MURAnews - Pensions









  • January 15, 2010 4:15 PM | Anonymous

    by Les Robb, MURA representative on the Pension Trust Committee

    For the last few years I have reported at this time of year with good news of pension increases. However given the stock market collapse I warned in the Summer 2009 newsletter not to expect an increase in January 2010, and I can now report that the annual rate of pension increase this year (January 1, 2010) is ZERO. The rate of return in the pension fund for 2009 was -11.69%. Combining this return with the previous 4 years of return gave rise to a five-year annual average rate of return of 2.94%. This rate falls short of the 4.5% required for indexing so there will be no indexing this year.

    I did a quick calculation to see what would be required to achieve indexing in 2011. The fund would need to earn 18 per cent or more in the year ending on June 30, 2010 to bring the calculation back into the range that would lead to positive indexing. Such a rate of return is a very rare event in a plan such as ours, so my best guess is that we will have zero indexing for at least 2 years.

  • October 01, 2009 9:05 PM | Anonymous

    by Helen Barton and Les Robb

    The recent contract negotiated between the University and the Canadian Auto Workers Union Local 555 (CAW 555), which represents most non-management salaried staff and technicians at McMaster, includes clauses which change dramatically the post-retirement benefits for employees hired into this group in the future and likely will change their pension arrangements as well.

    The cost of post retirement health benefits will be increased for all new employees. Retirees with less than 20 years service will pay 100% of the monthly cost of contributions for the McMaster retiree benefit plan, if they opt to stay in the plan. Those with longer service will pay a fraction of the contribution costs on a sliding scale (ranging from 25% for service longer than 30 years to 75% for service between 20 and 25 years).

    The pension arrangements for new hires have been sent to arbitration and the outcome won’t be known for some time. The University had proposed that future hires into positions represented by CAW 555 would participate in a group RRSP plan rather than the salaried pension plan. In this, the University would match employee contributions (as compared to paying about twice the employee contributions for current service in the Salaried Pension Plan). The Union wanted to keep the current arrangements for new hires. The two sides will now make proposals to an arbitrator who will make the final decision. This is not final offer arbitration of the sort faculty have recourse to in contract negotiations, but one that allows the arbitrator to pick one side or the other, or to ‘split the difference’ and decide on something between the two positions. The parties will make proposals to the arbitrator, which may or may not be the same as the positions they held at the end of negotiations.

    Although it is not yet a matter that is decided, it is worth a thought or two about the arrangement the University has suggested and, in fact, already imposed on employees in The Management Group (TMG). A group RRSP is similar to a defined contribution plan but would not be registered with the Financial Services Commission of Ontario and as a consequence would not have the requirements of transparency and the protections of that body. The pension risk would be entirely shifted from the University to the individual employee. After the University makes its matching contribution to the RRSP it has no further obligation to the employee. Contrast that with the pension we receive where the monthly payment is guaranteed and we can even look forward to some inflation increases when markets do well. It is a huge change in the employee-employer relationship.

    The direction the University is taking here is not new. The hourly rated employees and TMG have already been pressured to accept differential treatment of new hires and the University seems to want to move down this path with all of its employee groups.

    Should those of us in the Salaried Pension Plan and, more particularly, those of us who are retired be concerned about these changes? We think there is no serious reason for concern in the near term but do have some concerns about the longer term.

    The University guarantees our pensions and the University is required by law to continue to make payments (including payments to eliminate the deficit) as long as the University keeps operating. There is no reason to expect the University is headed for bankruptcy, and the University has made statements that it has no intention of winding up the plan (see the Your Pension is Safe FAQ at the McMaster Daily News web site.

    For the longer term, it is hard to be so confident. There is a concern that the employer might change its mind about winding up the Salaried Pension Plan and pay out a lump sum to all the retirees, and as time passes there will be fewer active members in the Salaried Plan to defend it. For some, this might be a good thing, but for most it would likely bring a host of headaches. Recall that all of us who are on pensions had the option of taking a cash equivalent at the time of retirement and chose not to do so. Presumably we prefer the pension payments and not having to worry about investing those funds. Moreover, anyone who looked carefully at the cash option knows that it was not possible to buy an annuity on the market for anything like the amount you would get for the “cash equivalent” of your pension. These concerns are probably decades off, but we would be putting our head in the sand to ignore these prospects.

    In response to the directions the University was taking on pensions and benefits during negotiations, MURA Council wrote to Peter George, McMaster’s President, and to Matthew Root, President of CAW 555, on behalf of retirees to express our concerns about the breakdown of the sense of community that will undoubtedly be caused by a two-tier system and the ever-increasing number of new employees with inferior benefits. MURA urged both sides to work toward a solution that would keep all salaried employees in the defined benefit pension plan, and provide an equitable health benefits package to new employees.

  • July 01, 2009 8:49 PM | Anonymous

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

    Notes from the presentation to the 2009 AGM

    This is a very brief report to update members. I want to talk about indexing and about pension security, the two questions I am asked about most often. First, a reminder of the good news: As you all know, we received a pension increase in January 2009 - in fact, an increase above the inflation rate. We received this increase, even when financial markets were tumbling, because of the backward looking nature of our indexing formula.

    Second, the bad news. As you all know markets have been terrible since last summer. The big loss by our plan will surely mean no increase next January (the history of the previous years was simply not good enough to compensate for this year), and it is unlikely we will receive an increase for a few more years.

    I have written on the indexing formula in past issues of MURAnews and if you want more details, check the Summer 2008 and Winter 2009 issues of MURAnews.

    The other issue I want to mention is the issue of threats of lost or reduced pensions because of the difficulties in the financial markets. There has been much discussion of such matters in the press and it is not surprising that individuals have concerns about their pensions. These threats to pensions are mainly in the private sector and in particular in companies that have gone or are about to go into bankruptcy and will not be around to make up any funding deficit of the plans (if the plans were fully funded there would be no problem even with bankruptcy). As well, there are individuals in money purchase plans which have taken a big hit in the market. Individuals who have not yet taken an annuity will be concerned that they will end up with substantially less than they had planned on in retirement.

    However, our defined benefit McMaster pensions are, in fact, very secure, and unless you think there is a chance McMaster will be pushed into bankruptcy you should not worry about the security of your pension.

    It is the case, however, that the poor market performance creates difficult times for McMaster University. The Salaried Pension Plan is in deficit and McMaster has to make up the deficiencies. That puts considerable strain on an already tight budget. Your colleagues who continue to work are in for difficult times over the next few years, I suspect.

  • February 01, 2009 8:24 PM | Anonymous

    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 3½ %. 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.
  • February 01, 2009 8:08 PM | Anonymous

    Provided by Jeff Chuchman
    Benefits and Pensions Specialist, Human Resources Services

    The Hourly Pension Plan utilizes a 5-year average rate of return to determine whether pensions paid from the Plan will be increased. The formula in the Hourly Plan requires that the 5-year average rate of return on the Fund exceed 6.0%.

    The Hourly Pension Fund investments earned negative 1.05% for the benefit year ending June 30, 2008 resulting in a five-year average of 7.62%. Therefore there will be an increase of 1.62% to pensions paid from the Hourly Plan on January 1, 2009, in respect of Hourly retirees who were in receipt of a pension on June 30, 2008. The increase will be pro-rated for anyone who retired between August 1, 2007, and June 1, 2008.

    The 5-year calculation is as follows:

    Additional information about the Hourly Pension Plan can be found at or by contacting

  • February 01, 2009 7:57 PM | Anonymous

    Provided by Michele Leroux, Manager,
    Benefits and Pensions, Human Resource Services

    The current economic market decline has provoked many questions and media coverage concerning the status of Registered Pension Plans in Canada. MURA has asked the Benefits and Pension Unit of Human Resources Services for a brief explanation of how these events impact pension payments from the registered plans.

    The impact of the markets on the McMaster Pension Plan funds was recently addressed in the McMaster Update, December 2008 (Volume 1, Issue 1). The following are excerpts from the article:

    “The pension plans are designed to provide benefits over the long term, and fluctuations in the markets are anticipated and taken into account in the portfolio’s investment strategy.”

    “The amount of the pension a McMaster plan member receives does not fluctuate with the status of the plan and payments come out of a pool of funds separate from the University’s operating budget.”

    Defined Benefit Plans

    Both the Salaried and Hourly McMaster Pension Plans are defined benefits plans. In general, a defined benefit plan structure has the following key elements:

    • Employee Contribution formula is defined (as outlined in the plan text).
    • Your base Pension Benefit at the time of retirement can be estimated in advance according to the formula defined in the plan text. Investment returns do not impact your base monthly pension payment. The only impact is on potential annual pension increases in the future.
    • Employer (University) Contributions are not predictable and are dependent on the plan’s investment returns, assumptions and experience (assumptions are governed by Actuarial Standards).

    Additional Information

    To learn more about the governance structure, investment policies and procedures, or quarterly investment returns for the pension funds please visit the HR Pension page.

    Pensioners are encouraged to visit the website provided above and review documentation provided by Human Resources Services.

    Wishing you all the best in 2009.
     - Michele

  • October 01, 2008 7:45 PM | Anonymous
    In the Spring 2008 MURAnews, we published a letter from a retiree, Malcolm Horsnell, who suggested it would be helpful if MURA could publish a graph/chart in the newsletter to show how McMaster pensions have kept up with inflation over the years. "We would then be able to see more clearly whether we should plan for reduced buying power in our personal pensions as time goes by or not", he said.

    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.

  • October 01, 2008 7:31 PM | Anonymous

    Given the poor performance in investment markets recently, you might be thinking that this January will be another one of those without any pension increase. You would be wrong! A few years ago, the 5 year 'memory' in our indexing formula hurt us as losing years from early in this century entered the formula. Now, the strong performance in the last few years will help us in spite of the bad performance this year. My expectation is that for the year 2007/08 the return, after expenses, will be on the order of -4.0%. That is, a 4% loss. However when we couple this with the previous 4 positive years of returns, and calculate the excess returns (over 4.5%) there should be about 3.6% available for indexing. Inflation over the relevant period will be less than this so, in fact, there will be some catch up come January 1. Those of you who have lost out on pension increases in the past few years will make up some of those losses. I will provide more detail on this after the mid-November meeting of the Pension Trust Committee at which we will receive the audited calculations of the rate of return after expenses.

    Les Robb
    MURA Representative on the Pension Trust Committee

  • October 01, 2008 7:23 PM | Anonymous

  • July 01, 2008 7:16 PM | Anonymous

    Notes for presentation to the 2008 AGM by your Pension Trust Committee Representative for the Salaried Pension Plan, Les Robb

    There are 3 items I want to report on:

    • Inflation and indexing
    • Restatement of the Plan
    • The latest Actuarial Valuation

    First, the plan indexing:
    Many of you will have been pleasantly surprised to have received increases in excess of inflation last January 1. Those retired for some time received a 4.03% increase while inflation was only at 1.72%. Those who were retired for shorter periods had lost less to past inflation and correspondingly received smaller increases. I have written in more detail about this on the MURA web site.

    Our returns for the 9 month period to March 31, 2008 showed a loss (before expenses) of close to 4%. However, since March 31 markets have been strong, particularly the Canadian market where the TSX has rebounded by about 13% since the end of March. There is still a reasonable prospect of a non-negative return for the year, though volatility is high and the market could lose 10% or more between now and July.

    What I want to report here, however, is that in spite of weak markets since last July we are still well poised to get all of the inflation indexed next January and some further catch up as well (for those who lost in the past). How can this be? Well, our indexing formula is backward looking and the past 4 years have had returns well in excess of the 4.5% which is what we need to achieve before getting any indexing. These past good returns mean that even with a 0% increase in the fund for the current year, the 5 year average would be about 9% and all of that increase that is in excess of 4.5% would be available for indexing. Even a loss of 10% would still likely cover all our inflation.

    Second, Restatement of the Plan:
    Our Plan last appeared in a single document as ‘Plan 2000’ at the time of the surplus distribution. Since then there have been a number of amendments to the plan. Some of these have been required by legislation of regulation (for example the removal of mandatory retirement) while others have been changed through the negotiations (for example the changes to contribution levels and to the early retirement date). As these amendments are made, the legal text of the plan consists of the original text plus the amendments. Every once in a while the plan is restated. That is, a new version of the plan is created incorporating all the amendments while checking to see if other parts of the plan need to be changed in light of the amendments. Also, any changes that have been identified which do not require negotiations between the University and its employee groups can also be incorporated. We spent a good part of the Pension Trust meetings this year reviewing a new text that is to be in place by July 1, 2008. Contact the Benefits and Pensions office for a copy of the restated text or view it online.

    Third, the Actuarial Valuation as of July 1 2007:
    Ontario Pension Plans are required to have an actuarial valuation every three years. Our plan’s last one was dated July 1 2006. As some of you may remember, that valuation showed some sizeable deficits and required the University to make contributions substantially greater than employee contributions. Because of the good performance of the market in the 2006-2007 year and the falling off in performance last summer and fall, the University considered doing an evaluation now (dated to last July) rather than waiting. This valuation has now been done and the Board will decide shortly whether to file the valuation to take advantage of lower contributions. Our role as Pension Trust Committee is to approve the actuarial assumptions used in the valuation and this we did at our last meeting. The reduction in the deficits will leave the University free to put about a million dollars a year less into our plan (it can still choose to put more in). The upside of doing a valuation at such an opportune time is that the University will have more flexibility in its budgeting at a time when budgets are very tight. And, if our returns in the longer run continue to be, on average, above the 6.5% that the Plan assumes, there will never be a need for these extra funds. The downside is that if our asset values continue to fall, then when we do a valuation in the future we could be in even worse shape than we are today and the University will need to ante up even more. Although there was discussion of these issues at Pension Trust and some PTC members raised concerns for the future funding of the plan, it was made clear to us that this is a Board decision.

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