Pension Basics for Local
Officials
Teacher Welfare Education
Program 3F(n)
Edmonton Catholic Teachers’
Local #54
Defined Benefit Plan
• Benefit is defined by formula
– A percentage of salary
– Years of service
• Contributions are made to fund service
Sources of Retirement
Income
• Government pension programs
– Canada Pension Plan (CPP)
– Old Age Security (OAS)
• Employment pensions
– Alberta Teachers’ Pension Plan
• Individual savings
– RRSPs
– Tax Free Savings Accounts
DEFINED CONTRIBUTION (DC)
VERSUS
DEFINED BENEFIT (DB)
PENSION PLANS
Defined Contribution
(DC) Plan
• Contributions are defined, pension is not
• Contributions are invested for the member
• Member makes some or all contribution
decisions
• Investment risk is the responsibility of the
individual
• Monthly pension received is total of
contributions plus earnings of the plan
DC Plan Continued
• Administration costs are in excess of 2%
• Market fluctuations can have a negative
affect on your retirement security.
(NOTE: THIS IS NOT YOUR ALBERTA
TEACHERS’ PENSION PLAN (ATTP) )
Benefits of a Defined
Benefit (DB) Plan
• Pension amount is known and predictable
• Pension is based on salary prior to
retirement including negotiated salary
increases
• Risk is shared between employer
(government) and all plan members
(NOTE: THIS IS YOUR AlbertaTPP)
Funding the Defined
Benefit
• Prefunding
– Funding future pensions as they are earned
• Actuaries estimate pensions
– owed to all teachers over their lifetime
– death benefits
– pensions owed to teachers who quit prior to being
eligible for pension (salaries, age of retirement,
mortality rates)
• Calculate amount needed today to pay pensions
later depending on expected rate of return.
• Assign to each sponsor (government and
teachers) depending on contribution agreement
Contribution Rates
(What plan sponsors pay)
September 1, 2014
Teachers
Government
Normal Cost
(60%)
10% COLA
Post 1992 Deficiency
Post 10% COLA
7.85%
0.50%
4.80%
0.23%
7.85%
0%
4.80%
0%
Total
13.46%
12.65%
Teachers: Up to Yearly Maximum Pensionable Earnings
(YMPE) $53,600 - 11.44%; and over YMPE - 16.34%
COLA = Cost of Living Allowance (annual increase based on
provincial averages)
Our Defined Benefit
(What we get out of the plan)
• Integrated with CPP
• 1.4% of five year average salary up to the
YMPE (2015 amount is $53,600)
• 2% salary over the YMPE
• Add those two together and multiply by
years of service
Example
• Teacher 1- Single Life, 5 year guarantee
– $90,000 5 year average salary
– 30 years of service
• $50,000 X 1.4% = $700.00
• $40,000 X 2% = $800.00
• $1,500.00 X 30 = $45,000 annual pension
(50% of pre-retirement income)
Eligibility
• For an unreduced pension
– Age 65 or
– Age plus service equals 85
• For a reduced pension
– Age 55 and
– Five years of pensionable service
• Reduction is 2% per year below 65 or 85
index, which ever is less
Accumulating Service
• Earn it - By earning salary
• * Buy it (if you have Substitute Service or
Leaves of Absence) – use RRSP moneys
• Transfer it (from other teacher plans or
other public sector plans)
• Accumulation while on disability
* NOTE: CONTACT ATRF FOR BEST OPTION
FOR YOU. DO IT NOW! THE LONGER YOU
WAIT, THE MORE IT WILL COST.
5 year average
• 60 best consecutive months
• Periods of leave are dropped out unless
purchased
– Do not count as 0 but are replaced by a
previous year
• Part time by contract or assignment
– Annualized
• Part time by leave of absence
– Not annualized
Pension Options
• Single
– Paid on one life
• Joint
–
–
–
–
Paid on two lives
Joint Equal
Reducible by 1/3
100/60
• Guarantees
– 5, 10, 15 years of payment guaranteed if the
pensioner dies
• CPP Advance
Pension and Marriage
• Pensions are marital property under the Marital
Property Act
• Divorce
– Sign off pension in the divorce agreement
– Split pension
• Single pension
– Pension partner must sign waiver
• Death
–
–
–
–
1. Spouse
2. Dependent minor children
3. Beneficiary
4. Estate
Who gets your pension?
• If still teaching:
– Single - beneficiary receives contributions
plus interest
• double for dependent minor children
– Married – pension partner receives pension
based on years of service commencing the
month following death, no index reduction
• Retired
• according to option chosen
Who qualifies as a pension
partner?
• Legally married
• Common law couples who:
– live together for at least three years, and
– publicly present themselves as a couple
• Same gender partners also eligible under
common law terms
Pension and Taxes
• RRSP room 18% of salary (to a maximum of
$24,930)
• Pension benefit earned takes up RRSP room
• Room taken up is called a Pension
Adjustment (PA);
• PA=1.4% of YMPE + 2% of balance
• ($1478 X 9) – 600 = $12,702
• $90,000 X 18% = $16,200
• Room = $3498
Improving the Plan
• Last pension improvements were granted in
1992 (10% addition to COLA for teachers)
• ATA objectives for improvements to the plan are
contained in long range policies 6.A.1 to 6.A.13
and current directives 6.B.1 to 6.B.7
• Government would have to agree to an
improvement which are requested each year
after ARA
– Teachers contributions would rise as we pay one half
– The 2007 unfunded liability agreement includes a
provision barring improvements retroactive prior to
1992.
Final Points
•
•
•
•
Funding and Sustainability
Pension Envy
Overly rigorous application of ITA Caps
The current Alberta Government attention
to poor pension plan governance is not an
issue for ATRF.