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Daily Bulletin

Tuesday, January 20, 1998

University of Waterloo • Waterloo, Ontario, Canada
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Pension benefits up, premiums down

Larger pensions for everyone who retires from UW will be the result of proposed changes to the university's pension plan, made public yesterday. The changes will be aired at open meetings on February 4, and are then expected to go to the board of governors for approval.

Examples issued by the pension and benefits committee yesterday suggest that someone retiring at a salary of $30,000 will see pension income from UW about 12 per cent higher than under the present rules. Someone retiring at a $60,000 salary will see about 8 per cent more in UW pension, and someone retiring at $90,000, about 7 per cent more. (The changes affect only the UW portion of someone's retirement income, not the Canada Pension, which is "integrated" with the UW plan.)

The changes also include lower premiums, starting in May 1998, and a "flexible" feature of the pension plan to allow extra contributions in some circumstances.

The P&B committee has been working on the pension "improvements" since last spring, as a way of using some of the multi-million-dollar surplus in the pension fund. Premiums have already been reduced by half, for a three-year period, but there's still room to do more, says a memo distributed yesterday from provost Jim Kalbfleisch, who chairs the committee.

He wrote: "The Committee is now at a stage to propose improvements in both the pension formula and the pension normal form. These changes will produce a larger single life or joint and survivor pension whether retirement is early or at normal retirement age (65)."

A summary of the changes, available on the Web, begins with some background information:

Initially, committee members held divergent views on possible plan improvements, mirroring the varied opinions to be expected among plan members. However, after careful discussion, the committee agreed on two general principles.

Principle 1: to the extent possible, the plan improvements should produce a general increase in members' pensions rather than delivering large increases to some members and little or none to others;

Principle 2: as much flexibility as possible should be allowed for individual members to use their increased pension values as they see fit, depending on their personal circumstances at retirement. . . .

The committee heard frequent suggestions for enhanced early retirement benefits, such as a "rule of 85", and spent considerable time in reviewing possibilities with the plan actuary. Such a change would not be consistent with the above general principles because it would significantly improve pensions for members who retire early, but would produce no benefit to those who, by choice or necessity, work to normal retirement age.

Another suggestion considered by the committee was to make the standard pension form a joint and survivor pension rather than a single life pension. This change would produce large improvements for plan members with younger spouses, but much smaller improvements for members with older spouses. A further difficulty is in finding a way, consistent with pension legislation, for single members to obtain comparable increases in their pension income. The committee concluded that such a change would not be consistent with the two general principles stated above.

Still another suggestion was that plan improvements should produce greater rewards for long service employees. The committee concluded that long service is already appropriately recognized in that years of pensionable service is a multiplier in determining one's annual pension.

So here's what's proposed

More from the pension plan improvement proposals:
The Pension and Benefits Committee is proposing the following three plan improvements (described in more detail later in the document):
  1. change the pension formula from 1.3%/2.0% to 1.4%/2.0%, and reduce member contributions on salary below the YMPE from 4.875% to 4.55%;
  2. change the normal pension form from single life guaranteed for 5 years (LA5) to single life guaranteed for 10 years (LA10);
  3. introduce a flexible pension plan.
The total cost to the pension plan of the first two changes exceeds $20 million. Implementing a flexible pension plan has no additional direct cost to the pension plan or the University, other than set up and administration costs.

If approved, the change in the pension formula and normal form would be retroactive to May 1, 1997. The contribution reduction would take effect on May 1, 1998, and the flexible pension plan would be implemented before the end of 1998.

In our defined benefit pension plan, pensions are calculated by formula based on a member's Final Average Earnings (FAE), and on the average YMPE (Yearly Maximum Pensionable Earnings for the Canada Pension Plan). The YMPE was $35,800 in 1997 . . . Currently, annual pension per year of service is calculated as 1.3% of FAE up to the average YMPE, plus 2.0% of FAE in excess of the average YMPE. The formula pension is a single life annuity guaranteed for five years (LA5). The formula pension can be converted to another form (e.g., LA10 or joint and survivor 60%) of equal value. . . .

Under change (I), member contributions would be reduced and the pension accrual rate up to the average YMPE would be increased from 1.3% to 1.4%. This change produces higher pensions for all plan members (subject to the Revenue Canada cap). . . . For members with FAE above the average YMPT, the increase is about $35 [in annual pension] per year of pensionable service, regardless of salary level. . . . Under change (II), the formula pension becomes more valuable because it is guaranteed for ten years instead of five years. It can be converted to another form (e.g., joint and survivor 60% or LA5), and the resulting pension will be higher than in the current plan. This change produces the same percentage increase in pensions at all salary levels.

For members who retire early, the formula pension is adjusted to account for the fact that the pension will be paid longer. Since the formula pension will be improved, changes (I) and (II) will also improve pensions for those who retire early. . . .

The committee is also proposing to recommend that the Board approve a flexible pension plan. This would allow plan members the option of making additional tax deductible contributions to the plan starting in 1998. These contributions plus accrued interest could be used to purchase a larger early retirement pension and a bridge benefit, or a larger joint and survivor pension. These additional contributions do not lower RRSP room, and use of this improvement is recommended only for members who have already used all their available RRSP room. There are drawbacks to a flexible pension plan. If the member is unable to use the accrued contributions to purchase a pension enhancement at retirement, they are lost to the member and by legislation must remain in the overall pension fund.

Says the committee: "Before finalizing its recommendations to the Board, the committee would like to receive feedback from members of the pension plan. Written comments may be sent to the committee secretary Trenny Canning in the Secretariat (e-mail tcanning@secretariat.uwaterloo.ca). In addition, public meetings have been scheduled as indicated below to explain the proposed changes and allow for discussion and input. Public meetings will be held in NH 3001 on: Wednesday, February 4, 1998 from 12:15 p.m. - 1:45 p.m. and from 3:00 p.m. - 4:30 p.m."

No increase in residence fees

Fees in UW's residences will all stay at their current level for another year. The board of governors is being asked to approve zero increases in the rates for the Student Villages, the Columbia Lake Townhouses, the Minota Hagey Residence and the Married Student Apartments.

The proposal will be checked by the board's executive committee, which meets this afternoon, and put on the agenda for the board's quarterly meeting on February 3.

Increases have been "zero or very nominal" over the past few years, says housing manager Gail Clarke. The last substantial hike was in 1995, when Village rates were raised 3.7 per cent. The 1996 increase was zero, and last year rates went up 0.6 per cent. That 0.6 per cent is going chiefly to provide $350,000 a year for the Village I renovations that are now under way. Total cost of the project is a little more than $5 million, with 29 per cent of it being charged to the residences and the rest to food services.

Clarke said costs are being kept down by new ways of planning and budgeting for maintenance in the residences, and by lower salary costs because of retirements under last year's special early retirement program.

But perhaps most important, there's been some determined work to keep the residences as full as possible. Bud Walker, director of university business operations and the senior executive to whom the residences report, says there used to be vacancies in the residences even in the fall term, because people would have rooms reserved for them and drop out or perhaps never show up at all. The vacancy rate in the winter term was even worse because co-op students would leave in December for work term jobs, and not many students arriving in January choose to move into residence.

Starting a couple of years ago, efforts have been made to accept more students into residence so the vacancy rate will be lower. That plan was almost too successful last September, Walker said, when Ron Eydt Village found itself with about 40 more students than it was built to hold. A number of lounges were quickly converted to double rooms.

The 1997-98 residence rates, which will also apply in 1998-99, look like this: single rooms in the Villages, $3,072 for two terms; interconnecting rooms, $2,952; double rooms, $2,832; Minota Hagey rooms, $1,314 for a term; Townhouse rooms $2,628 for two terms; MSA one-bedroom apartments, $509 a month; two-bedroom apartments, $541 a month.

The housing office is getting ready to move to temporary quarters so that "phase II" of the renovations to the Village I residence complex can start this winter. The move will see the housing office based in Tutor's House #4, between Village I and REV, starting February 6, for about six months.

The budget for the renovations is $3,852,007, and the board of governors is expected to approve a contract for the work at the same meeting where the zero fee increase is approved. About three-quarters of the money is coming from the food services department, which will get a new central kitchen and bakery, "open concept servery", grill, café and dining room in the Village. Also planned, and to be paid for from the residences budget, are study rooms, a video games room, a multi-purpose and seminar room, and a central elevator, lobby and stairway. The new lobby space will be atop the building, linking the existing Great Hall and office areas.

The rest of the story

In yesterday's Bulletin I referred to the UW senate as "the university's top governing body", and a sharp-eyed reader promptly queried me: "Gee,wonder what the board of governors does?" A reasonable question, I suppose. Anyway, my apologies: I know that the draft of that paragraph correctly called the senate "the university's top academic governing body".

As for the board of governors, its executive committee will meet today at 2:30 in Needles Hall room 3004. On the agenda: the residence fees, mentioned above; an update on the proposed north campus "WatPark"; and other matters that are on their way to the full board when it meets February 3.

An appeal has been launched by the faculty of environmental studies for the victims of the ice storm in eastern Ontario and Québec. The fund-raising blitz will run until Friday, and will assist the Red Cross in providing relief for those suffering damages. To assist, place donations in sealed envelopes and deliver them to the office of Maureen Grant in Environmental Studies I room 215. Sealed donations will be deposited in the dean's office safe until the end of the drive, she reports, then will be counted and turned over to the Red Cross as a collective donation from the faculty of environmental studies. No tax receipts will be issued.

The student awards office reports that it's suffering "a severe backlog", and "in order to deliver financial aid programs to students accurately and on time", the office will be closed tomorrow (January 21) and the following two Wednesdays, January 28 and February 4.

Fall 1997 grade reports from undergraduate courses will be available for pickup tomorrow. Students in all faculties except engineering should head for the second floor of Needles Hall, starting at 10 a.m.; engineering students get their grades from their departmental offices. "Grade reports which are not picked up will not be mailed," says associate registrar Karen LeDrew.

The university committee on information systems and technology, unpronounceably known as UCIST, will hold an open meeting tomorrow about the draft policy statement on use of UW computing and communications facilities. The meeting runs from 12:15 to 1:15 in Needles Hall room 3001. A second meeting will be held Tuesday, January 27, at 3:30 p.m., same room.


Editor of the Daily Bulletin: Chris Redmond
Information and Public Affairs, University of Waterloo
credmond@uwaterloo.ca -- (519) 888-4567 ext. 3004
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