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Dear colleagues and friends,
Factors in my decision: 1. I like annuities/pensions, and I like the deal we'd get under the BCCPP. I do worry about outliving my savings in retirement. My biggest expense risk factors haven't even been born yet. (How many children will I have, and how many $100,000's will they need for their education?) 2. I know how to invest my money,(*1) and I do think I can do a better job of saving for my personal situation (!) than BCCPP. But I'm not sure that will still be the case at age 70. 3. The BCCPP is bad for new faculty who need to pay off college debt (often at interest rates much higher than BCCPP returns), or who need to make mortgage payments (also a form of saving for retirement). Guess who's recently paid off his college loans and started to put back money for a down payment? (Me.) 4. The BCCPP really screws over people who contribute for 5 or 10 years while young, then leave. But since I wouldn't enter the DB plan until year 8 or so, good for me. If I don't get tenure, then so long SFU -- glad I get to at least keep the DC money for myself. If I do get tenure, I have a job, financial flexibility, and a pension. Sweet. 5. It appears hundreds of my colleagues don't save enough, don't want a LIF, are worried about retiree health care, already have a house and maybe a garden. They will benefit from a pension. Since I like all my colleagues, I want to support them. 6. It also appears lots of my colleagues are saving just fine, need to make mortgage or other payments, are concerned about the massive financial penalty for leaving SFU that the BCCPP implies, and don't want to invest in fossil fuels. Since I want to support them as well, I think it is critical that we address or at least mitigate these concerns.
I know SFUFA doesn't want to get into the "who wins, who loses" game that could be played for every single bargaining item. But this is a really big one, no? Thus:
Fairness and other problems: 1. Equity matters. A lot of people will lose under the switch. (And I mean lose financially, not just in terms of not having choice.) In particular: people who urgently need to make other payments (child care, mortgage, college loans -- all of which are fine ways of investing!), and people who leave SFU young for any reason (such as being denied tenure or following a spouse out of town). In other words: young people. Don't my colleagues agree that intergenerational equity is an issue here?(*2) The fact is, this switch is a really awesome deal for tenured faculty aged 45-60(*3) -- the generation that holds all the power anyway, in government, in academia, and also on the SFUFA board. I'd rather not hear any more friendly pat-on-the-backs "believe me, I wish I had saved more when I was young and you'll thank me later". Cry me a river, dear senior-colleague-whom-I-cherish-and-respect-but-who also got to enter Vancouver's housing market at half the price it will be for me (if ever). 2. The transition costs are paid by everyone but mostly benefit people close to retirement (hired after 2001), who get access to BCCPP's health plan no matter how long they pay into it. See above: the generation that holds the power and is pushing the most for this switch. Honestly, I think transition costs should be paid by those who benefit from the transition (as opposed to the switch). This is something SFUFA has 100% control over.
3. The "best-five-years" rule to determine payouts is just plain unfair. Why not average of all years? Best-five mostly benefits people who are paid little for a long time, then a lot right at the end (which can be gamed by taking on an administrative responsibility). Not people who work hard and contribute consistently throughout. It really hurts people who contribute young and leave for any reason.(*4) 4. Academia is not the same as the public sector. In the public sector, there's a big benefit for the institution (not just the worker) to have people stay their whole career and accumulate institutional knowledge. So DB pension plans, which penalize leaving young due to the best-five-years rule, maybe work well for the public sector. Academia, on the other hand, benefits from mobility. It benefits from people exploring different places in their career, mixing with different people, learning different things. So a plan that penalizes leaving young is terrible for academia. (The university might like it, but we shouldn't.) 5. Retirement incentives. Eventually, the BCCPP will strongly incentivize retiring at 65. Small penalties for retiring early, big penalties for retiring late, always reducing choice. Which maaaybe could be good for SFU? Who knows. But along the transition to the new plan, the incentives are to stay on until 71 and grab a bigger share of the pension pool every year one stays at SFU. Again, nice option available to an age 60 colleague but not to an age 30-40 one like me (who will retire when the 65 effective limit binds). 6. How do we make sure the current DC plan is protected -- possibly for the next 40 years! -- given that it will have an expiry date and diminishing funds, so SunLife is not likely to be nice about it? 7. The fact that inflation adjustments can be capped in the BCCPP is a sneaky extra risk factor. Many economists and policy makers advocate a switch to replace the current 2% inflation target with a 4% inflation target -- on some days, I'm even one of them! Over a 60+ year horizon, nobody can say that inflation will stay low. Just look at what it was 60 years ago.(*5) 8. No fossil fuel divestment.
All of these I think are issues that SFU and SFUFA must consider in designing our benefits system -- any which way the vote goes, but urgently so if it is YES.
IF the BCCPP switch is made, then 1-3 can be dealt with through better housing support, perhaps a college debt refinancing plan backed by SFU, fairer distribution of transition costs and ideally even of contributions. I have no idea what can be done about 4-8 but that's why we're pooling our brainpower here in addition to our longevity risk.
Just please let's not throw up our hands and say "yay pensions, need a nap now, let the next generation deal with the rest".
Thank you! Lucas
(*1) Confused about how to manage your personal finances? Frankly, it's not that hard! Please take a day or a week to educate yourself. The BCCPP will take some of it out of your hands but not all. Seniors get scammed all the time, even those with good pensions. Now is the time. (*2) If you're more used to thinking in traditional equity categories, like women, PoC, immigrants, people with disabilities, people who grew up in poverty; consider who is most likely to be denied tenure, leave town to follow a spouse, leave academia for another career or for dependent care, or start their career with debt? Compare this with the list of who loses in the switch to the BCCPP. Yes, women will benefit from longevity risk pooling under the BCCPP, which is one reason I'm voting for it. But women faculty also tend to be younger. Anyway, let's try to treat all these equity problems with the same urgency. (*3) Unless
they want to divest from fossil fuels I guess, which they can't under the BCCPP.
(*4)
As I've said before: imagine two colleagues hired at the same time. One gets tenure and stays until retirement. The other is denied tenure and leaves. Based only on normal career progression, the latter's pension contributions are effectively garnished
to the tune of 30-50% and redistributed to the colleague who stayed.
(*5)
Trick question! 60 years ago inflation was as low as today. It got quite high for a while though, before slowly coming down again.
Best regards
Lucas Herrenbrueck Assistant Professor of Economics Simon Fraser University http://herrenbrueck.weebly.com |