Hi all,
I have been at SFU for 5 years and am up for tenure now; I wonder given the discord in advantages between the "young" and "old" of the DB plan, if we could negotiate to have the % of mandatory employee contribution phased in over the first 5-6 years of employment.
One's salary increases quite substantially in the first five years and I am in a more comfortable financial position than I was when I started. I am also "settled" into my job and have the mental energy and time to think about my long-term future, whereas
before I was scrambling day-to-day just to get my lab and teaching going and to help out at home with my young family.
Dave Clarke
Biomedical Physiology and Kinesiology
-----Original Message-----
From: Christoph Luelfesmann <cluelfes@sfu.ca>
Sent: November 27, 2018 1:12 PM
To: academic-discussion@sfu.ca
Subject: pension plan vote
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