Pension FAQ 2018 – Your pension questions answered!

cupe1975Bargaining, Negotiations/Bargaining, Pensions

FREQUENTLY ASKED QUESTIONS

What kind of pension plan do we have?

You have a Defined Benefit (DB) pension plan. This type of pension plan promises you a set amount of annual pension throughout your retirement. The specific provisions and calculations are available in your member pension booklets. DB plans are the best type of pension for workers because they provide benefit security, since the pension is set by a legally-binding defined pension formula, rather than being left solely to the whims of the stock market. Only a DB plan can provide workers with real retirement security.

What does the University want?

While the University’s precise plan is still unclear, we know they want to abandon the Defined Benefit nature of your plan. They prefer a Defined Contribution or “Target” Benefit approach, both of which put plan risks entirely on the backs on plan members. Under these plans, your pension is not secure, cannot be known and will ultimately vary based on the ups and downs of the stock market. In short, the University wants to shift the risks associated with the pension plan entirely to plan members. If the plan falls into deficit again, the University would rather members “pay” for the deficit by reducing their benefits, rather than the University having to make any extra payments into the plan.

CUPE 1975 has and will continue to strongly reject the University’s approach. It would be a radical downgrade in the retirement security and the compensation of hard-working CUPE 1975 members.

 How is our DB pension plan doing?

The University claims the pension is in crisis and is unsustainable. We strongly disagree.

Your pension plan is on sound footing and is sustainable. Every year, a pension actuary evaluates the health of the plan – looking both at the value of the assets in the pension fund and the value of the pension promises made to date. The most recent actuarial report shows that the plan is now “fully funded” on the actuary’s best estimate (plan’s assets = plan’s liabilities). University pension contributions are projected to fall significantly (nearly $3 million/year) in the coming years.

Virtually all pension plans (including your plan) experienced deficits after the market crisis of 2008-09 (the worst crisis since the Great Depression). A deficit does not mean the plan is broken or is in “crisis.” The pension system is designed to bring funds back into balance over time. This is exactly what happened to your plan. The plan fell to a funding low of 86% after the crisis. It has since been balancing this deficit and has now returned to full funding. During the downturn, the University claimed the plan was permanently broken and unsustainable. The Union correctly argued that the downturn was temporary and no excuse to permanently abandon the plan.

The University has also significantly conservatized the actuarial basis of the plan in recent years. Put simply, they have instructed the plan actuary to base pension calculations on the fact that plan members are living longer, and that market return expectations are lower than they were in recent decades. These new assumptions have already been built into the actuarial valuations of the plan, and they will help minimize the risk of the plan under-performing vs. expectations in the years ahead.

In 2013, the provincial government also permanently exempted the employer from making “solvency” payments into the pension plan, which puts University pension costs on a much more stable footing going forward.

We should also not forget that the pension plan was in surplus for decades. During this time, the University happily used portions of our pension surplus to reduce it’s the contributions it was required to pay by law into to the plan (“partial contribution holiday”).

How much of our pension surplus did the University use for its own purposes?

From 1993-2009, the University took 17 years of partial contribution holidays (using pension surplus to pay for a portion of the University’s required contributions to the plan each year). These holidays total more than $36 million in 2018 dollars. Accounting for lost investment returns that could have been realized on these contributions – had they been made – would push a total figure even higher.

It is also worth highlighting the 2009 partial holiday. The year after the financial crisis (-16% return) and the year after the last indexation was delivered to retirees, the University used $2 million of plan surplus to cover a portion of its own contribution obligation.

These decisions were not only unwise. The Union believes at least one and likely more of these holidays were illegal and violated the plan text. We have filed a grievance on this issue which we put into abeyance in a good faith effort to settle a collective agreement regarding pension.

Did the University have to make extra contributions to the pension plan to help balance the deficit?

Yes. The University has been making “special payments” to the plan since 2010. These payments are projected to decline in the coming years.

What has CUPE done in response to the increase in pension costs?

CUPE has a long record of listening to the University’s concerns and engaging in honest and good faith bargaining about pension costs.

Member contribution rate increases were agreed to at the bargaining table and increased from below 5% to 8.5% between 2008-2011. Increasing the member contribution rate helped to lower the total amount the University was required to contribute to the plan.

In the 2013-2014 round of bargaining, CUPE 1975 again recognized that the employer’s pension costs had increased and made good faith proposals to mitigate a significant portion of these University costs. The Union tabled further member contribution rate increases and temporary reductions in future service pension benefits. This package would have seen union members bearing half of the University’s increased pension costs. These changes would have saved the University $2.5 million per year. The University rejected this proposal at the bargaining table and is now trying to attack our ability to even bargain changes to our plan.

Is our pension plan “gold plated”?

No! Your pension plan provides a modest benefit that is earned gradually through your years of service and your own financial contribution to the plan.

The average benefit paid by the plan is $18,100 annually.

The pension does not promise cost-of-living increases in retirement (“indexation”), as many other plans do. So when the cost of goods and services goes up each year in retirement, CUPE 1975 retirees do not know if their pension will increase to keep pace, or if it will increase at all. Pensioners have not seen an increase since 2008. Their pensions have since lost nearly 20% of their real value by not keeping pace with the rising cost of living. Most University pension plans in Canada offer better indexation provisions.

What kind of pension do other University workers in Canada have?

The vast majority of university sector workers continue to be members of DB plans.

Our counterparts at the University of Regina have a DB plan.

Some faculty members on campus are members of a DC plan, but this change was voluntary.

There is no reason that CUPE 1975 members should not have the industry standard pension plan that works fine at the vast majority of other Universities in the country.

What is CUPE doing for the workers in Canada who don’t have a pension at work?

CUPE strongly believes that all workers deserve a decent and secure retirement. This is why we played a major role in the labour movement’s recent campaign to expand the Canada Pension Plan. In 2016, this campaign scored an important victory as Canadian governments agreed to modestly increase CPP benefits for all workers in Canada. This was an important victory, but there is still room for improvement and CUPE will continue to fight for retirement security for all workers in Canada.

What about the arbitration award?

In 2015 the University filed a grievance over the Union’s view that language in our collective agreement gave us the right to negotiate pensions. By filing this grievance, the University demonstrated that it believes this is a right our members should not have. The university’s decision to file a grievance regarding its ability to unilaterally amend the plan is offensive and completely counter to the spirit of negotiation that has always been—and should continue to be—at this table.

Surprisingly, Arbitrator Hornung sided with the University and ruled that our current collective agreement on pension is not strong enough to protect against unilateral changes to the plan. Since we are in collective bargaining, we have to add language regarding our right to bargain pensions.

While Arbitrator Hornung has ruled that the University may have a legal right to unilaterally amend the plan, this does not make this justified or acceptable to Local 1975 members, particularly given our history of honestly trying to deal with pension issues in bargaining. Pension is a major part of compensation and a major reason our members come to work every day. Our members will not accept the University unilaterally telling them what their pension will or will not be. This would permanently damage labour relations on campus.

What has the Union proposed?

The Union has proposed language that would require that changes to the plan must be agreed to by the Union.

If the University agrees to this language, the Union is fully prepared to continue our negotiations about pension plan design from the previous round. We do not need to re-state our demonstrated record of acting seriously and in good faith on this issue.

Are we in this fight alone?

No! We have 650,000 members of CUPE National and the resources of the largest union in Canada standing behind us. Our union takes pension disputes very seriously. Our locals have won many important pension fights and emerged stronger and more united.