The Pension Puzzle: Ask Bob! Part 2
One of the most-discussed topics among faculty and staff right now is the status of the Queen’s Pension Plan and the effects various adjustments might have on employee benefits.
In an effort to help answer some of those questions, we turned to Bob Weisnagel, the university’s Associate Director, Pension Benefits & Insurance. This is the second in a number of installments of this feature.
If you have more questions for Bob, send them to firstname.lastname@example.org.
How will my minimal guarantee pension payments be indexed?
Following implementation of the pension reforms, minimum guarantee pensions would be split as of the implementation date.
Service prior to the effective date would in effect be “grandfathered” and handled under the current rules (two per cent reduction from ages 60-64, and indexed according to the excess interest formula) and
Only service after implementation would be impacted by the new rules.
In other words, all current active members of the plan who retire on a minimum guarantee pension would have a portion of their pension indexed annually after retirement.
Why aren’t reduced payments to pensioners, or soon-to-be pensioners, part of the proposed solution to current pension- plan shortfalls? Why should the younger generation shoulder most of the responsibility?
Our plan document stipulates that pensions in payment cannot be reduced; and governing legislation does not permit the accrued benefits of current employees to be adjusted downward (or reduced) as part of any pension reforms.
Younger employees will benefit from a lengthy investment return horizon, and will have a higher probability of receiving a money purchase pension greater than the minimum guarantee because of the higher monthly contributions.
These employees would still contribute less over the course of their careers at Queen’s than similarly-aged employees elsewhere who are members of jointly sponsored plans, which are plans that require the funding responsibility to be shared equally between the employer and pension plan members. For example, the Ontario teachers plan requires employee contributions at 10.2 per cent up to a Year’s Maximum Pensionable Earnings (YMPE) and 12 per cent above YMPE. (Queen’s recommended targets are seven per cent up to YMPE, nine per cent in excess).
In the case of deferred members of the pension plan, what are the implications of the proposed changes?
As deferred members are no longer accruing service credits, the minimum guarantee calculation and indexing would remain under the current rules. That being said, and depending on the length of time between the deferral date and pension initiation, investment returns continue to be applied to account balances, increasing the likelihood that a deferred member will receive a money purchase pension -- in which case the five per cent contribution towards the non-reduction guarantee would apply, as would the changes to the excess interest procedure.
How will the new proposals of the five per cent charge to money purchase accounts affect the amount that I have contributed to AVCs?
All money purchase account balances, including AVCs, will be impacted by the five per cent charge at retirement to finance the non-reduction guarantee. Note that AVC balances (as well as Past Service and Special Vested Contributions) are currently reduced by 1.5 per cent when converted to pension for the same reason, and which matches the 1.5 per cent that the university contributes monthly in respect of required money purchase contribution accounts.