Final Average YMPE

Report
Building Blocks – York’s
Pension Plan
Winter 2014
1
Purpose of this Seminar
• Pension plan contributions
• Minimum Guarantee Pension (MGP)
• Money Purchase Component (MPC)
• MGP vs. MPC – how they fit together
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Pension Plan Contributions
January 2014 - 4.50% up to the YMPE and 6.00% above the
YMPE;
March 1, 2014 - 4.95% up to the YMPE and 6.63% above the
YMPE;
September 1, 2014 – 5.40% up to the YMPE and 7.26% above
the YMPE;
March 1, 2015 – 5.85% up to the YMPE and 7.89% above the
YMPE;
September 1, 2015 – 6.30% up to the YMPE and 8.52% above
the YMPE;
March 1, 2016 – 6.75% up to the YMPE and 9.15% above the
YMPE
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Pension Contributions
• Pension contributions are deducted from your pay
before income tax.
• As a result of the increased pension contributions the
amount of income taxes being deducted will be reduced.
• The net affect to your pay will be determined by your
salary rate and TD1 Personal Tax Credits.
• The increase in employee and employer pension
contributions will increase the money purchase funds.
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YMPE (Years Maximum Pensionable
Earnings)
• The dollar amount set each year by the Canada
Revenue Agency (CRA) which determines the maximum
amount on which to base contributions to the Canada
Pension Plan. The YMPE specifies the earnings amount
that can be used in calculating pension contributions for
each year.
• The 2014 figure is $52,500.
• The YMPE changes each year and CRA normally
announces the new figure in November.
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Non Reduction Reserve - Retirements
before January 1, 2015
• When you first retire, the actuarial factors used to
calculate the money purchase pension assume the
Pension Fund will earn 6% annually throughout your
retirement. Your retirement pension may be adjusted at
the beginning of each calendar year if the moving fouryear average fund rate of return is in excess of 6% at
that time. In the event the moving four-year average
fund rate of return is below 6%, no reduction will be
made to your pension; however, this deficit will be
tracked and future adjustments (positive or negative) will
be applied to the reduced amount. You won’t receive
any further increments until the deficit is paid up.
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Non Reduction Reserve – retirements
January 1, 2015 onward
• The moving four-year average fund rate of return will be
lengthened to a moving five-year average fund rate of
return with the fund rate of return equal to 6.0% for the
Plan years in the five-year average up to and including
the Plan Year in which the date of pension
commencement occurs.
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Pensioner increment - example
Year
Current calculation
New calculation
2006
13.9244%
6.0000%
2007
-0.5356%
6.0000%
2008
-19.2428%
6.0000%
2009
15.9818%
6.0000%
2010
9.7617%
6.0000%
Pensioner Increment
Old
New
2010
-4.2457%
0.0000%
2011
-5.1327%
-1.4000%
2012
-4.9429%
0.7900%
This is for illustrative purposes only. Actual results will vary.
The volatility of the pensioner adjustment is reduced with the change
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Minimum Guarantee Pension (MGP)
1.4% of your final average earnings at retirement up to
the average YMPE for those years
plus
1.9% of your final average earnings at retirement above
the average YMPE for those years
multiplied by
Your credited service in the pension plan
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Final Average Earnings (FAE)
Your FAE is the five highest years of earnings prior to
retirement.
They do not have to be consecutive.
We work backwards in twelve month periods.
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FAE example (May 1, 2014 retirement)
12 month period
Annual Earnings
Average Annual YMPE
04/30/2014 – 05/31/2013
$48,264.09 *
$50,100.00 **
04/30/2013 – 05/31/2012
$47,521.50 *
$48,900.00 **
04/30/2012 – 05/31/2011
$50,883.86 *
$47,566.67 **
04/30/2011 – 05/31/2010
$48,760.17 *
$46,000.00 **
04/30/2010 – 05/31/2009
$44,990.28
$45,366.67
04/30/2009 – 05/31/2008
$48,951.86 *
$44,100.00 **
04/30/2008 – 05/31/2007
$42,844.77
$42,633.33
Final Average Earnings
* added together / 5
$48,876.30
Final Average YMPE
** added together / 5
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$47,453.33
Credited Service
• There is a difference between credited service and
continuous service:
• Credited Service – The total number of years of
pension plan membership. You can not earn service if
contributions by you or the University are not maintained
at the full rate for each month in the calendar year.
• Continuous Service – Your unbroken service with the
University including vacation, authorized sick leave, and
authorized leaves of absence.
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MGP and early retirement
• If you elect to retire prior to your normal retirement date there is a
reduction in the pension amount.
• A reduction of 3% per year or part year for retirement between age
60 and 65 and a further reduction of
• 6% per year for each year or part year for retirement between age
55 and 60
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Money Purchase Component (MPC)
• The mandatory contributions made by the employee
along with the matching employer contributions and any
accumulated rate of return are used to determine the
MPC of your pension
• The MPC is affected by:
• amount of funds as per the above,
• age at retirement,
• marital status at retirement, if married, the age of your
spouse at retirement,
• Annuity/mortality table being used.
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Money Purchase
• Marital status and the age of your spouse can have a
significant impact to the money purchase pension. For
example:
NRD July 2041 (joint & survivor 50% with no guarantee)
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Spouse 2 years younger:
$996 per month
Spouse 5 years younger:
$985 per month
Spouse 10 years younger:
$968 per month
Spouse 20 years younger:
$941 per month
Annuity/mortality table
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•
The Canadian Institute of Actuaries (CIA) has a number of actuarial tables.
The mortality experience of the plan helps determine which table is used in
the calculation of a money purchase pension.
•
York uses a customized table based on 70% of mortality rates in the
standard 1994 Group Annuity Mortality table (GAM 1994) plus a projection
scale AA with mortality improvements limited to 1% per annum starting in
2000.
•
In August 2013 the CIA published a draft report which includes proposed
mortality tables. The information is being reviewed by the Plan actuary.
MGP vs. MPC – How they fit together
Each time the system produces a pension estimate it actually
runs three calculations at the same time:
1. Money Purchase Component Pension
2. Minimum Guarantee Pension
3. Canada Revenue Agency (CRA) has a maximum pension
permitted under the MGP portion of the pension plan
You receive the higher of one or two. If your pension is based on
the Minimum Guarantee Pension then we have to ensure it is not
greater than the CRA maximum.
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CRA Maximums
• While the CRA removed the 35 year maximum in their
calculation the York University Pension Plan text
includes a 35 year maximum.
• The 2014 maximum is $2,770.00 for each year of
service up to the 35 year maximum.
• For example: $2,770.00 X 35 = $96,950.00 per year or
$8,079.17 per month.
• The CRA maximum typically applies to employees with
a final average earnings greater than approximately
$155,000
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Pension example
Normal retirement date:
Retirement date:
Marital status:
Credited service:
July 1, 2013
July 1, 2013
married – spouse 14 years younger
29.7493 years
Money Purchase account balance at July 1, 2013
Your contributions
$199,674
University contributions $202,880
Total
$402,554
Benefits from York University Pension Plan
Money Purchase Component
Minimum Guarantee
$2,926
Supplementary Pension
Total Monthly Pension
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$2,389
$ 537
$2,926
Calculating the Minimum Guarantee
Time Period
Salary
YMPE
July 2012 – June 2013
$78,205.36
$50,600
July 2011 – June 2012
$76,678.03
$49,200
July 2010 – June 2011
$75,182.47
$47,750
July 2009 – June 2010
$72,978.31
$46,750
July 2008 – June 2009
$70,695.07
$45,600
July 2007 – June 2008
$69,016.73
$44,300
July 2006 – June 2007
$66,604.92
$42,900
Final Average Earnings
$74,747.85
Final Average YMPE
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$47,980
Calculating the MGP
FAE = $74,747.85
FAYMPE = $47,980
Credited Service = 29.7493 years
$47,980 X 1.4% = $671.72
$74,747.85 – $47,980 = $26,767.85 X 1.9% =
$508.59
$671.72 + $508.59 = $1,180.31 X 29.7493 = $35,113.40
$35,113.40 /12 = $2,926.12 per month
CRA check
$2,770.00 X 29.7493 = $82,405.56 / 12 = $6,867.13 per month
Will therefore receive the $2,926.12 per month since below the CRA
maximum.
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Need to contact Pension & Benefits?
• E-mail [email protected]
• Call 416-736-2100 extension 27572 (askpb) – the
phone line is open from 8:30 am to 4:30 pm Monday to
Friday. For Fridays in June, July and August the phone
line closes at 3:30 pm.
• Please have your employee ID ready when you call us.
• Any form or document that we may need from you can
be completed, scanned and emailed to
[email protected]
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