# Pension Plan FAQ

How is my best five-year average pensionable salary calculated?

An employee's best five-year average pensionable salary is determined by comparing the basic annual salary in effect on the day and month of retirement (the "spot date") with the salaries in effect on the same day in each of the previous years of employment and choosing the highest five.

Example:

Jayne has decided to retire on August 31, 2007. Her best five-year average pensionable salary is keyed off her retirement date and is arrived at by comparing her basic annual pensionable salary in effect on the spot date in each year of her career at Memorial, as follows:

 Year/Month/Day "Spot Date" Basic Annual salary (incl. admin stipend/ temp assign) (\$) Included in Average August 31, 2007 57,500 Yes August 31, 2006 56,500 Yes August 31, 2005 55,700 Yes August 31, 2004 54,000 August 31, 2003 53,000 August 31, 2002 52,000 August 31, 2001 50,100 August 31, 2000 48,600 August 31, 1999 56,700 Yes August 31, 1998 55,000 Yes August 31, 1997 44,300 etc.

And, Jayne's five-year average salary for pension purposes is:

(57,500 + 56,700 + 56,500 + 55,700 + 55,500) divided by 5 = \$56,380

Under what authority does the Memorial University Pension Plan operate?

The Memorial University Pension Plan is a legislated public sector pension plan that operates under the authority of the Memorial University Pensions Act. It is also subject to the Newfoundland Pension Benefits Act, 1997, which governs pension plans registered in this province, and provisions of the Income Tax Act (Canada) governing registered pension plans. The Board of Regents is trustee of the Plan and it is administered by the Department of Human Resources.

What Type of pension plan is it?

It is a "defined benefit" plan which means that employees' retirement pensions are calculated according to a pre-determined pension formula specified in the Plan provisions. This type of plan differs from a "defined contribution or money purchase" pension plan whereby an individual's retirement benefits are dependent on the amount of contributions and investment income accumulated in the individual's account at the time of retirement.

Who participates in the pension plan?

Employees appointed to full-time University positions are required to become members of the Memorial University Pension Plan. Contractual employees are required to participate in the pension plan on the earlier of the effective date of appointment to a contractual position of at least six months duration to work at least 20 hours per week or, the effective date of completion of six months continuous employment of at least 20 hours per week. Further information regarding contractual employees' participation in the pension plan may be found in the Policy and Conditions Governing Participation of Contractual Employees in the Memorial University of Newfoundland Pension Plan.

How much are employees required to contribute to the Plan?

Employees' contributions to the Memorial University Pension Plan are integrated with contributions to the Canada Pension Plan (CPP) according to the following schedule:

 9.90% of earnings up to and including the Year's Basic Exemption (YBE) as defined under the CPP. The YBE is the portion of earnings upon which no CPP contributions are required. The YBE for 2012 is \$3,500. 8.1% of earnings in excess of the YBE up to and including the Year's Maximum Pensionable Earnings (YMPE) under the CPP. The YMPE is the ceiling upon which CPP contributions and benefits are based. The YMPE for 2012 is \$50,100. 9.90% of earnings in excess of the YMPE.
 Example: Annual salary \$60,000 9.90% x \$3,500 \$ 346.50 YMPE \$50,100 8.10% x \$46,600 3,774.60 YBE \$3,500 9.90% x \$99.00 980.10 MUN Pension \$ 5,101.20

Employee contributions are limited to the annual maximum permitted under the Income Tax Act (Canada).

Is there a maximum number of years' pensionable service?

No, as long as people continue to be employed in a pensionable position at the University, they are required to contribute to the pension plan and will continue to accrue pensionable service until retirement. Prior to January 1997, however, pensionable service accrual was limited to 35 years.

Does the University also contribute to the Memorial University Pension Plan?

Yes, the University matches employee contributions. Further, the University is responsible to contribute additional amounts if, at some time, there is not sufficient money in the fund to cover the benefits accrued to Plan members. Employee contributions and those made by the University are paid into the Memorial University Pension Fund for investment.

What qualifies as eligible pensionable service under the Memorial University Pension Plan?

 current service performed as a permanent employee; current contractual service where the initial contract is for a minimum duration of six months to work a minimum of 20 hours per week; prior refunded university service; periods of eligible prior contractual service for which no contributions were previously made; periods of up to five years while on an approved leave of absence or period of reduced pay, plus an additional three years in respect of periods of parenting; periods of sabbatical leave; periods while in receipt of benefits under the university's long term disability plan; prior pensionable service transferred under the Portability of Pensions Act from any of the following public sector plans: Public Service Pension Plan Teachers' Pension Plan Uniformed Services Pension Plan Members of the House of Assembly Pension Plan certain prior refunded pensionable service performed with an employer participating in any of the public sector plans referred to above; periods of service transferred under a reciprocal transfer agreement with the Government of Canada; eligible war service during World War I, World War II, or the Korean Conflict prior service transferred directly from another employer's registered pension plan

What do the terms vesting and locking-in mean?

The terms vesting and locking-in go hand in hand with respect to entitlement to pension benefits. Vesting means that an employee's right to receive a pension benefit upon reaching retirement age is no longer dependent upon remaining in the service of Memorial University.

Locking-in means that the accrued pension benefit cannot be refunded as a lump sum cash payment upon termination of employment -- it must be used to provide a retirement income payable for life. This does not necessarily mean, however, that locked-in funds have to remain in the Memorial University Pension Plan. Subject to certain restrictions, locked-in funds may be transferred -- upon termination of employment -- to a locked-in retirement account (locked-in RRSP), another employer willing to accept the transfer or to an insurance company to purchase a deferred life annuity.

When do vesting and locking-in occur?

Employees are vested with respect to benefits earned prior to 1 January 1997 upon completion of five years of pensionable service. Locking-in occurs in respect of service performed between January 1, 1987 to December 31, 1996, upon attainment of 45 years of age and completion of ten years continuous employment or plan membership. There are no locking-in restrictions imposed for lump sum cash payments in respect of pre-1987 employee contributions. Benefits earned after December 31, 1996 are vested and locked-in upon completion of two years continuous plan membership.

 Example: Current Date: 31 March 1999 Plan Entry: 1 January 1996 Total Service: 3 years, 3 months vested and locked-in service -> 2 years, 3 months (post-1996)

What is the normal retirement date under the memorial University Pension Plan?

The normal retirement date is August 31 next following attainment of age 65 except for employees whose birth date is August 31, in which case their normal retirement date coincides with their 65th birthday. This does not mean that employees must retire on their normal retirement date; mandatory retirement ended at Memorial University in 2007. Employees must, however, begin their pensions by December 31 of the year in which they reach the age of 71, in accordance with the Income Tax Act (Canada).

What are the options for early retirement?

 Advanced Retirement -> between the ages of 50 and 55 with at least 30 years of pensionable service. The pension is subject to a lifetime actuarial reduction of 0.5% per months times the number of months between pension commencement and age 55. Unreduced EarlyRetirement -> between the ages of 55 and 60 with at least 30 years of pensionable service or between the ages of 60 and 65 with at least two years of pensionable service. Reduced EarlyRetirement -> between the ages of 55 and 60 with a minimum of two years but less than 30 years of pensionable service. The pension is subject to a lifetime actuarial reduction of 0.5% per months times the number of months between pension commencement and age 60.

How will my retirement pension be calculated?

Retirement benefits are calculated in accordance with a pre-determined formula -- based on pensionable salary and years of pensionable service -- and are integrated with benefits received under the Canada Pension Plan (CPP), as follows:

 ```[2% x A x B] - C ```
 where A = best five-year average pensionable salary B = number of years credited pensionable service C = CPP reduction (0.6% x best five-year average CPP contributory earnings x # years CPP service) applied at age 65.

A further factor in the pension calculation is an actuarial reduction which is applied when employees choose early retirement between the ages of 55 and 60 with fewer than 30 years of pensionable service. In such cases, the pension calculation is subject to a lifetime actuarial reduction of 0.5% per month times the number of months between pension commencement and age 60. There is no actuarial reduction in respect of retirements which occur at age 60 or later or between the ages of 55 and 60 with 30 or more years of pensionable service.

For employees who choose advanced retirement available between the ages of 50 and 55, with at least 30 years of pensionable service, a lifetime actuarial reduction of 0.5% per month times the number of months between pension commencement and age 55 is applied.

 Example 1: Jayne decides to retire at age 60 on August 31,2007, with 32 years of pensionable service at Memorial University. Her best five-year average salary is \$56,380 and her average CPP contributory earnings for the same five-year period is \$36,526. She purchased the accrual top-up in respect of the 1993/94 fiscal year when the University reduced its contributions to the pension plan (so all years of service are at a 2% accrual rate). Jayne's retirement pension under the Memorial University Pension Plan would be: Annual pension at age 60
 2.0% x 32 x \$56,380 \$36,083.20 (includes bridge benefit payable to age 65 0.6% x 36,526 x 32 = \$7,013) Less bridge at 65: \$7,013.00 Net annual lifetime pension at age 65 \$29,070.20
 Example 2: Michael chooses to retire early at age 56 on December 31, 2007 with 26 years and 9 months of pensionable service. His best five-year average salary is \$47,000 and is average CPP contributory earnings for the same five-year period is \$37,980. Michael did not purchase the accrual top-up in respect of the 1993/94 fiscal year and his pension will be subject to a 1.2% accrual rate for that year. Michael's retirement pension under the Memorial University Pension Plan would be:

 Annual penions at at 56 2.0% x 25.75 x \$47,000 1.2% x 1 x 47,000 \$24,205.00 564.00 24,769.00 Actuarial reduction 0.5% x \$24,769.00 x 48 months \$(5,944.56) Pension from age 56 to 65 (includes bridge benefit to age 65 0.6% x \$37,980 x 26.75 years= \$6,095.79) Less bridge to age 65 (6,095.79) Net annual lifetime pension at age 65 \$12,728.65

If I leave the University before retirement, what happens to my pension?

That depends on your entitlement to pension benefits at the time of your termination of employment -- that is, your vesting and locking-in status. The term vested means that your right to receive a pension benefit upon reaching retirement age is no longer dependent upon remaining in the service of Memorial University. The term locked-in means that your accrued pension benefit cannot be refunded as a lump sum cash payment upon termination of employment -- it must be used to provide a retirement income payable for life.

Employees are vested with respect to benefits earned prior to 1 January 1997 upon completion of five years of pensionable service. Locking-in occurs in respect of service performed between 1 January 1987 to 31 December 1996, upon attainment of 45 years of age and completion of ten years continuous employment or plan membership. There are no locking-in restrictions imposed for lump sum cash payments in respect of pre-1987 employee contributions. Benefits earned after 31 December 1996 are vested and locked-in upon completion of two years continuous plan membership.

If you were to leave the University before becoming entitled to a pension from the Memorial University Pension Plan, you would be entitled to withdraw your own contributions to the Plan plus interest. You may choose to receive your refund as either a lump-sum cash payment, with applicable tax deducted at source, or as a transfer -- on a tax-sheltered basis -- to your personal registered retirement savings plan (RRSP).

If, however, you were to terminate employment with the University after becoming entitled to a pension, you may elect either of the following options:

 i) a deferred pension payable at your earliest eligible retirement date; ii) subject to the locking-in provisions of applicable pension legislation, a cash refund/transfer of non-locked funds plus a transfer of the locked-in portion to an approved retirement savings arrangement; or iii) a transfer, on a locked-in basis, of the commuted value of the entire pension benefit to an approved retirement savings arrangement.

Approved retirement savings arrangements include, locked-in retirement accounts (locked-in RRSPs), deferred life annuities offered by insurance companies and o ther employer registered pension plans willing to accept commuted value transfers on a locked-in basis.

How is Indexation calculated?

The amount of the indexing benefit will be calculated as 60% of the annual change in the Consumer Price Index (CPI), as measured by Statistics Canada, to a maximum pension increase of 1.2% annually. Indexing adjustments will occur in July of each year and will apply only to the benefits of retirees and survivor beneficiaries who have reached the age of 65, on or before July 1 of that year. If the cost of living, as reflected by the CPI, decreases in any particular year, pension amounts will remain the same - they will not decrease.

 Indexing example Current annual pension / survivor benefit \$25,500 Plus indexing adjustment (1.2% increase) 306 (July 1, 2012) Revised annual pension / survivor benefit \$25,806

What does the term "commuted value" mean?

The commuted value of an employee's pension benefit is an actuarially-determined amount that represents the present value of the employee's future retirement pension. Calculations are only performed following a particular service event such as a retirement, termination of employment or death and in the event of marriage breakdown. Commuted values are very sensitive to the interest rates in effect at the time of calculation and will vary from one employee to another as they are calculated with reference to such individual characteristics as age, sex, amount of pension benefit earned and expected retirement date.