Those charts, thanks to the work and cooperation of the Benefits and Pensions Unit of Human Resources, are shown on the next page.

None of our pensions has kept up with inflation during the ten years in question although retirees in the Salaried Plan fared much better than those in the Hourly plan. Those in the Salaried Plan have had increases that covered about 2/3rds of the inflation increases while those in the Hourly Plan have had only about 1/4 of the inflationary increases covered by indexing.

There are many variations between the two plans, which makes it difficult to fully explain the reason for different results. One factor is the difference in the formulae between the two Plans. Both Plans use a 5-year average rate of return to determine whether an increase will be paid each year, but the Hourly Plan requires that the average return, after expenses, must be at least 6.0% before any excess earnings are available to be used toward an increase, while the Salaried Plan has a 4.5% threshold.

The relatively small size of the Hourly Plan compared to the Salaried Plan is another factor. It makes the expenses of the Hourly Plan proportionally much higher. The small size also prevents the Hourly Plan from using as wide a range of investment styles and asset types.

Finally, the Hourly Plan has a relatively lower rate of return on investments, for a variety of reasons, which can be seen by comparing the "5 Year Annual Average Return" columns in the two charts. The investment decisions of the Plans are monitored by different committees although both investment strategies must be approved by the Finance Committee of the Board of Governors.