Date: Tuesday, November 13, 2018 at 11:27 AM
To: Barbara Sanders <bsanders@sfu.ca>, Oliver Schulte <oschulte@cs.sfu.ca>, academic-discussion <academic-discussion@sfu.ca>
Subject: Re: Pensions vs. Mortgages
If I may, I want to clarify something in Barbara's email.
"Also, the College Plan will give you nothing for past service unless you take your current balance and give it to them, and even then they
will NOT give you a full year of service for each of your past years with SFU (more like half a year if you were contributing nothing to our current plan)."
"This comparison is pretty much impossible to do until you know how much of your past service the College Plan would recognize (we won’t have this info until after we join),"
Indeed, you must use your current balance and buy back years of service. But if you buy a year of service, you get credit for a year of service. They do not take the money for a year of service and then give you only part of a year.
The estimate of the costs is item #11 on the FAQs, which I have attached. It is possible, of course, that you may not have enough money in your DCP to buy back as many years as you have worked at SFU. This is particularly possible if you have not been contributing to RRSPs. Of course, if you have been unable to contribute to RRSPs now, due to a high mortgage, high rent, supporting parents, etc, there is also some chance you won't have enough money to retire on with the DCP.
Best,
Ronda
Dr. Ronda Arab
Associate Professor of English
Simon Fraser University
Sent: 13 November 2018 10:03:49
To: Oliver Schulte; academic-discussion@sfu.ca
Subject: Re: Pensions vs. Mortgages
Barbara Sanders, FSA, FCIA
Associate Professor | Statistics & Actuarial Science
Simon Fraser University | Burnaby Campus
8888 University Dr., Burnaby, B.C. V5A 1S6
T: 778.782.9074 | M: 778.689.7564
Date: Tuesday, November 13, 2018 at 10:05 AM
To: academic-discussion <academic-discussion@sfu.ca>
Subject: Re: Pensions vs. Mortgages
Hi all,
thank you for the contributions on the important pension plan issue. SFUFA has worked hard to put together loads of information about all the details. Perhaps there is some value in a high-level plain English summary of the benefits.
About the mandatory contribution: if you are already saving for retirement, like Ellen, your 10% would replace RRSP contributions. So it would be cash-flow neutral.
About who benefits: The primary benefit of the college plan is to reduce individual risk by pooling it. The risk reduction applies to all colleagues of every age. A secondary benefit is to improve post-retirement extended health, basically from a current lifetime max of $15,000 to a new max of $150,000. This applies to all colleagues hired after 2001, the others have a max of $150,000 under the current SFU plan.
There are two kinds of uncertainty associated with our current defined contribution plan:
1) How long you are going to live after retirement.
2) What your investment return from the stock market will be when you retire.
1) In the current plan, you have a chunk of money in your account when you retire. Then you have to plan how quickly to spend it to make it last for the rest of your life. This means that essentially you have to guess how long you are going to live. Guess too short and you will run out of money before you die. Guess too long and you will be saving for years that never come, paying yourself less than you needed to. The pension plan can pay you as if you were going to live the average life span, and still cover you if you live longer. To me that’s the biggest advantage of the risk pooling.
Here’s how retirement would look to me in the current system. I could assume that my life will end at about the average of 82 years and start spending my retirement savings accordingly. But then I would run the risk that if I live until, say, 92 years, I have no money left. So I live frugally make the money last until I’m 92 or even 95. But that means that in my 70s and 80s I have less to live on that if I had planned for 82, like the pension plan. How much less depends on the circumstances but making the money last until 92 could cut my annual payouts by 1/3 or even 1/2.
2) The other uncertainty in the current plan is how much I will have in my retirement account when I retire. The stock market goes up and down. For example in the last three months there was a major downturn. My Sunlife account shows that the value of my account went down by -4.8% during the three months, and by -0.3% for all of 2018. During the 2008 financial crisis, it was common for equity portfolios to lose half their value, then stock values recovered over time. If you are unlucky and retire close to a downturn, you can end up with an inadequate amount. The pension plan takes away this uncertainty, so you can predict what you will have to live on in retirement without worrying about the stock market.
Perhaps it helps to make this concrete in terms of my own situation. According to SFUFA, we can expect an annual payout of $35,000 from an account balance of $500,000 on retirement. (http://www.sfufa.ca/intro-to-pension-plans/). My current Sunlife savings are below $500,000. With the pension plan, I expect an annual payout of over $80,000 risk-free. $80,000 vs. $35,000 per year is a big difference for me.
I have about 15-20 years till retirement. If there is another financial crisis in 10 years, my account would not get up to the $500,000 needed for $35,000 a year. Now perhaps there will be no crisis, the stock market will do well, and my Sunlife money goes up to $750,000. According to SFUFA, that would generate annual payout of $50,000. That’s still $30,000 less than I can expect from the college plan. Or perhaps there will be a financial boom in the next 20 years, my Sunlife account will grow to $1M, and I get an annual payout of $90,000, beating the college plan. Who knows?
Perhaps I’m risk-averse, but I like not having to worry about how the stock market will do.
Regards,
On November 12, 2018 at 1:41:29 PM, Ellen Balka (ellenb@sfu.ca) wrote:
Hi all,Sam, I don’t know the answer to your question about whether or not a DB pension will or will not create an incentive for early retirement or not, or, indeed, whether the current incentive will remain in our collective agreement.
What I do know:Under a DB plan your pension will depend upon a formula which takes into account your 5 best years and number of years of service up to a maximum (possibly) which most of us won’t reach as few are in tenure track jobs by (for example) by 30, which would give us 35 years of service by 65. So- working past 65 would still have a positive impact on your pension for most people who are unlikely to hit the max years of service.
For people between 55-65, presumably you will have your 5 best years during that period, but you will have few years on the DB plan unless you buy years back. So people nearing retirement will only receive pension amounts from the DB pension based on the formula which accounts for years of service IN THE PLAN and 5 highest years unless you buy past years.
The main benefit for those early in their careers is that you will retire with a known amount (hence the term defined benefit), improved health benefits if you were hired after something like 2003 (more relevant as you age), and your pension will not be subject to market fluctuations which (for example) heavily impacted those contemplating retirement following the 2008 crash.
Hope this helps. Ellen.
Apologies for brevity- sent from my phone. -Ellen.Hi Colleagues,
I've never followed pension issues at SFU, so please excuse my ignorance.
Question:
SFU recently implemented an early-retirement policy.
Would the contemplated terms for DB pension create an incentive or a disincentive for early retirement in comparison with the status quo? Perhaps Ellen has answered this question. I take her to be suggesting that the effect of DBP is income-neutral for faculty-members in the 55-65 bracket. As someone who is about to enter that bracket, I must confess that my interest is not merely policy-oriented, though I do believe that other things equal incentives for faculty turn-over are a good thing. (Many years ago in this forum, I argued against eliminating mandatory retirement at SFU.)
Thanks in advance,
Sam
Sam Black
Assoc. Prof. Philosophy, SFU
From: Ronda Arab <ronda_arab@sfu.ca>
Sent: November 12, 2018 11:19:17 AM
To: Ellen Balka; Tamon Stephen
Cc: academic-discussion@sfu.ca
Subject: Re: Pensions vs. MortgagesHi all,
On the retirement issue, a few things to keep in mind. One does not, of course, have to retire at 65, although the DBP would make it possible for more people to have the option to retire at 65.
For those who plan to retire late or never: By Canadian law, at age 71 all contributions to pension plans must cease, and members of the plan must start withdrawing some money from their plan. This is the case on all pension plans. You can continue to work and draw a salary, but you will pay tax on the combined income of salary and pension benefits.
Best,
Ronda
Dr. Ronda Arab
Associate Professor of English
Simon Fraser University
From: Ellen Balka <ellenb@sfu.ca>
Sent: 12 November 2018 10:10:37
To: Tamon Stephen
Cc: academic-discussion@sfu.ca
Subject: Re: Pensions vs. MortgagesHi all-
As someone who is close to retirement who is both following this issue and has been to an information session I’ve decided to weigh in.
I’ll be voting yes in spite of the fact that as someone closer to 60 than 50 it will benefit me very little if at all.
In contrast to previous posters my sense is that
a) it will not particularly benefit those of us close to retirement unless we choose to buy back years of service, which we will have to do at our current earning rate; and
b) once taxes related to pension adjustments etc are accounted for I suspect that the difference in one’s net / take home pay for most people will be negligible;
c) between cost of living raises and step progressions any potential shortfall related to paying down a mortgage would be short lived.
I can’t comment on monetary grounds that it will be disadvantageous for people to work past 65 as I haven’t used that lens to evaluate options, but I can comment that in some circumstances having a top heavy department can be very problematic in that it can stifle change and contribute to disengagement which in turn can have long term consequences.
I’m a saver and good with money. I’ve maxed my RRSP out every year I’ve worked and I was in a tenure track job at 31 (though I lost some pensionable years leaving my first employer just past tenure). Under the current pension system my income will drop considerably when I retire. Under the proposed system had I been in it at the start I’d have a much better income at retirement.
Apologies for brevity- sent from my phone. -Ellen.
On Nov 11, 2018, at 3:44 PM, Tamon Stephen <tamon@sfu.ca> wrote:
Dear all,
SFUFA will soon ask us to vote on significant changes to pension plans. I appreciate SFUFA's efforts on this, in particular in identifying issues with the current plan. I've learned a lot from their resources*. However, I believe that we should vote NO in the referendum.
The proposal will _require_ all current SFUFA members to contribute 10% of salary (7% after taxes) to their pensions. This is a lot to ask, especially given the housing market here. Many SFUFA members have significant mortgages. For someone who is putting this 7% into reducing their mortgage, moving this to the pension is effectively having them borrow an extra $5000+/year to fund their contribution. Other members are saving for down payments, sending money to family overseas, etc. I do not think that we should require them to contribute this money to a pension plan instead.
The question in the previous (2015) pension proposal was quite different, as people could opt out. Roughly, in that previous vote, 31% voted yes, 9% voted no, while 60% did not vote. So many people are not paying attention to SFUFA's pension proposals**. If anything, I feel there has been less discussion this time. I encourage those of you who are not paying attention to 1. learn about what is being proposed* and 2. if you are not sold on this to the extent of _requiring_ your colleagues to invest tens of thousands of dollars (which they may have to borrow), then please vote NO.
Note that since SFUFA considers this a referendum, they will proceed to implement this on a mandate of half of cast votes. So e.g. 26% for, 24% against, 50% not voting means _required_ contributions from 100% of SFUFA members, including the 24% who voted NO and the 50% who did not vote.
Best regards,
Tamon Stephen
* SFUFA has posted some resources which I found quite helpful:
<http://www.sfufa.ca/current-issues/pensions/resources/>
** I expect that those close to retirement are following this very closely, while those far from retirement are paying very little attention. As I understand the proposal, it may be beneficial to someone very close to retirement (esp. people who own homes outright), but not for younger members (esp. those who have mortgages or plan to).