MURAnews - Pensions









  • July 01, 2013 10:06 PM | Anonymous

    Salaried Pension Plan Report, MURA Annual General Meeting
    by Bob West

    What is the financial condition of our pension plan?

    The last actuarial valuation of the pension plan on July 1, 2011 showed a deficiency of approximately $168 million. This is a large amount, but not out of line with many other pension plans. There are several reasons for the deficiency, among them:

    • the fallout from the 2008/2009 world financial crisis, which saw negative investment, returns of 11.6% in 2008 and 3.98% in 2009
    • the artificially low interest rates (which still prevail today) that were used to calculate the plan liabilities (lower rates equates to higher liabilities) and thus the higher assets needed by the plan
    • the good news, retirees are living and collecting pensions for a longer time -- how is this being dealt with?
    • the University is required to, and has been making substantial additional contributions to the plan; because of the unusual situation, the province has allowed these payments to be spread over a longer periods
    • the University has negotiated changes to the early retirement “Rule of 80” up to a new “Rule of 90” for faculty
    • The province has proposed consolidating the assets of Ontario university pension plans to reduce costs and provide access to a wider range of investments to improve investment returns. The plan was outlined in the “Morneau” report in the fall of 2012 but no legislation to enact its recommendations has yet been introduced

    The success of these measures will be determined by the next actuarial valuation due July 1, 2014. To its credit, the University is attempting to keep a defined benefit pension plan when other employers have converted to a group RRSP plan which has much less certainty for employees.

    Will we ever see another increase in our pension?

    The January increase (if any) each year is calculated as the excess of the average investment returns for the 5 years ended the previous June, over 4.5%. The last increase received was in January 2009. No increases have been given from 2010 to 2013 as the 5-year average includes the negative returns in 2008 and 2009. Any increase is restricted to the average increase in the Consumer Price Index over the same 5-year period.

    In order to receive an increase in January 2014, it would be necessary to earn investment returns of at least 9% for the year ended June 30, 2013. Investment returns for the first 9 months of this period have been good and I am cautiously optimistic that a modest increase in January 2014 is possible. Increases beyond 2014 are more likely as the large 11.69% negative return of 2008 will drop out of the 5-year average.

  • February 01, 2013 10:51 PM | Anonymous

    How might this affect McMasterʼs pension funds? As Administrator of the McMaster pension plans, the University is responsible for the investment of pension plan assets. A report being considered by the Ontario government may change how university pension plan assets are handled in the future. Itʼs too early in the process to know how or when, or indeed if, these changes will be made, but we want to make MURA members aware of the issues.

    In May 2012, the provincial budget proposed the pooling of pension plan assets of the broader public service, which includes universities, and appointed William Morneau as Pension Investment Advisor. The Morneau Report was issued in October 2012. The report recommends the establishment of a new independent asset management corporation, and legislation requiring pension funds with less than $40 billion of assets to place these funds with the new corporation for investment. Universities may also voluntarily place endowment, trust and reserve funds with the new investment corporation.

    The creation of this new investment management vehicle is intended to reduce asset management costs and increase investment returns. These benefits would result from economies of scale, reduced administrative costs, access to a broader range of asset classes and greater risk control. Pooling of pension assets across universities could provide opportunities to make advantageous investments that would not be feasible for an individual university pension plan.

    What does this mean for active and retired members of the McMaster pension funds?

    For active members, better investment returns would enhance the sustainability of pension plans and potentially reduce, or limit increases to, employer and employee contributions to the plans in the future.

    For retired members, better investment returns would increase the likelihood that annual pension indexing would keep pace with inflation.

    Shortly after the Morneau Report was issued, the Premier resigned and provincial parliament was prorogued until a new Liberal leader is chosen. Whether and when the proposals will be implemented is yet to be determined.

    Stay tuned!

    Cliff Andrews,  
    Observer, Hourly Pension Plan Committee 

    Bob West,
    MURA representative, Salaried Pension Trust Committee

  • February 01, 2013 10:39 PM | Anonymous

    There will be no increase in pensions in January 2013 for McMaster retirees covered by the Salaried Pension Plan. This makes the fourth consecutive year without an increase in pensions, which translates to a decline in the real value of our pensions of approximately 7.5% over that period.

    The annual January pension increase (if any) is based on the amount that the 5-year average rate of return on the pension fund, as of the previous June 30th, exceeds 4.5%. In addition, any increase in pensions is limited to the increase in the Consumer Price Index for the previous year (July 1 to June 30).

    The investment return for 2011-2012 was 3.85%, giving a 1.92% average for the 5-year period ending June 30, 2012, far short of the 4.5% threshold. The average rate of return for the past 3 years was 8.42% but this was more than offset by negative rates of return during the world financial crisis in 2007-2009 (-3.98% in 2007-2008 and -11.89% in 2008-2009).

    Looking forward to January 2014, a rate of return greater than 8.99% would be required for the year ending June 30, 2013 before a pension increase would be possible. Since the required rate of return is greater than the average rate of return in past years, it is very likely there will also be no pension increase in January 2014. The gross (before investment management fees and administrative expenses) rate of return for the first 3 months of 2012-2013 (July – September) was 3.6% and a positive rate of return for the October – December period is also expected, a good start to the year.

    The implementation of previous decisions to diversify a portion of fund investments into long-term bonds, real estate and infrastructure has been deferred until interest rates return to normal from the unusually low current rates. Also complicating future investment decisions is a proposal by the Ontario government to create a “Super Fund” to manage the pension fund investments of Ontario universities in the future.

    Robert West
    MURA representative, Salaried Pension Trust Committee

  • July 01, 2012 10:55 PM | Anonymous

    Notes from the presentation to the 2012 AGM
    by Leslie Robb, Salaried Pension Trust Committee Representative

    After representing MURA on the Pension Trust Committee for the last eight years, Les felt that it has generally worked quite well. In this his last report to MURA members, he decided to talk generally about the state of the Salaried Pension Plan and how he views the current deficits.

    Before addressing the deficit issue, he pointed out that due to poor market performance, there were no increases in pensions in the current year and unlikely to be any in the upcoming year either. Les emphasized, however, that in the current economic climate, we are fortunate to have defined benefit pension plans.

    Since the financial crisis began five years ago, the plan has been doing badly and those still working have been asked to increase their contributions to help make up the shortfall. The University as ‘contributor of last resort’ has made major increases in its contributions and will continue to do so. However, the plan is still not in good shape and it will be some years until deficits are eliminated.

    Les listed a number of reasons why the large deficit came about. The stock market crash in 2007/8 is one of the reasons. Also of major importance is that, in recent years, liabilities have grown substantially. This arose because the expected interest rates on investments needed to fund the liabilities (such as pensions) have been much lower than anticipated from historical performance. The lower the interest rate, the more money that must be set aside to cover the pensions. In Les’ words ‘defined benefit plans have been hit by the double whammy of low market returns and low bond interest rates’. He elaborated on the nature of the problem in more technical terms and noted that for those interested the discussion can be followed up on by reading the Actuarial Valuation reports on the ‘Working at McMaster’ website. He concluded that the liabilities of the Plan are a big part of the problem and that it will not be until interest rates rise again that the deficits can be escaped.

    Under rules established by the provincial government, employers are required to make up deficits fairly quickly to avoid long-term risk to the employees. Universities have argued that these rules are designed out of a concern for the bankruptcy of private companies and are inappropriate for quasipublic employers. The lobbying worked and the rules were relaxed early last year to allow such organizations to make up their deficits more slowly. McMaster chose to switch to this new regime in the fall of 2012. Under the new legislation McMaster University will put less into the plan to restore financial health than they otherwise would have for at least the next three years.

    Les concluded by saying that, in the extremely unlikely event that McMaster should declare bankruptcy, its assets are very large and he expects would be more than sufficient to pay off the debts to pensioners and others.

  • January 15, 2012 2:34 PM | Anonymous

    As 2011 passes we look forward to 2012, as always with hopeful expectations that our pension might become a little fatter. The past few years have certainly seen a roller coaster ride on the stock market, causing the members of your pension committee to be cautiously optimistic, hoping to see some improvements. Whilst this year’s investment yields improved considerably, they were unfortunately still far short of giving us any indexing improvements. The pension committee, however, continues to investigate ways in which the pension may improve for us all; we look forward to another year with hope.

    As retirees, our pensions are a vitally important aspect of our lives, but retirement brings other rewards such as time for hobbies and travel. With this in mind, MURA, your retirement association, engages in many activities such as trips to a variety of interesting events and places both near and far. You can find out about these from MURAnews or by joining us at the Annual General Meeting or the Christmas lunch, which are also identified in your quarterly newsletters. Other benefits of MURA membership include access to group insurance for home, auto, and travel.

    Another important aspect of becoming involved with MURA is to get reacquainted with some of your old co-workers. Come catch up with the gossip! and be engaged.

    Hope to see you soon. Remember we all belong to MURA.

    Cliff Andrews
    Your pension & benefits reporter
    (whether you were from food services, custodial or trades)

  • January 15, 2012 2:01 PM | Anonymous

    It seems to be becoming a refrain from me – no pension increase this year and don’t expect any next year. Although the July 2010 to June 2011 return on investments was quite good (just under 15%), it did not reach the over 17 percent needed to qualify for an indexing increase. Looking forward to next year, I again think it is unlikely we will receive any indexing increase. The Plan would still need to earn almost 17% to achieve the indexing target and given the poor stock markets of the last half of 2011 (the first half of our Plan year), that seems most unlikely.

    The Pension Trust Committee (PTC) is continuing to work on revising our Plan’s asset mix. As a result of an extensive Asset/Liability study we decided to move to a greater degree into Canadian equities (from non-Canadian equities) and into longer-term bonds (from our current mixed term bond investments). We have not yet moved the bonds into longer terms because of the particularly low interest rates on long bonds. Moving into longer-term bonds, nevertheless, remains the long-term strategy and we will regularly revisit the question of when to make this move so that it is advantageous to the Plan. Salaried pensioners recently received a letter from the Administration (Mark Haley) about the state of McMaster’s Salaried Pension Plan and the University’s application for solvency relief because of the Plan’s deficit situation. The letter states that this application process does not impact your pension, which may be all that many of you will want to know, but I thought it might be useful for me to provide my perspective on this letter. The short version of my comments on the deficit situation is given in point form here. A longer version is available at: 

    Comments from Les Robb on the December 2011 Letter from the Administration (Mark Haley) about McMaster’s application for solvency relief for the Salaried Pension Plan

    ...for those of you who want more detail.

    1. The Plan’s deficit is mainly due to the historically low interest rates that have increased the value of the Plan liabilities.
    2. With or without the solvency relief, the University’s contributions are going to be a major drain on the McMaster budget.
    3. Although there are no immediate risks to our pension payments, we need to be alert to the potential impact of any changes to the legislation governing the Plan in the more distant future.
    4. In my view the University’s application should have been discussed at the Pension Trust Committee and with other groups that represent active and retired Plan members before the application was submitted.

    Les Robb
    MURA representative - Pension Trust Committee

  • January 15, 2011 2:45 PM | Anonymous

    Les Robb
    MURA representative - Pension Trust Committee

    Last January I reported that no pension increase would be forthcoming in the Salaried Pension Plan in January 2010 and that it was unlikely one would be forthcoming in January 2011. I reported that the plan would need to earn 18% or more to generate an increase – an earning rate very rare in the history of our Plan. I am sorry to report that I was correct, as the Plan earned only 6.47% for the year ending June 30th, 2010.

    I have again done a calculation looking ahead and calculate that the plan would need to earn 17.25% or more to generate an increase next January 1st (2012). Things do not look good for indexing beyond that date either. As readers of this column will recall, the formula is based on the 5-year average return. Both the 2008 and 2009 returns were negative (-3.98% and -11.69%). Until these negative returns work their way through the formula and are replaced by decent positive returns, we can expect our pensions to remain fixed at the current level.

  • October 01, 2010 2:49 PM | Anonymous

    Following the most recent pension committee meeting, held on September 15th, 2010, we would like to report to members that the Hourly Pension Plan, like most others, continues to struggle on the financial market with many ups and downs. Even though the Hourly Plan is performing ahead of many other pension plans, the university is contributing to the Plan at a considerably higher level than usual to keep the Plan well funded, and it may have to go higher yet.

    McMaster University assures the members of the Hourly Pension Plan, and the other pension plans within the university, of its commitment to keep the plans solvent, thus guaranteeing pensioners will continue to receive their earned entitlements.

    It is regrettable that, in these stressed times, we do not foresee any plan improvements but we do look forward to better times ahead.

    With this in mind, MURA looks forward to seeing all pensioners at the Christmas Lunch on December 6th (booking form on the last page of this newsletter) or at one of the other events announced in your copy of MURAnews.

    I look forward to meeting my colleagues at these events.

    Cliff Andrews,
    MURA Observer on the Hourly Pension Plan
    Retirement Committee

  • July 01, 2010 3:13 PM | Anonymous

    by Les Robb, your Representative to the Pension Trust Committee for the Salaried Pension Plan

    Notes from the presentation to the 2010 AGM

    Today I thought I would talk about some big picture items concerning our Plan. However, I know a number of you are most interested in the finances of the Plan and, in particular, whether the earnings are such that we can look forward to indexing next January. I wrote in an earlier article that the earnings would need to be more than 18% to give rise to indexing next January. The first three quarters of the year (to the end of March) have earned about 12%. Given the turmoil recently in the markets, I think we can agree it is highly unlikely we will make the 18% and so I think we will have our pensions held constant next year. I suspect those of you who had read my earlier estimate of 18% had already reached this conclusion.

    Now to the big picture items!

    First, things are changing in our salaried pension plan more rapidly than ever.

    Not many years ago we all (in the salaried Plan) had the same benefits and because the University wanted to keep it that way it was hard to make changes by any one group. Groups were told – if we did that for you we would have to get agreement from all the others. The status quo consequently prevailed.

    More recently, we are in the mode of “different strokes for different folks". This may be associated with the unionization of staff but I can say from my past life that MUFA at times wanted to go its own way. In any case, we now have some folks with rule of 80 and some transitioning to the rule of 85. We have some folks paying one set of contribution rates and some with another set. We have some salaried employees now excluded from joining the plan upon being hired. We have some new salaried employees paying the same as longer serving employees and getting a fraction of the benefits. In short, our Plan is becoming more and more fragmented.

    In addition to contribution and benefit differences, there are also different agreements between the Administration and various groups about what will happen should a surplus ever arise again (though don’t hold your breath!). The CAW has an agreement that if a surplus arises, that portion of the surplus attributable to their members would be the subject of negotiations as to how it would be used. MUFA also has an agreement about surplus: if the University takes certain sized pension holidays due to a surplus, MUFA members would also get specified holidays. It is unlikely we will ever run up a big surplus in the future.

    If the Administration and the employees divvy up any surplus as soon as it arises, it is pretty obvious that there won’t be much room for retirees. The kind of dealing that has been going on is not a bad thing in itself but it is important for us to remind the players not to forget about retirees.

    I also hear talk in some circles that perhaps it is time to set up separate plans for different employee groups with a common investment pool. I don’t see this idea as having much traction at the moment, but it might have more traction if more fragmentation of benefits and costs continues. This might not be a bad thing – with the separate deals already in in place it is almost the case that we have quite different plans informally in any event. Formalizing the structure would force the parties to keep track of the benefits and contributions of the various groups separately. One group might be in surplus while another was in deficit, for example.

    The other big picture item is the state of the deficit in the Plan. The market collapse following 2008 put our plan into a serious deficit position and this has been requiring a larger part of the University budget to be devoted to the Pension Plan. This is a very serious concern for the budget committee and is a major focus of the Administration in its thinking about pensions. While this serious deficit state continues, there can be no hope of improvements in our indexing formula, in my view.

    Related to this deficit position is the investment strategy for the pension plan. The Administration has indicated that once the deficit in the plan is eliminated they may want to go to a more conservative investment strategy – more bonds, fewer stocks, less variance and lower returns. The thinking is that it would be better to pay a bit more over time from the operating budget in order to avoid being “whipsawed" as we are at the moment when the stock market goes awry.

    The implications are not pleasant for our indexing. Lower average returns that would be associated with a conservative investment strategy would lead to us more frequently failing to get any indexing (let alone full indexing). So this is another issue for us in the future. Perhaps when the Administration becomes aware of the increased average cost of this strategy in the long run, they may reconsider.

    These are two big picture issues that I thought it useful to bring to you today.

  • May 01, 2010 3:16 PM | Anonymous

    by Helen Barton and Les Robb

    In the Fall 2009 issue of MURAnews we wrote about the impasse that had been reached in collective bargaining between the University and the Canadian Auto Workers Union Local 555 (CAW555).

    As you may recall, the University wanted to exclude newly hired employees from the salaried pension plan, offering them a much inferior group RRSP plan. CAW555 wanted to preserve the status quo and keep pensions the same for their newly hired members as for existing employees. The issue was sent to binding arbitration.

    The result of the binding arbitration is that CAW555 employees hired after May 1, 2010 will continue to enter the salaried pension plan and will pay the same contributions as everyone else, but pension benefits for this group of employees have been reduced.

    What does this mean for current McMaster pensioners receiving pensions from the salaried pension plan?

    We think not a lot. Pensioners’ benefits will not be affected. McMaster is obligated to fund our pensions as long as the University keeps operating, and there is no reason to believe that the University will ever go bankrupt. The reduced benefits for the new CAW555 members will make the University’s payments slightly smaller, but this will be a trivial difference for many years and could amount to nothing if the union successfully bargains to have the reductions restored in future contracts.

    In fact this arbitration decision is good news for retirees since all employees will continue to have a vested interest in keeping the pension plan healthy.

    The major reduction in pension benefits for newly hired CAW555 employees is that the benefit rate for those hired after May 1, 2010 has been reduced from 1.4% per year of service to 1% per year of service for final earnings below the Canada Pension Plan maximum income (currently about $47,000). For earnings above that level the drop will be from 2% to 1.6%.

    There have been several other reductions in pension benefits for this group as well. For example, a new hire must be at least 60 years old to retire under “the Rule of 80”. Also the annual potential increase calculation for this group will be based on minimum 5-year average Fund earnings of 5 percent. This is an increase from the 4.5% threshold for existing employees and retirees.

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