Questions and Answers about the Memorial University Pension Plan:
Part III

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

A further factor is an actuarial reduction that 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 cent per month times the number of months between pension commencement and age 60. There is no actuarial reduction for retirements 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 cent 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 31 December 1999, with 32 years of pensionable service. Her best five-year average salary is $45,000 and her average CPP contributory earnings for the same five-year period is $32,600. She purchased the accrual top-up instituted in the 1993/94 fiscal year when the university reduced its contributions to the pension plan so all years of service are at a 2 per cent accrual rate. Assuming Jayne decides to wait until age 65 before collecting CPP benefits, her retirement pension would be:

2.0% x 32 x $45,000 Less: 0.6% x $32,600 x 32 Net lifetime pension (at age 65)

$28,800.00 (paid from age 60 to 65) 6,259.20 (CPP reduction, age 65) $22,540.80

Example 2:
Michael chooses to retire early at age 56 on Dec. 31, 1999 with 26 years and 9 months of pensionable service. His best five-year average salary is $27,000 and his average CPP contributory earnings for the same five-year period is $23,200. He did not purchase the accrual top-up and his pension will be subject to a 1.2 per cent accrual rate for that year. Assuming Michael chooses to postpone collecting CPP benefits until age 65, his retirement pension would be:

2.0% x 25.75 x $27,000 1.2% x 1 x $27,000 Pension before actuarial reduction Less: 0.5% x $14,229 x 48 months Pension from age 56 to 65 Less: 0.6% x $23,200 x 26.75 SNet lifetime pension (at age 65)

$13,905.00 324.00 (1-year reduced accrual) 14,229.00 3,414.96 (actuarial reduction) 10,814.04 3,723.60 (CPP reduction, age 65) $7,090.44

If I leave the university before retirement, what happens to my pension?
That depends on your entitlement to pension benefits at the time of you terminate 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 Jan. 1, 1997 upon completion of five years of pensionable service. Locking-in occurs with respect to service performed between Jan. 1, 1987 to Dec. 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 with respect to pre-1987 employee contributions. Benefits earned after Dec. 31, 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, 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 one of the following options:

1. a deferred pension payable at your earliest eligible retirement date;
2. 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
3. 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 other employer-registered pension plans willing to accept commuted value transfers on a locked-in basis.

What does the term "commuted value" mean?
The commuted value of an employee's pension benefit is an actuarially-determined amount that represents the current value of the employee's future retirement pension. Calculations are performed following 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 based on characteristics as age, sex, amount of pension benefit earned and expected retirement date.

For further information on the Memorial University Pension Plan, please contact the Benefits and Pensions Office at 737-7406.

Stay tuned . . . More pension Q and A will appear in future issues of The Communicator.

Dental plan renewal has been improved

The university's dental plan was renewed in April 1999 at its existing benefit level after showing a surplus of $108,466. Until now, however, eligible expenses under the dental plan have been limited to the 1995 Newfoundland Dental Fee Guide while charges for dental expenses are generally based on the 1999 guide. The Board of Regents recently approved that the dental plan be amended to advance the benefit level to 1997 levels. A rate increase of 6.7 per cent is required to make the change. Initially, 50 per cent of this increase is to be borne through use of the surplus in the dental plan, until the surplus is depleted. The remaining 50 per cent will be funded through an actual rate increase. This plan improvement was effective July 1, 1999.

Under the current cost-sharing arrangement this improvement in the dental plan benefit level creates an estimated additional annual cost of $57,500: of which $32,250 will be paid by the university and $22,250 by the employees and retirees.

The increase in deductions was effective July 1, 1999. An employee only plan increased by nine cents per pay period, from $2.47 to $2.56. Rates for the family plan increased by 15 cents, from $4.48 to $4.63. Your paycheque on July 29, 1999, however, showed a dental plan deduction which is slightly more to reflect a retroactive deduction for the period from July 1, 1999 through July 16, 1999.

Tentative agreements reached between Memorial University and its maintenance and custodial workers

Tentative agreements have been reached between Memorial University and its maintenance and custodial workers represented by the Newfoundland Association of Public Employees (NAPE). The 89 maintenance workers are members of NAPE Local 7801, and the 120 custodial personnel are members of NAPE Local 7804. They work at Memorial's campuses in St. John's (except the Marine Institute) and Corner Brook (Sir Wilfred Grenfell College).

The agreements, if accepted, will give employees across the board increases of two per cent in 1999-2000 and a further two per cent in 2000-2001. The salary increases are consistent with the provincial government's policy on salary increases for public sector employees. In addition, the contracts lay the foundation for the development of an effective performance management program for these employees. The contracts expire on March 31, 2001.

The tentative agreements are now subject to ratification by the maintenance and custodial workers and by the university's Board of Regents.