Improving Equity in Three Big Ways for the General Membership (Group 1)
The Municipal Pension Plan has not had a comprehensive plan design review in 50 years. It is time for updates to reflect the changing nature of work and retirement, and how the majority of members are using their pension.
The proposed changes improve equity in the plan in three important ways.
- Moving to a flat accrual rate: This means all members will earn the same benefit (1.9%) in proportion to their salary on future service earned after January 1, 2022. This will do away with a two- tiered system where members earn 1.3% on salary up to the YMPE (Year’s Maximum Pensionable Earnings – in 2020, this is $58,700) and 2.0% on salary above the YMPE (any amount of salary above $58,700 in 2020).
- Moving to a single contribution rate: The existing formula used for determining the appropriate contribution rates above and below the YMPE has fallen out of step with the benefit being accrued and negatively impacts lower income earners. A single contribution rate means this formula will no longer be used and YMPE will not play a role in calculating accrued pension entitlements. All members will contribute the same amount (8.61%).
- Removing the bridge benefits on future service and pre-age-60 early retirement subsidies: While all members’ contributions fund the bridge benefit and pre-age-60 early retirement, not all members benefit from them.
Approximately a third of general members benefit from the early retirement subsidies. Under the proposed changes, members who opt for pre-age-60 early retirement will not be subsidized by members who do not or cannot afford to retire prior to age 60. The savings from the subsidy will be used to improve the lifetime pension (pension received throughout retirement excluding the bridge benefit) for the majority of members. It is important to note that the average age of retirement in the Municipal Pension Plan is 61. The subsidies for earlier retirement at or after age 60 are not being removed, i.e., members retiring at or after age 60 with at least 2 years of contributory service will still be eligible for an unreduced retirement benefit. The bridge benefit is a temporary benefit provided upon retirement until age 65 when it stops. This can be confusing and startling for retirees if they do not understand or forget that this bridge is going to stop.
By removing the bridge in favour of further increasing the lifetime benefit, this issue goes away. An improved lifetime benefit also supports people in their later years, given improvements in life expectancy.
The Key Principles of the Plan Redesign
Extensive work has been done by the board and plan partners to understand the interactions of benefits, cross-subsidies, and inequities. Plan partners have also spent time in developing and agreeing on a set of principles and priorities. Those principles are to make changes that:
- improve equity for members,
- align benefits with how the majority of members use them,
- set a strong foundation for the long-term sustainability of the plan, and
- stay within the current cost envelope.
The plan partners also sought in-depth legal, actuarial, and policy advice that considered the various plan design issues and options. They reviewed and analyzed data surrounding plan member demographics and retirement trends to inform how various changes to plan design may impact individuals across different unions and member groups and across different income levels. There were numerous costing exercises to understand the immediate and long-term impacts of various options.
Where We Are Now
The plan partners believe the proposed plan design changes, in addition to the changes implemented over the last few years, represent the best set of options that will greatly improve equity in the plan, provide benefit improvements for most plan members, and protect the plan’s sustainability into the future.