I wanted to pass on to you the results of the Representative Assembly held in Richmond this past weekend as it applies to our pension plan.
I heard from a number of members, concerns about the proposed changes. I also heard the concern that this would not be brought to a full membership vote.
There was a motion brought forward to have a referendum on the proposed changes, but it did not hit the floor as time ran out.
Despite that, I believe the message has been heard clearly by the EC. They have not recommended any of the options that were originally presented at the seminars and online, but have gone back to the drawing board based on the results of the member survey. Below my tag line you will find the recommendation that the EC will be bringing to the AGM who will make the final decision (with possible amendments) as to what goes to the Plan Administrators.
Vancouver Island North Teachers’ Association
That the Teachers’ Pension Plan design change of the pension formula include
1. delinking from the Canada Pension Plan’s Year’s Maximum Pensionable Earnings (YMPE).
2. a single accrual rate of 1.85% be applied to Pensionable Service.
3. an Early Retirement Reduction Factor of 4.5% at age 61.
4. removal of the 35-year Pensionable Service cap.
5. an unreduced pension for those with 35 years of Contributory Service.
Note: See Supplementary Report #1 for detailed information related to this recommendation.
A pension from the Teachers’ Pension Plan is the biggest asset most members will have. The plan has two partners: the BCTF and the Government of BC. The Partners identified an opportunity to make changes to the plan that will result in a substantial improvement for the majority of active plan members.
Plan improvement is particularly important given that the original 1966 design of the current plan does not match the demographics of current plan members. Teacher’s Pension Plan (TPP) provided data that the model of entering the plan very early and retiring very early does not happen to the same degree and does not reflect the reality of current TPP members. It is also important given the detrimental impact the plan’s calculation link to the Canada Pension Plan (CPP) number, Year’s Maximum Pensionable Earnings (YMPE) is having on all plan members’ pensions. TPP data helped support the conclusion that whenever salary increases do not match YMPE increases, the member’s lifetime pension value erodes. This is a real risk that must be addressed urgently. Other public sector pension plans in BC and across Canada are making similar changes to their pension plan for similar reasons.
Having identified an opportunity for pension improvement, the BCTF Executive Committee recommended to the 2015 AGM:
Recommendation 27―Teachers’ Pension Plan design changes
That the Federation undertake a thorough consultation with members regarding possible plan design changes to the Teachers’ Pension Plan in the 2015–16 school year, with recommendations to be brought to the 2016 AGM.
The goal of the BCTF Executive Committee was to arrive at a revised pension plan design that would be the best possible option for the current and the future active members, one that addresses the concerns of members, and does not exceed the cost parameters agreed upon by the two Plan Partners.
Presentation teams, with Executive Committee members and staff, were sent throughout BC with information on six possible plan design options to educate members and seek their feedback. The level of engagement by plan members was truly remarkable at these consultations as well as at worksites.
There was an unprecedented amount of consultation with TPP members in all locals/districts around the province. Although the survey provided descriptive data to inform the EC, the correspondence through emails, through phone calls, and through direct face-to-face discussion, in the four-month consultation duration, were invaluable. The presentation teams, EC, Plan Partners, and Trustees met many times on a regular basis to discuss member concerns and commissioned additional actuarial analyses and projections. This feedback was used to address the concerns identified by members about the proposed six consultation options. The additional elements developed after the consultation sessions that have been included in the recommendation are responsive to the majority of concerns raised by a number of TPP members who contacted the Federation directly.
The BCTF Executive Committee is now making the above recommendation, which is a hybrid model based on the extensive feedback received from members of the Teachers’ Pension Plan.
The recommendation above will result in a significantly improved pension plan for the majority of TPP members, as well as future TPP members. This recommendation does not exceed the Total Actuarial Cost limit of 22.28% as agreed upon by the Plan Partners. The implementation date is set for January 1, 2018, on a go-forward basis.
The recommendation is a package arrived at by the BCTF and the other plan partner, and has these features acceptable to both Plan Partners:
• delink from CPP’s YMPE number
The pension plan was designed in 1966 with its calculation formula linked to the CPP’s number YMPE. This is sensible when yearly salary increases match the yearly YMPE increases. However, salaries have not been keeping up and this causes an erosion of the lifetime pension. With this legacy system there are two pension built-up rates (accrual rate) in the calculation formula. Part-time and low-income earners are subjected to the lower rate of pension buildup forcing them to be disproportionately adversely affected. To delink our plan calculation from the YMPE eliminates this unfair split rate system. It is well documented in our plan most of these part-time and low-income earners are females and, in particular, having returned to work after maternity leave. The EC recognizes the importance of ensuring equity by eliminating this split rate system. As you may be aware, the new federal government is considering expanding the CPP, which is good for workers. However the most likely way it would do this would be by almost doubling the YMPE which would further erode our pensions, give our current split accrual rate.
• 1.85% single accrual rate
Our current split rate system has an effective pension buildup rate (accrual rate) of 1.51%. This recommendation increases that very significantly by 34 basis points in a single rate applied to Pensionable Service and as a result increases the lifetime pension for plan members. All plan members have the same rate for all Pensionable Service. This is the highest pension build up rate possible within the actuarial costing limit.
• 4.5% Early Retirement Reduction Factor (ERF) at age 61
The actuarially neutral Early Retirement Reduction Factor for our plan should be approximately 6.75% at age 60. However the plan has 3% ERF at age 60 and this represents an early retirement subsidy. TPP data shows relatively few people are able to utilize this subsidy even though all plan members are paying for this benefit. By increasing the ERF to 4.5% at age 61, there is a move towards neutralizing that subsidy.
• 35-year package in response to member feedback
35-year cap removal on Pensionable Service
This removes the current 35-year cap on Pensionable Service whereby currently work after 35 years gains no additional pensionable accrual service benefit and often members felt there was no ability to improve their pension if they chose to work beyond the 35 years. Members voiced this concern in the consultation process. The removal of the cap effectively is a further removal of employment restriction, allowing members to freely choose when to retire. It is a benefit to members because all employment will increase pension.
35 years of Contributory Service = unreduced pension
A number of members were concerned that the consultation options would negatively affect member with long-term service. This component directly addresses these members’ concern and provides recognition of long-term service by not applying any reductions for those who have 35 years of service. In using the Contributory Service metric, any work in a month gains that month’s full credit and that means part-time teachers as well as teachers teaching on call are able to gain the same amount of service as full-time teachers in calculating this benefit’s 35 year criteria. Also, it is important to note that maternity/parental leaves that members were unable to purchase may be made up by applying for Child Rearing Credits to add to the Contributory Service count in this benefit. The EC, through its Social Justice lens, was aware this is very important as a gender inequity is directly addressed in this benefit.
The recommendation in its totality makes the pension plan a better fit to current demographics. It provides the best possible pension for current and future members and addresses the concerns of the plan members. It is worth noting again that this proposed pension plan re-design recommendation applies on a go-forward basis beginning in January 2018.