pension plan vote

[Christoph Luelfesmann <cluelfes@sfu.ca>]

Dear All,

I have voted no on the proposed switch to DB, and I lay out my reasons 
below.  The proposed participation in BCCPP has in fact a number of 
advantages, namely:

(1) substantial health care benefits after retirement. This affects any 
faculty member hired over the last 17 years, and therefore, likely a 
majority of current faculty. Maybe even more significantly, it will be a 
boon for any faculty hired in the future.

(2) long run rate of returns are comparable to those in the balanced 
option of our existing DC plan.
In addition, as payouts come the form of a pension annuity, DB provides 
the extra insurance that 'money can not run out' in retirement.
Buying this insurance on the market -- if desired -- would be way more 
costly than getting it -- essentially 'for free' -- through the DB plan.

(3) the plan has significant advantages - and no significant 
disadvantages -- for any current faculty older than about 45-50 years. 
Let me call them the 'midcareer faculty'. These  faculty members (like 
me) benefit from the plan in several ways:  First, they have the option 
to keep some -- or all -- of their saved money in DC plan.  Retirement 
planners often given the recommendation to put some part of your 
retirement money into an annuity (for safety on top of CPP/OAS), while 
investing a second portion in stocks, ETFs. etc.  The switch to DB will 
give midcareer faculty members an easy (and inexpensive, see above) way 
to do just that. Second, midcareer faculty members are not negatively 
affected when they decide to work beyond age 65, at least, when they 
plan to work 1-5 extra years. Simply put, this is because these faculty 
members do not have much to lose in terms of lost pension income (their 
pension percentage under DB is small) but much to gain (2 per cent of 
extra pension over their lifetime). So in many ways,  midcareer faculty 
members (females even more than males) can expect a substantial windfall 
from the switch to DB.

In the light of these positives, the reason why I decided to vote 
against the plan are quite simple. I suspect that the majority of 
*younger* faculty would not be in favor of the switch to DB. I believe 
that the interests of young people need to be considered much more not 
because they are young (I wish I was), but because in the 'long run' 
after the 15-or-something-years transition period to DB is over, the 
large majority of faculty will start as a young faculty, and then 
transition within SFU to midcareer and retirement. So I would like to 
argue that in many ways, the interests of young people should be the 
interests of SFU (and SFUFA) as an institution, and we as midcareer 
'windfall' generation should take a close look into these long term 
interests when our vote is informed at all by altruistic motives.  It 
cannot be accurate to claim that if the current faculty population 
expresses their own self-interested preferences, the outcome will be 
good for SFU as an institution because in the long run, there will be no 
windfalls anymore.

While unfortunately, we have not heard many of our younger colleagues 
speak up on this discussion list (one may also doubt that they are well 
represented on the SFUFA board), those who did have made  some excellent 
points. The way I see it, a switch to DB will

(1) force faculty into an additional 10 per cent (7 per cent after tax) 
of pension saving. Young colleagues may have a hard time finding this 
money, given the housing situation in Vancouver.  Quite realistically, 
DB may prevent young colleagues from buying into the housing market and 
building home equity, simply because there is no money left after paying 
into DB.

(2) remove the freedom to choose how to invest your money (admittedly, 
many of us would not consider this a negative). Perhaps  even more 
importantly, DB will also remove choice regarding the selection of 
retirement positions -- there is only one item on the menu, and this is 
a pension annuity.

(3) make a faculty member suffer a potentially large financial loss if 
he/she  moves away from SFU -- either forced (being denied tenure) or 
for personal/professional reasons. In my department,  for example, a 
very substantial portion of younger faculty leave SFU after tenure 
because they get attractive offers in the US or elsewhere.

(4) The built-in disincentives of DB to retire late will in effect lead 
most of young faculty to retire at age 65 (because pension income is 
significant, and in contrast to DC, one year of pension is lost when one 
does not retire). This may arguably be in the interest of SFU as an 
institution, and certainly, will save SFU a lot of money. But I would 
counter that because the starting age for 'real' salaries in academia is 
so late, many colleagues have a justifiable interest in working for a 
few years beyond 65, be it, to age 68 or 70 -- to help out their kids, 
aging parents, etc. Plus we like our jobs! Doing so will become a lot 
less attractive so in effect, DB will almost certainly reduce faculty 
lifetime income .

For these reasons, I would vote against DB if I was young. And as said, 
in the long run all SFU faculty will be young.

Best,

Christoph




--

Christoph Luelfesmann
Professor, Department of Economics
Simon Fraser University