Re: pension plan

[Julian Christians <julian_christians@sfu.ca>]

Hi Nilesh
The transition costs are due entirely to ensuring that the plan would remain fully funded if we were to join.  The normal contributions to the plan are based on people joining at the beginning of their career. If we were to join the BCCPP, the SFU members would be at various stages of our careers and ensuring that the plan had sufficient funds to cover our expected benefits in the future would require an additional $10M. In short, these transition fees are not due to financial advisors getting commissions, or anyone getting a cut or anything like that.

I don't understand your assessment that the percentage of people who benefit/ lose from a switch would be 50%. If I buy house insurance and my house never burns down, I have "lost" in the sense that I paid the insurance company lots of money and never got anything from them, but I have still benefited from mitigating that risk. If 100% of people are concerned about outliving their retirement savings, then 100% of people will benefit from the risk sharing of the DB, even though 50% die earlier than average and so receive less than the 50% who died later. Everyone benefits from the risk sharing, unless they know for certain that they are going to die earlier than average. Obviously some people are more concerned about other factors (which is entirely legitimate) and don't want to give up flexibility to get that risk sharing, but we can't know what proportion of members value what and how much without the vote. 

Contribution rates can go up or down. Bear in mind that if contribution rates go up, that will be in part because the market has done poorly and/or people are living longer, i.e., factors that would also affect your income in a DC plan.

Cheers
Julian

________________________________________
From: Nilesh Saraf <nilesh_saraf@sfu.ca>
Sent: Saturday, November 17, 2018 10:28 AM
To: academic-discussion@sfu.ca
Subject: Re: pension plan

I was intimidated by the complexity of this decision and so am finding these messages extremely useful. Many thanks.


I see some red flags raised by some which I would like to reiterate for those tuned onto other aspects of this matter. But first 2 general comments to explain my perspective. First, this is a massive, massive redistribution of risk (which is not cheap at all). Some of us might have an impression that , say 70% of us benefit (eventually) from the move to DB and rest 30% will not, or something like that. But, skeptical that I am of our capacity to beat the market, this line is going to be much closer to 50. So, say 45%-55%  of us may benefit financially and/or risk-wise (and the rest will not - that is, they may end up losing more money than the risk they are reducing).


Second, many things are under the radar (apparently, from the discussion points raised by posters). Irrespective of who and how many of us benefit, know that it is most, absolutely certain that the financial intermediaries will, and massively. And more often than we think (again, skeptical that I am), the financial intermediaries benefit at the cost of the investors (that is, us). This is how financial sector makes it most of its money -- from intermediation (transaction fees, portfolio overhaul, risk premiums). So, my experience with investing is that the devil is most often in the details (for increasing the chance to beat the market more than 50% of the time -- its never a slam dunk).


Sorry for the lengthy preamble. My 2 red flags on this discussion list are:


1) transition fees -- can the $19 mil be used to buy the extended health insurance from Sunlife? Again, I am generally skeptical of financial advisors because they are commission based, and therefore, there is always a bias towards advocating more unnecessary transactions (such as the move to DB and the $19 mil cost).


If we are ready to spend $19 mil, can we not hire a financial advisor for all of us to develop an elaborate DB calculator where each of us can input our specific parameters and do a What-IF analysis. I don't see such a calculator anywhere. Am I missing something? Isn't this the most basic tool we need? The one I see in an SFUFA email does not really address this.


2) Details glossed over -- such as the 10% deduction from salary, which can go UP (and down?) based on how well the fund does.  This means that we are more reliant (than we realize) on the expertise of the fund manager determining whether DB is "eventually" more profitable or DC.


Someone please comment if these are valid concerns or they have been resolved.


I have a general perception that this decision is being rushed without hammering out more such details. Why are these red flags emerging now? Doesn't it mean that we are not ready for a vote?


At the very least the vote should be postponed (can it?)-- even now I am not sure of voting for DB or DC, just because that it is too rushed. As a midcareer person I have the option of being in the best (apparently) of both worlds - but that still maybe a long shot from the best (e.g., status quo).


Nilesh Saraf

Beedie School of Business


________________________________
From: Francesco Berna <francesco_berna@sfu.ca>
Sent: Saturday, November 17, 2018 8:55:30 AM
To: Tamon Stephen; Michael Monagan; academic-discussion@sfu.ca
Subject: RE: pension plan

Reading the many comments, the DB plan sounds to be an easier and fairer option.

On the other hand I admit that I don't fully know/understand  the potentials and flexibility of our current SunLife plan.
This is because I have idiosyncrasy for the financial capitalism world.


Anyway with some of the funds available in our current plan your savings can provide very competitive personal rates of return such as.

YTD: 7.6% ; 1 Year: 8.9%        2 Year: 13.5%;  3 Year: 11.1%;  5 Year: 11.3%

It also appears that among the benefits of our current DC plan, one could buy/opt in for long term medical insurance through SunLife.

And after all it sounds that the proposed DB plan will  be managed very much as the current SFU APP Balanced Fund.
In fact when financial advisers state that they cannot offer anything better than the proposed DB, I worry that the current projections for the DB may be unrealistic and it will end up being a fund very much like one of the most conservative that we already have access to.

So, my impression is that with this vote we starting to opt out from a flexible system (tested but surely improvable) to fully commit to a more rigid pension plan with comparable or slightly better pension conditions. The issue is that the DB plan still needs to be fully negotiated by BCCP and the University.
Never the less  it is already clear that it will be significantly more expensive to run for us than the current DC plan.

Maybe what we need as SFUFA is to obtain free professional individual financial assistance to manage our current DC plans.

Francesco

P.S. Is there someone that could illustrate the full benefits of the current plan?


_______________________________________
From: Tamon Stephen [tamon@sfu.ca]
Sent: Friday, November 16, 2018 11:29 PM
To: Michael Monagan; academic-discussion@sfu.ca
Subject: Re: pension plan

Dear all,

A number of posters have mentioned the improved medical benefits for faculty hired after 2001 as a critical factor in their support of the BCCPP plan.  Personally, I agree that the medical benefits are big positive about the plan, maybe the best thing about it.  But on the other hand, they may not be that large a part of the whole picture.  Suppose that we do not go ahead with DB.  Does SFUFA have an estimate for how much it would cost us to get similar benefits in the next negotiation?  Perhaps it could be a top priority if we end up in that situation?

There was some discussion of transition costs to DB, mentioning $10 million to $40 million (I think from one of the unrecorded info sessions?).  The consolidated FAQ (Q 37) mentions $19 million, as well as 0.7% or 1.27% of salary mass amortized over 15 years.  This is quite a bit.  If this amount can be conjured up for transitioning to DB, how far would it go towards buying the medical benefits straight up?  I think SFUFA's membership is around 1000(?), so the $19 million would be about $19,000 per member (and maybe twice if we only include the half(??) of members hired since 2001).  It seems like $19,000 could be about what $150,000 in medical benefits might cost, given that many people won't use them and some of them are far in the future.

A couple of related technical points: is the $150,000 limit fixed, or is it indexed?  Are the costs listed in the post-retirement benefit table <http://www.sfufa.ca/wp-content/uploads/2018/09/Post-Ret-Benefits-Table-R2018-1.pdf> monthy, yearly, biweekly or something else?  And do they tend to move much?


Michael, about phased retirement ... George Kirczenow asked a while ago if it would even continue to exist.  Unless I missed it, that question was not answered.  My assumption, then, is that it is one of those things that will be left to negotiations.  Roughly the way I interpret your numbers is that that by the time you have accumulated 30 years of service, you can get half your pay from the pension anyway, so it more or less makes sense that continuing to work half time = working for free.  Of course, that doesn't make sense for the employee, so I don't think they expect that to be what it looks like in its final form.  I would guess that they resolve it either by eliminating phased retirement entirely (perhaps then George and a few others in the middle of phased retirement will just continue under the old deal and not transition to DB), or for instance by letting you collect a half pension while working half time (seems reasonable, but there might be some difficulties ...).  It does seem like a relevant issue, and if SFUFA could say anything about it, some people would be interested.  Does phased retirement exist for current BCCPP institutions?

Best regards,

Tamon
________________________________________
From: Michael Monagan <mmonagan@sfu.ca>
Sent: November 16, 2018 5:37 PM
To: Lyn Bartram; Ronda Arab
Cc: Julian Christians; academic-discussion@sfu.ca
Subject: Re: pension plan

I have done a calculation to figure out what you lose if you work half time after 65 at SFU for five years under the college pension plan.
Assume you worked for 30 years and the last 5 years average salary was $150,000 and you live to 85 which is just over the average life expectancy.
If you retire at 65 you collect 0.02 x 150 thousand = $90 thousand per year for 20 years = 1.8 million.
If you decide instead to work half time for 5 years at SFU at $75,000 per year from 65 yrs to 70 yrs.
You earn 5 x $75,000 = $375,000 less 10% (to BCCPP) = $337,500.
You get 2.5 extra years of service.
But you lose 5 years of pension.
This works out overall to be a loss of $338,000.
New pension for 70-85 yrs is 0.02 x 15 yrs x 32.5 yrs service x $150 thousand = 1.462 million.
This is a loss of 1.8 - 1.462 million = 338,000.


So you earned $337,500 in salary but lost $338,000 from your pension!


I'd like someone to check my numbers.  Tamon?
Mike

________________________________
From: Lyn Bartram <lyn_bartram@sfu.ca>
Sent: Friday, November 16, 2018 4:56:35 PM
To: Ronda Arab
Cc: Julian Christians; academic-discussion@sfu.ca
Subject: Re: pension plan

Thanks for the clarification. I note as well for people like me who may only be in the plan for a year or two that even a month in the plan before retirement provides that 10x increase in health benefits. To me that is substantial, especially given my family’s health challenges.

_________________________________________
Lyn Bartram
Associate Professor, Graduate Program Chair
School of Interactive Art + Technology
Simon Fraser University
(Poorly typed on my iPad)

On Nov 16, 2018, at 16:53, Ronda Arab <ronda_arab@sfu.ca<mailto:ronda_arab@sfu.ca>> wrote:


Hi Lyn & Julian,


It's correct in the sense that the sum total of what you collect will be likely be smaller because you've collected your pension for fewer years. You don't, of course, collect a smaller yearly annuity if you retire later; in fact your yearly annuity will be higher because you'll have more years to plug into the formula of (years of service)(.02)(average salary for best 5 years).


Best,

Ronda


Dr. Ronda Arab

Associate Professor of English

Simon Fraser University

________________________________
From: Julian Christians <julian_christians@sfu.ca<mailto:julian_christians@sfu.ca>>
Sent: 16 November 2018 16:39:22
To: Lyn Bartram; academic-discussion@sfu.ca<mailto:academic-discussion@sfu.ca>
Subject: Re: pension plan

Hi Lyn
Michael's point is correct. The later you retire after 65, the fewer years you spend in retirement. What you get out of the BCCPP depends on how many years between when you retire and when you die, so if you retire later, you get less. If you work after 65, you do continue to accumulate years of service, so the amount you get when you retire will increase, but this is unlikely to offset the reduced number of years of pension benefit that you will collect.

You must start collecting your pension at 71 (https://college.pensionsbc.ca/when-you-can-retire), so I'm not sure what happens if you are still working at 71 (i.e., whether you can collect your salary AND your pension?!?).

Cheers
Julian
________________________________________
From: Lyn Bartram <lyn_bartram@sfu.ca<mailto:lyn_bartram@sfu.ca>>
Sent: Friday, November 16, 2018 4:18 PM
To: academic-discussion@sfu.ca<mailto:academic-discussion@sfu.ca>
Subject: FW: pension plan

Dear Mike, thanks  very much for these cogent arguments. I will confess in my research I missed this point:
“If you are thinking of working beyond 65 at SFU, perhaps working
   part time after 65 at SFU, you lose big.  For each year you don't
   retire you lose a year of your pension in the college pension plan.”

Is this really true? How can this be – 65 is no longer a meaningful retirement number legally. For those of who consider working part time for another couple of years, how are we exactly disadvantaged? Can one of the SFUFA experts answer this please?


 Lyn Bartram, Ph.D.
Director, Vancouver Institute of Visual Analytics<http://viva-viva.ca/>
Associate Professor
School of Interactive Arts and Technology<http://www.siat.sfu.ca/>
Simon Fraser University<http://www.sfu.ca/>
CANADA
v 778 782 7439/8009  f 778 782 9422  m 604 908 9954
lyn@sfu.ca<mailto:lyn@sfu.ca><mailto:lyn@sfu.ca>


From: Lyn Bartram <lyn_bartram@sfu.ca<mailto:lyn_bartram@sfu.ca>>
Date: Friday, November 16, 2018 at 4:07 PM
To: Michael Monagan <mmonagan@sfu.ca<mailto:mmonagan@sfu.ca>>, "adacemic-discussion@sfu.ca<mailto:adacemic-discussion@sfu.ca>" <adacemic-discussion@sfu.ca<mailto:adacemic-discussion@sfu.ca>>
Cc: "nigam@math.sfu.ca<mailto:nigam@math.sfu.ca>" <nigam@math.sfu.ca<mailto:nigam@math.sfu.ca>>
Subject: Re: pension plan

Dear Mike, thanks  very much for these cogent arguments. I will confess in my research I missed this point:
“If you are thinking of working beyond 65 at SFU, perhaps working
   part time after 65 at SFU, you lose big.  For each year you don't
   retire you lose a year of your pension in the college pension plan.”

Is this really true? How can this be – 65 is no longer a meaningful retirement number legally. For those of who consider working part time for another couple of years, how are we exactly disadvantaged? Can one of the SFUFA experts answer this please?



 Lyn Bartram, Ph.D.
Director, Vancouver Institute of Visual Analytics<http://viva-viva.ca/>
Associate Professor
School of Interactive Arts and Technology<http://www.siat.sfu.ca/>
Simon Fraser University<http://www.sfu.ca/>
CANADA
v 778 782 7439/8009  f 778 782 9422  m 604 908 9954
lyn@sfu.ca<mailto:lyn@sfu.ca><mailto:lyn@sfu.ca>


From: Michael Monagan <mmonagan@sfu.ca<mailto:mmonagan@sfu.ca>>
Date: Friday, November 16, 2018 at 3:59 PM
To: "adacemic-discussion@sfu.ca<mailto:adacemic-discussion@sfu.ca>" <adacemic-discussion@sfu.ca<mailto:adacemic-discussion@sfu.ca>>
Cc: "nigam@math.sfu.ca<mailto:nigam@math.sfu.ca>" <nigam@math.sfu.ca<mailto:nigam@math.sfu.ca>>
Subject: pension plan

If you are thinking of working beyond 65 at SFU, perhaps working
   part time after 65 at SFU, you lose big.  For each year you don't
   retire you lose a year of your pension in the college pension pl