persist. We are also awaiting a decision by the Ontario government on the creation of a “Super Fund” to manage the pension fund investments of Ontario Universities. A technical working group of experts is to advise the government on this issue in 2014.

The pension plan text restatement was completed in 2013 and has included plan amendments since 2008, changes in pension plan legislation, and improved the wording to make the plan easier to understand and administer. The restated pension plan text will be available on the Working At McMaster web site soon.

R. A. West
MURA representative, Pension Trust Committee

Cliff Andrews reported at the Annual General Meeting that the Hourly Pension Plan continues in a struggling condition, but he feels that it is on the cusp of receiving indexing. This year the plan earnings were +12.1%. Such good results could mean that the hourly pensioners will see an increase in the next few years.