Re: Defined Benefit Pensions

[Tamon Stephen <tamon@sfu.ca>]

Hello all,

Dai - thank you for your comments.  I certainly don't speak for all younger faculty, there are a wide variety of situations.  I'm sorry that we are now at the point where some faculty have essentially given up on the housing market, but surely this is the case and these are some of the people we should be most concerned about on this issue.

You mention some renters may not be able to afford the 8% (before tax) RRSP contribution.  If so, this is extremely unfortunate, as they will then not be able to afford the 10% (before tax) SFUFA plan contribution.  If there are even a few people in this situation, then we should absolutely vote note NO, regardless of all these other details.

A common wisdom is that home ownership is one of the main factors in whether you retire well.  Implementing this plan, with the high required payments, reduces people's financial flexibility at the start of their career, so it seems likely that it will push some people who are on the margins in terms of being able to buy into the group who are not able to buy.  This is a really bad result for those people.

The housing situation here really is a huge problem, and I believe that many people that are not able to make it into the market will eventually look for positions in less crazy markets.  Unfortunately, the DB plan is not good for those who move away, which will be an additional slap on the way out.

Rents are vastly outstripping inflation, and our modest salary increases.  If you are a renter, you should think very carefully about this when SFUFA provides a calculator to suggest that you will be roughly back to 0 after 3 years of the new plan, or when senior faculty claim that the costs will be short lived.  If you have a substantial rent increase, that back to 0 in 3 years will not feel like back to 0 at all.

There is an advantage in the RRSP contributions (vs. DB) in that they could be partially borrowed back and put towards a mortgage if someone's circumstances changes and they have an opportunity to be a first time home buyer.  Let's all hope that the housing market does improve.

I do agree that the ability to put an extra 2.35% of your salary per year into a tax sheltered account is positive, though mainly for the people who are currently maxing out their RRSP contributions.  But in some sense, if you are not doing this, this is because you believe that you have a more pressing use for your money than investing for retirement.  I don't think we should be requiring people who feel that investing is not the best option for them to join the plan.  People with mortgages and people supporting parents (etc.) are two groups I used as examples, but I expect there are many more.

Best regards,

Tamon

________________________________________
From: Dai Heide <dheide@sfu.ca>
Sent: November 12, 2018 11:37 PM
To: academic-discussion@sfu.ca
Subject: Defined Benefit Pensions

Hello all,



I've found this discussion helpful and interesting. I wasn't able to attend SFUFA's info sessions on the pension proposal and so it's beneficial to be able to hear these different perspectives from colleagues at different points in their career.



However, I want to push back on the idea that a switch to the DB pension plan is by and large a bad deal for younger faculty. I understand Tamon's points and they are legitimate points. But it's not obvious to me that they generalize to most or all younger faculty and I believe many younger faculty stand to benefit a great deal from a switch to the DB pension plan.



Tamon is right that younger faculty find themselves in an economic position very different from faculty who were hired 15 or 25 years ago found themselves in when they arrived. Tamon's point is that many such faculty have very high mortgage payments (in addition to other debts and obligations) and taking money out of their biweekly paychecks will make attending to these debts and obligations unduly difficult.



But there are many younger faculty who don't have high mortgage payments precisely because they arrived so late that they weren't able to afford a mortgage at all. I suspect this is especially true for younger faculty with families. And this is going to be true for many faculty hired now and in the future. Barring a significant change in the market, these are faculty who will not be able to rely on home equity for their retirement. And these are faculty for whom their current pension plan is likely to be entirely insufficient to support retirement as a renter in Vancouver.



SFU puts an amount equivalent to 10% of our biweekly salary into our pension accounts. Faculty without mortgages of course could put an additional 8% into an RRSP or some other retirement vehicle - if they can afford it. But it's not clear that doing so is more affordable for them than it is for faculty with mortgages, given that rent prices have vastly outpaced inflation over the past 10 years and these faculty need to live close to campus. But even maxing out their RRSP would leave them in a worse position than the new DB plan. And the reason for that is that Canada permits<https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4084/pension-adjustment-guide.html> a greater percentage of your total income to count as tax-deferred if you have a DB pension plan than if you don't. If we switch to the DB pension plan, then for every paycheck, an amount equivalent to 20.35% of your salary will be contributed (10.25% from the university and 10.15% from the faculty member). So this is a difference of 2.35% of each faculty member's salary compounded every year until retirement. I'm sure we all know enough about compound interest to realize that this is likely to be a substantial sum of money at retirement age.



So for faculty members who have given up hope of buying property in Vancouver's current market conditions, the truly altruistic vote would be to give them an extra 2.35% of their salaries compounded annually for 30 or 35 years upon retirement. Of course, this is also altruistic for those who have mortgage debts and other obligations: this is money that the law would not permit them to defer taxes on otherwise, even if taking advantage of it is difficult to do.



So I'm not suggesting that Tamon's argument is not a good argument. I'm just suggesting that it perhaps doesn't accurately portray the situation that many or most younger faculty find themselves in and that faculty who are considering following his advice to vote no might well consider a perspective that suggests doing precisely the opposite.



Dai Heide


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Dr. Dai Heide
Senior Lecturer & Undergraduate Chair
Dept. of Philosophy
Faculty Teaching Fellow, FASS
Simon Fraser University