CAW Locals 195 & 2458 University of Windsor Retirement Plan ‘A UNION PENSION PERSPECTIVE’

1. CAW Locals 195 & 2458University of Windsor Retirement Plan‘A UNION PENSION PERSPECTIVE’ Cara MacDonald, National Representative CAW Pension & Benefits Department April 2008, Windsor ON

2. Main Discussion Items • Pension Funding Status • University Contributions (Section 3.02 & 3.03) • Early Retirement Provisions & Indexation • Negotiating Pensions • U of Windsor Key Pension Plan Provisions Reference • Public Pensions Reference

3. Pension Funding Status • Based on valuation report as at July 1, 2007 (prepared March 27, 2008). Valuation report provides a snapshot of the financial status of a pension fund at a particular point in time. • Plan includes members of CAW Local 2458, CAW Local 195, CUPE Local 1393 and full-time and part-time non-union administration employees. Faculty, librarians, senior management and CUPE Local 1001 are not members of this plan. • Plan is in surplus situation, at 121% funded (compared to 118% in each of 2006 and 2005)

4. Pension Funding Bases • Three components comprising cost of pension plan: (1) going-concern; (2) solvency; (3) current service cost • Going-concern – is the rate of contributions adequate enough to cover the pension promised, assuming the plan continues in existence? (shortfall is amortized over 15 years) • Solvency – are there enough assets to cover expected benefits if the plan were to wind up today? (shortfall amortized over 5 years) • Current service cost – cost of 12 months’ pension benefits

5. Total Annual Cost of Plan • Going-concern surplus of $10.517 M (compared to $7.183 M in 2006), hence no special payments are required • Solvency surplus of $23.557 M (compared to $18.290 M in 2006), hence no special payments are required • Current service cost of: • $6,040,600 in 2007/08 • $6,342,700 in 2008/09 • $6,659,700 in 2009/10 • Total annual cost of plan is equal to the annual current service cost

6. Member & University Contributions • Estimated member contributions: • $1,919,100 in 2007/08 • $2,015,100 in 2008/09 • $2,115,800 in 2009/10 • Estimated University contributions: • $1,919,100 in 2007/08 • $2,015,100 in 2008/09 • $2,115,800 in 2009/10

7. Funding Status, con’t • Difference between current service cost and University & Member contributions: • $6,040,600 – ($1,1919,100 x 2) = $2,202,400 • $6,342,700 – ($2,015,100 x 2) = $2,312,500 • $6,659,700 – ($2,115,800 x 2) = $2,428,100 • These amounts (over $2 M per annum) come out of the pension surplus

8. Erosion of Pension Surplus • Partial ‘Contribution holidays’ or “application of funding excess against the estimated normal cost”. Whatever you call it, it means erosion of surplus monies. All of above data (with the exception of 2006/07) obtained from the University’s Annual Information Returns which are filed with Revenue Canada. The 2006/07 figures were obtained from the 2007 valuation report.

9. University Contributions • SECTION 3.02 University must contribute the amounts required as recommended by the actuary, but no less than members’ aggregate annual contributions • SECTION 3.03 After matching members’ contributions, the University’s remaining contributions will be paid from the plan surplus, if surplus exists • SECTION 3.03 If plan is in deficit, member contributions will automatically increase by 50% of the additional cost so that both the University and members each pay 50% of the entire cost of the plan. So-called “cost-sharing” arrangement. • In effect, member contributions are tied to the existence of surplus in the fund.

10. Why be concerned about Erosion of Pension Surplus? • No surplus? Member contribution rates automatically increase (Section 3.03) • Limits ability to bargain improvements • Inadequate status quo: • U of Windsor’s non-existent early retirement provisions. VER expired as at June 30, 2005 • Inadequate benefits including sub-standard indexation provisions. Retirees received no increase in 2003, 2004 and only 0.26% and 1% in 2005 & 2006 respectively!

11. Why be concerned about Erosion of Pension Surplus?, con’t • Unfair treatment – U of Windsor is funding faculty’s pension plan deficit, and is contributing at a much greater rate than faculty members (no ‘cost-sharing’) • Below Industry Standards – Other Universities with defined benefit pension plans contribute to their plans at rates that far exceed the members’ rate of contributions, especially when the plan is in a deficit position McMaster U U of Waterloo U of Toronto Trent U U of Guelph Queen’s U

12. No Early Retirement Provisions • Voluntary Early Retirement Program expired as at June 30, 2005. Rule 75/55 with 0.725% bridge to age 65 • Under current plan provisions, pension entitlement reduced by 6% of each year of retirement between ages 55 and 59 and by 4% for each year between ages 60 and 65 • Example: Retire at age 62 – Pension reduced by 12% (3 years x 4%), and further reduced for survivor benefit if married/common-law

13. Benefit ExampleNO ‘VER’ PROGRAM • Member age 59 with 28 years’ pensionable service, retires as at January 1, 2009 • Assume 5-year average earnings of $48,000 and 5-year average YMPE of $42,460 • 1.5% x $42,460 x 28 years = $17,833, plus • 2.0% x $5,540 ($48,000 - $42,460) x 28 years = $3102 • Subtotal - $20,935 ($17,833 + $3,102) reduced by26% (1 year @ 6% plus 5 years @ 4%) • Total = $15,492 or $1290/month

14. Benefit Examplewith ‘VER’ Program • Assume same member, age 59 with 28 years and assume VER is still available. Assume 5-year average earnings of $48,000 and 5-year average YMPE of $42,460 • Under VER, annual benefit equal to: • Unreduced normal retirement benefit of $20,935 plus bridge benefit calculated as: 0.725% x $48,000 x 28 years = $9,744 • Payable to age 65: $30,679 or $2557/month • Payable after age 65 for life: $20,935 or $1745/month • Difference between having VER and not having VER is about $125,400 for this member in this example!!

15. At the bargaining table

16. Current Negotiation Structure • ‘Ad hoc’ Joint Pension Plan Negotiating Committee comprising 2 members from each of the local unions and 2 elected members of non-union staff. Bargains with Administration. • Joint Retirement Committee, comprising 5 University reps, 4 union reps (from each union) and 1 non-union staff rep, responsible for interpretation and application of plan provisions and for making recommendations to University, Board of Governors and Pension Negotiating Committee

17. Inherent Structural Problems • negotiating is ad hoc and dependent on University agreeing to meet; • negotiations are not tied to collective bargaining process; • limited bargaining power; • improvements last negotiated in 2002, and only because the pension plan was in excess surplus and University wanted full contribution holiday

18. Bargaining Challenges • Restrictive, Penalizing Plan Language: • Section 3.03 requiring that member contributions automatically increase in the event of deficit. • Where there is a surplus, allowing the University to use it towards the current service cost • Seriously adverse consequences to workers: • Erosion of surplus results in workers accepting sub-standard early retirement provisions • Expiry of VER and impact this has for members approaching retirement • Inadequate indexation provisions for retirees

19. Recommendations • Tie pensions to collective bargaining process • Incorporate plan text, by reference, into collective agreement and/or incorporate any changes that address Section 3.03 • Address Section 3.03: • Increase required University contributions (i.e. 150% of members) • Freeze member contribution rates • Eliminate provision requiring automatic increase to member contributions upon plan deficit • Renew Voluntary Early Retirement Program

20. Questions?

21. University of Windsor Key Pension Plan Provisions Reference

22. Key Pension Provisions • Contributory, defined benefit pension plan. Includes both union and non-union groups. • Effective date: September 1, 1955 • Contributions and benefit levels integrated with CPP • As of Sept. 1984, mandatory participation upon completion of probation. Prior to this date, required to join on March 1 or Sept.1 following 1 year of service and at age 25 • Part-time employees can participate if earn 35% of YMPE or work 700 hours in each of two consecutive years

23. Member Contributions • 6% of earnings on first $3,500 (YBE) • 4.2% of earnings in excess of YBE up to YMPE (Year’s Maximum Pensionable Earnings - $44,900 in 2008) • 6.0% of earnings in excess of YMPE • Earnings defined as base earnings plus overtime, shift premiums and weekend premiums • Voluntary member contributions permitted

24. Benefit Levels • Normal Retirement Pension (annual pension equal to): • 1.5% of highest average 5-year consecutive earnings up to average 5-year YMPE, plus • 2.0% of highest average 5-year consecutive earnings in excess of average 5-year YMPE • Multiplied by pensionable service • Early Retirement Pension: • As early as age 55, calculated as above, reduced by ½ of 1% for each month between age 55 and 59 and by 1/3 of 1% for each month between 60 and 65, inclusive

25. Pensionable Service • Service prior to Sept. 1 1955 (at 1% benefit level) • Continuous service • WSIB up to one year • Periods of total disability while in receipt of LTD (member contributions waived) • Authorized paid leaves of absence • Pregnancy/parental leave • Service in Canadian Armed Forces • Purchases of past service • For each of the above, member must continue to contribute, except for total disability • Unpaid leaves, layoffs, union leaves (amended?) are not covered

26. Disability Pension • Eligible if: • Totally and permanently disabled (unable to perform any occupation) • Age 50 and older and with 15 or more years’ continuous service • Unreduced normal retirement pension benefit, payable for life (no re-calculation at age 65) • If totally disabled (unable to perform own occupation), pension service continues to accrue and member contributions are waived; earnings based on earnings at date of disability plus any negotiated wage increases. Ad hoc increases to disability benefit rates in previous years.

27. Forms of Payment • If single retiree, 60-month guarantee is ‘normal form’; optional methods if payment including no guarantee or guarantee for 10 or 15 years • If married/common-law, automatic 60% joint and survivor benefit, with lifetime benefit actuarially reduced, unless waived; option for 100% and 75% survivor benefit • Changes to options are permitted only prior to retirement

28. Pre-Retirement Death Benefits • Benefit amount equal to: • 100% of member contributions made prior to Jan. 1 1987, with interest, increasing by 10% for each complete year of service in excess of 10 years, reaching 200% after 20 or more years of service, plus • Greater of: (1) above formula on contributions made on and after Jan. 1 1987 and (2) commuted value of pension accrued on and after Jan. 1 1987, plus • Additional voluntary contributions, if any • Payable as lump sum amount or as annuity (spouse only)

29. Termination Benefits • Pre-1987 benefits: • Vested and locked-in if age 45 or older and have 10 or more years upon termination • If under age 45 or less than 10 years, lump sum refund of member contributions with interest • Post-1986 benefits: • Vested and locked-in with 2 or more years of plan membership • If less than 2 years, refund of member contributions with interest • 50% cost rule (on service after 1986) and small (2% of YMPE) cash refunds

30. Questions? • What is the YMPE? • YMPE is short for Years’ Maximum Pensionable Earnings. The YMPE is the earnings on which CPP/QPP contributions and benefits are calculated. The YMPE changes each year according to a formula using average wage levels.

31. Questions?, con’t • What is the maximum pension? • Under the Income Tax Act (ITA), the annual maximum pension is the lesser of: • 2% of average best three earnings’ for each year of pensionable service; and • $2,333 per year of service (increasing by $111 in 2009 and then indexed thereafter) • Pre-1992 service is capped at 35 years • For post-1991 service, the above maximum is reduced by ¼ of 1% for each month of retirement prior to the earliest of age 60, 80 points and 30 years

32. Government Pension Reference

33. Public Pensions: Canada Pension Plan • 2008 Maximum monthly benefit - $884.58 • Maximum disability benefit - $1,077.52 • Dependent children’s benefit - $208.77 • Surviving spouse 65 and over - $530.75 • Surviving spouse under age 65 - $493.28 • Average benefit received in 2007 was $481.46, or about 55% of maximum benefit • Reduction of ½ of 1% for each month prior to age 65 (6% per year). For example, if you commence your CPP at age 60, your benefit is reduced by 30%. • Annual Indexation

34. Public Pensions: Old Age Security • Maximum monthly benefit - $502.31 (as of January 2008) • Must be age 65 to qualify. 10 year residency requirement for eligibility & 40 years’ residency for maximum benefit. • In 2008, clawback of 15% of excess income over $64,718 up to the full OAS benefits, with entire amount being clawed back at an annual retirement income of $104,903 or more

35. Public Pensions: Guaranteed Income Supplement • Maximum monthly benefit of (as of Jan. 2008): • $634.02 for singles • $418.69 for spouses of pensioners (if your partner is receiving OAS) • $634.02 for spouses of non-pensioners • Benefit income is non-taxable; qualify at age 65; quarterly indexation

36. Public Pensions: GIS Continued • GIS is subject to an income test. Cut-off thresholds are: • $15,240 for singles • $20,112 for spouses of pensioners (combined income) • $36,528 for spouses of non-pensioners (combined income) • GIS benefits are reduced by $1 for every $2 of monthly income for singles and $1 for every $4 of income for married/common-law couples

37. Public Pensions: GIS Continued • Income for the purposes of the means test includes: • CPP benefits • Private pension income • RRSPs that you’ve cashed • UI benefits, WSIB and alimony • Interest on savings • Capital gains/dividends • Rental income • Income excludes: • OAS benefits, including OAS spousal allowance benefits

38. Public Pensions: Spouse Allowance • Maximum monthly benefit is $921.00 (as of Jan. 2008). • For spouses of an OAS pensioner, age 60 to 64 • Income and residence test • Income of $28,176 combined or less to qualify for a spousal benefit. The benefit is reduced by $3 for every $4 of couple’s income from all sources (excluding OAS) until the amount of the reduction is equal to the OAS pension. Thereafter, the reduction is $1 for every $4 of income.

39. Public Pensions: Survivor Allowance • Maximum monthly benefit is $1,020.91 (as of Jan. 2008) • For spouses, age 60 to 64, who are widow of OAS pensioner • Income cut-off is $20,520 to qualify • Payable to the earlier of age 65, remarriage or death

40. Information on Retirement Planning • Government of Canada • Retirement planning information and an income calculator www.hrsdc.gc.ca • Advocis (Financial Advisors Association of Canada) www.advocis.ca • Offers advice on selecting a financial planner • Annuity Rates www.moneysense.ca • Investment education www.investored.ca • Check out your local library for books and magazines • Visit your local credit union or bank for investment and retirement planning advice

41. Information on Government Pensions • Old Age Security, Canada Pension Plan • Contact Social Development Canada “Income Security Programs” (1-800 blue pages) or www.hrsdc.gc.ca • Have your social insurance number ready • You can get your OAS and CPP entitlement over the phone but it will not include the child-rearing drop out for CPP • You should request a copy of your personal CPP contribution statement, if you do not receive it • Quebec Pension Plan • Regie des rentes (1-800-463-5158) or www.rrq.gouv.qc.ca