M C M A E M ’ P P E M C M E S ’ AS ST TE ER R MP PL LO OY YE EE ES EN NS SI IO ON N S U C O S C UR RP PL LU US S OM MM MI IT TT TE EE E
W HO R EPRESENTS Y OU Mc cM Ma as st te er r E Em mp pl lo oy ye ee es s’ ’ Y OUR C OMMITTEE : M Pe en ns si io on n S Su ur rp pl lu us s C Co om mm mi it tt te ee e P CFA TMG MURA 2 PAGE - 2 -
W HO R EPRESENTS Y OU (C ONT .) L EGAL C OUNSEL A CTUARIAL C ONSULTANTS 3 PAGE - 3 -
C HRONOLOGY � A UGUST , 1998 U NIVERSITY ESTABLISHES J OINT A DMINISTRATION / E MPLOYEE W ORKING G ROUP � S EPTEMBER , 1999 D RAFT O RIGINAL P ROPOSAL � E ARLY 2000 N EGOTIATIONS M C M ASTER E MPLOYEES ’ P ENSION S URPLUS C OMMITTEE E STABLISHED � S EPTEMBER , 2000 R EVISED U NIVERSITY P ROPOSAL 4 PAGE - 4 -
C URRENT S TATUS OF THE P LAN ( AT J ULY 1, 2000) A CTUARIAL V ALUE OF A SSETS $971,680,000 A CTUARIAL V ALUE OF P ENSIONS (647,406,000) F UNDING E XCESS (S URPLUS ) $324,274,000 P ROPOSED S URPLUS W ITHDRAWAL (150,000,000) E STIMATED S URPLUS “B UFFER ” $174,274,000* * B EFORE EXPENSES * T HIS AMOUNT MAY CHANGE 5 PAGE - 5 -
T O COMPLETE THE S URPLUS S HARING A GREEMENT THE U NIVERSITY MUST : 1. O BTAIN C ONSENT FROM VIRTUALLY A LL I NDIVIDUALS ENTITLED TO B ENEFITS F ROM T HE P LAN 2. O BTAIN C OURT A PPROVAL 3. O BTAIN R EGULATORY A PPROVAL 6 PAGE - 6 -
L EGAL O PINION RE : S URPLUS � W HEN THE P LAN IS O N -G OING , NO ONE ACTUALLY “O WNS ” THE S URPLUS � O NTARIO C OURT OF A PPEAL (1995): W HILE P LAN IS O N - G OING THE U NIVERSITY HAS THE LEGAL RIGHT TO UNILATERALLY TAKE C ONTRIBUTION H OLIDAYS � C OURT DID NOT MAKE A FINDING RE : SURPLUS OWNERSHIP ON WIND - UP , BUT DID HOLD THAT THE U NIVERSITY CAN NOT AMEND P LAN TO GIVE ITSELF THE SURPLUS 7 PAGE - 7 -
L EGAL O PINION RE : S URPLUS (C ONT .) � L EGAL COUNSEL REVIEWED ALL HISTORICAL PLAN DOCUMENTATION , AND FUNDING AGREEMENTS � I F THE P LAN WERE W OUND -U P TODAY , LEGAL COUNSEL BELIEVE THAT ALL SURPLUS MAY BELONG TO M EMBERS AND F ORMER M EMBERS OF THE P LAN 8 PAGE - 8 -
L EGAL O PINION RE : S URPLUS (C ONT .) BUT : � T HE U NIVERSITY HAS NO LEGAL OBLIGATION TO WIND - UP THE P LAN OR OTHERWISE DISTRIBUTE SURPLUS AT THIS TIME � T HE U NIVERSITY CAN CONTINUE TAKING CONTRIBUTION HOLIDAYS INDEFINITELY 9 PAGE - 9 -
T HE P ROPOSAL G UIDING P RINCIPLES 1. T HE S URPLUS IS SUFFICIENTLY LARGE AND DOES NOT GREATLY BENEFIT ANYONE AT THIS TIME 2. E QUAL S URPLUS SHARING BETWEEN U NIVERSITY AND M EMBERS AFTER DEDUCTING EXPENSES AND S URPLUS “B UFFER ” 3. E XISTING ACCRUED P ENSION P LAN OBLIGATIONS WILL NOT BE AFFECTED BY THIS P ROPOSAL 4. P ROVISION OF LIMITED T AX - SHELTERING O PTIONS , SUBJECT TO REGULATORY APPROVAL 10 PAGE - 10 -
T HE P ROPOSAL (C ONTINUED ) W HO IS INCLUDED IN THE E NTITLEMENT G ROUP ? A LL PERSONS WHO , BETWEEN J ULY 1 AND D ECEMBER 31, 2000 , WERE : � A CTIVE E MPLOYEE MEMBERS OF THE P LAN � P ENSIONERS AND SURVIVING SPOUSAL PENSIONERS � D EFERRED AND TERMINATED VESTED P LAN MEMBERS � B ENEFICIARIES AND E STATES OF PERSONS WHO ARE ENTITLED TO A BENEFIT FROM THE P LAN = APPROX . 4400 MEMBERS 11 PAGE - 11 -
T HE P ROPOSAL (C ONTINUED ) W HO IS NOT INCLUDED � A NYONE TRANSFERRED OUT OF THE P LAN PRIOR TO J ULY 1, 2000 WITHOUT HAVING MAINTAINED A BENEFIT IN THE P LAN � A NYONE WHO JOINED THE P LAN ON OR AFTER J ANUARY 1, 2001 T HE C OMMITTEE WILL NOT SUPPORT , AND MAY OPPOSE , THE INCLUSION OF ANY PERSONS WHO ARE NOT PROPERLY PART OF THE E NTITLEMENT G ROUP 12 PAGE - 12 -
T HE P ROPOSAL (C ONTINUED ) S URPLUS A LLOCATION F ORMULA � DISTRIBUTION BASED ON PRO - RATED ACTUARIAL VALUE OF PENSION , MODIFIED BY MINIMUMS M INIMUM S URPLUS D ISTRIBUTION : � A CTIVE AND D EFERRED M EMBERS $500 + $250/ Y . O . S . UP TO $3,000 (10 YEARS ) � P ENSIONERS : $5,000 13 PAGE - 13 -
R OLE OF THE C OMMITTEE ' S A CTUARIAL C ONSULTANT � A DVICE ON FINANCIAL / ACTUARIAL ASPECTS OF PROPOSAL � R EVIEW OF U NIVERSITY ACTUARY ' S CALCULATIONS � P ARTICIPATION IN REVIEW OF DATA INTEGRITY � P ARTICIPATION IN COMMUNICATION OF PROPOSAL � R ESPONSE TO MEMBERS ' TECHNICAL QUESTIONS 14 PAGE - 14 -
T HE PROPOSAL ( CONTINUED ) I NCOME T AX C ONSIDERATIONS � C ASH PAYMENT � T AXABLE � WITHHOLDING TAX AT SOURCE 15 PAGE - 15 -
T HE P ROPOSAL (C ONTINUED ) I NCOME T AX C ONSIDERATIONS (C ONTINUED ) � P OSSIBLE TAX -S HELTERING OPTIONS 1. A LL PERSONS ENTITLED UNDER AGE 69: � TRANSFER TO RRSP , IF AVAILABLE CONTRIBUTION ROOM 16 PAGE - 16 -
T HE P ROPOSAL (C ONTINUED ) I NCOME T AX C ONSIDERATIONS (C ONTINUED ) � P OSSIBLE TAX -S HELTERING OPTIONS 2. A CTIVE E MPLOYEE MEMBERS : � B UY -B ACK OF INITIAL U NIVERSITY SERVICE IF YOU DID NOT JOIN THE PLAN WHEN FIRST STARTED EMPLOYMENT WITH THE U NIVERSITY ( BETWEEN 6-18 MONTHS ) 17 PAGE - 17 -
T HE P ROPOSAL (C ONTINUED ) I NCOME T AX C ONSIDERATIONS (C ONTINUED ) � P OSSIBLE TAX -S HELTERING OPTIONS 3. P ENSIONERS AND D EFERRED MEMBERS � R EFUND OF PRE -1991 C ONTRIBUTIONS WITH INTEREST TO AN RRSP OR RRIF 18 PAGE - 18 -
T HE P ROPOSAL (C ONTINUED ) I NCOME T AX C ONSIDERATIONS (C ONTINUED ) � P OSSIBLE TAX -S HELTERING OPTIONS 4. E VERYONE � C ASH PAYMENT � T RY TO STAGGER PAYMENTS OVER TWO CALENDAR YEARS ? � T AXABLE DEDUCTIONS AT SOURCE 19 PAGE - 19 -
T HE P ROPOSAL (C ONTINUED ) I NCOME T AX C ONSIDERATIONS (C ONTINUED ) � P OSSIBLE TAX -S HELTERING OPTIONS A LL OPTIONS ARE SUBJECT TO ACCEPTANCE BY C ANADA C USTOMS AND R EVENUE A GENCY (CCRA) (F ORMERLY R EVENUE C ANADA ) 20 PAGE - 20 -
A CTUARIAL V ALUE O F P ENSION � A MOUNT REQUIRED TO FUND FUTURE PENSION PLAN BENEFITS , ( BASED ON SERVICE TO J ULY 1, 2000 FOR ACTIVE MEMBERS ) � T AKES ACCOUNT OF FUTURE INVESTMENT INCOME ( AT 6.5%) � R EFLECTS POSSIBLE FUTURE SALARY INCREASES ( AT AN ASSUMED RATE OF 5.5%) � I NCLUDES SURVIVOR AND OTHER DEATH BENEFITS � I NCLUDES TERMINATION OF EMPLOYMENT BENEFITS 21 PAGE - 21 -
L IABILITIES & S URPLUS S HARING A S A T J ULY 1, 2000 (A MOUNTS I N $1,000' S ) A CTUARIAL V ALUE S URPLUS N UMBER O F P ENSIONS S HARE A CTIVE M EMBERS 2,889 348,165 (53.8%) 40,071 P ENSIONERS 1,081 277,087 (42.8%) 32,356 D EFERRED /I NACTIVE 391 22,154 (3.4%) 2,573 T OTAL 4,361 647,406 (100.0%) 75,000 22 PAGE - 22 -
A CTIVE M EMBER L IABILITIES A ND S URPLUS S HARES (A MOUNTS I N $1,000' S ) A CTUARIAL V ALUE S URPLUS N UMBER O F P ENSIONS S HARE S TAFF 1,933 146,055 (22.6%) 16,886 N ON -C LINICAL F ACULTY 759 160,218 (24.7%) 18,384 C LINICAL F ACULTY 124 32,318 (5.0%) 3,703 D ISABLED M EMBERS 73 9,574 (1.5%) 1,098 T OTAL 2,889 348,165 (53.8%) 40,071 23 PAGE - 23 -
M AIN F ACTORS A FFECTING A CTUARIAL V ALUE O F P ENSION � A CTIVE MEMBERS AGE SALARY YEARS OF SERVICE � P ENSIONERS AGE PENSION AMOUNT SPOUSE ' S AGE ( IF APPLICABLE ) � D EFERRED M EMBERS AGE , PENSION AMOUNT 24 PAGE - 24 -
S URPLUS S HARE E XAMPLES A CTIVE MEMBERS Y EARS O F A CTUARIAL S URPLUS A GE S ERVICE S ALARY V ALUE S HARE #1 25 1 $32,000 $2,700 $750 #2 40 15 $45,000 $95,600 $10,500 #3 40 15 $80,000 $179,800 $19,800 #4 60 15 $45,000 $118,100 $13,000 #5 60 30 $100,000 $423,100 $46,500 N OTE : A MOUNTS ARE APPROXIMATIONS ONLY 25 PAGE - 25 -
S URPLUS S HARE E XAMPLES P ENSIONERS S POUSE M ONTHLY A CTUARIAL S URPLUS A GE A GE P ENSION V ALUE S HARE #1 55 58 $2,100 $389,900 $42,900 #2 65 63 $4,100 $692,000 $76,100 #3 75 N / A $270 $24,400 $5,000 #4 75 73 $4,100 $489,800 $53,900 #5 90 N / A $650 $38,000 $5,000 #6 90 88 $4,100 $243,000 $26,700 N OTE : A MOUNTS ARE APPROXIMATIONS ONLY 26 PAGE - 26 -
B UY -B ACK OF I NITIAL U NIVERSITY S ERVICE � A VAILABLE ONLY TO ACTIVE MEMBERS ON DISTRIBUTION DATE � U P T O 18 M ONTHS M AY B E A VAILABLE � I NCREASES F UTURE P ENSION /T ERMINATION /D EATH B ENEFITS � P RICED O N F AVOURABLE B ASIS (A SSUMES S INGLE M ALE R ETIRING A T A GE 65) � U SE T ABLE T O E STIMATE C OST O F B UY -B ACK 27 PAGE - 27 -
B UY -B ACK E XAMPLE 1. C ALCULATE SERVICE BEFORE ENROLMENT DATE ( E . G . 0.5 YEARS ) 2. E STIMATE COST OF BUYING BACK ONE YEAR FROM T ABLE ( E . G . $2,734 AT AGE 45 WITH $40,000 PENSIONABLE EARNINGS ) 3. M ULTIPLY TO GET BUY - BACK COST (e.g. 0.5 X $2,734 = $1,367) 28 PAGE - 28 -
B UY -B ACK E XAMPLE (Continued) � S URPLUS SHARE IN EXCESS OF BUY - BACK COST PAYABLE IN CASH ( MAY BE TRANSFERRED TO RRSP IF YOU HAVE CONTRIB . ROOM ) � P ARTIAL BUY - BACK IF BUY - BACK COST EXCEEDS SURPLUS SHARE 29 PAGE - 29 -
R EFUND O F P RE -1991 C ONTRIBUTIONS � A VAILABLE ONLY TO PENSIONERS AND DEFERRED VESTEDS � A MOUNT SHOWN ON SURPLUS SHARING STATEMENT � U P TO AGE 69, MAY BE TRANSFERRED TAX - FREE TO RRSP / RRIF � A BOVE AGE 69, MAY BE TRANSFERRED TAX - FREE TO RRIF 30 PAGE - 30 -
R EFUND O F P RE -1991 C ONTRIBUTIONS (Continued) � S URPLUS SHARE IN EXCESS OF PRE -1991 CONTRIBUTIONS PAYABLE IN CASH ( TRANSFERABLE TO RRSP IF YOU HAVE ROOM ) � P ARTIAL REFUND IF SURPLUS SHARE LESS THAN PRE -1991 CONTRIBUTION AMOUNT 31 PAGE - 31 -
R EFUND O F P RE -1991 C ONTRIBUTIONS F OR A CTIVE M EMBERS ? � CCRA POSITION - NOT POSSIBLE IF FUTURE MEMBER CONTRIBUTIONS REQUIRED � M AY BE POSSIBLE FOR MEMBERS TERMINATED SINCE JULY 2000 � E VEN IF PERMITTED BY CCRA , PROBLEMATIC DUE TO POSSIBLE IMPACT ON FUTURE TERMINATION / RETIREMENT BENEFITS 32 PAGE - 32 -
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