September 25, 2000
THE SIGNIFICANCE OF MUNFA'S PENSION PLAN PROPOSAL FOR YOU
Every MUNFA member should be fully aware that his or her personal financial stake in the MUN Pension Plan is large.
The typical MUNFA member is in his or her early 50s with 20-odd years of pensionable service, and has contributed about $100,000 to the MUN Pension Fund by means of salary deductions. He or she has contributed that much again indirectly, as deferred employment income paid into the Pension Fund by the employer. By the time of retirement, the value of an ASM's pension entitlement -- the amount of money in the Pension Fund to provide a pension -- will be in the order of $500,000.
For most of us, regardless of age, the MUN Pension Fund contains most of our retirement savings. In fact, for most of us, our pension entitlement is by far our largest investment, often exceeding even home ownership equity.
By law, membership in the MUN Pension Plan is a pay-as-you-go proposition. Contribution rates are set so that each plan member's yearly contributions are sufficient to grow into an amount that will eventually provide the portion of the member's pension earned by virtue of working that year. However, the MUN Pension Fund contains a large surplus, currently calculated at about $40 million. This is money in excess of what is required to provide pensions, even after allowing a sizeable reserve to cover fluctuations in the value of the Pension Fund's investments.
If the fund is pay-as-you-go, with contribution rates intended to be sufficient to provide pensions on retirement, where does the surplus come from? Simple. Surplus accumulates because highly conservative assumptions have been used in assessing the ability of the pension fund to meet its future obligations.
The MUN Pension Plan operates on the assumption that if the Pension Fund experiences investment returns of 7% per annum, it can meet its obligations. However, over the last 60 years pension funds have on average returned nearly 10% per annum, and over the last 25 years, 12.5% per annum. The MUN Pension Fund has performed similarly.
It is this excess of investment return that, over time, results in a very considerable amount of surplus money accumulating in a prudently managed pension fund. To illustrate the effect of experiencing a 10% investment return, when 7% is sufficient:
Such numbers do not mean that pensions could be twice as large as they are now -- member contributions are made over a working lifetime and at retirement have on average been in the fund for somewhat less than the 30 year example. But such numbers do make it obvious that, with time, the surplus money which accumulates is sufficient to provide significantly enhanced pension benefits, for instance indexing.
In the case of the MUN Pension Plan, benefit improvements are certainly needed. MUN pensions are substandard at the outset, because they are based on salaries which are among the lowest for Canadian universities. In contrast to nearly every other university faculty pension plan in Canada, MUN pensions have no inflation protection. Assuming even modest inflation of 3%, after 25 years the purchasing power of these already-small pensions will be only half what it is now. Our historically deficient salaries represent, in effect, a longstanding, generous subsidy to the University. We should not be expected to cooperate in the progressive erosion of our post-retirement income.
Unfortunately, members of the MUN Pension Plan can be reasonably confident that their pension benefits will not be improved. By way of illustration, over the past decade, and despite repeated calls for improvements by employee representatives on the Board of Regents Pensions Committee, there have been no changes in benefits other than those required to comply with changes in the provincial and federal legislation regulating pension funds.
Despite the fact that the money in the Pension Fund has been set aside for employees' retirement, in the past the Board of Regents has had no qualms about siphoning off Pension Fund money to balance the University's budget. Currently, the Board seems to view the Pension Fund surplus as a source of money for other university needs.
By now, MUNFA members will be aware that MUNFA's negotiating proposals include a new pension plan for MUNFA members. Interestingly, in a letter dated 20 September 2000, employee members of the Board of Regents Pensions Committee were informed that in August the Board decided to strike an ad hoc committee, composed entirely of Board members, to undertake a comprehensive analysis of a number of issues relating to the MUN Pension Plan. The committee would engage in "a thorough consultation" in order to develop a proposal to address various concerns about the Plan. The Board would then go to government "to request the changes that the Board decides are desirable and necessary." This procedure seems to be intended to circumvent negotiations and to prevent meaningful reform.
The objective of the MUNFA pension proposals, as presented to MUNFA members on 29 January 1999 [see Information Bulletin 1998/99:18], is to achieve meaningful reform -- to obtain joint administration of the pension plan and to ensure the appropriate use of Pension Fund surpluses -- in order to improve benefits for members.
The need for a MUNFA Pension Plan is clear. Until MUNFA members have effective participation in the management of their pension savings, they will not have full benefit of them. The administration is refusing to negotiate MUNFA's proposal for a new pension plan. It is apparent that the Board of Regents has no intention of allowing us, or any employee group, to be genuinely involved in the management of our retirement savings. Such involvement will only be achieved if it can be negotiated into the Collective Agreement.
MUNFA Negotiating Committee:
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