Changes to the Non-Reduction Reserve
by Al Stauffer, President of the Association of Retired Faculty and Librarians and YUFA Executive member
18 Jan 12 - You will have noticed from the 11 December 2011 Pensions & Benefits newsletter that starting on January 1, 2013, upon retirement, 6% of the amount in your Money Purchase Account (MPA) will be transferred to the Non-Reduction Reserve (NRR). YUFA has obtained a detailed legal opinion that this did not constitute a Pension Plan change, however our actuary is undertaking a review of the actuarial assumptions used in making the changes to the Non-Reduction Reserve to see if they are reasonable. If they are deemed to be unreasonable, this would constitute grounds for appeal.
Here is an explanation of what this change will mean to YUFA members contemplating retirement in the near future.
As explained in the Pension Primer, the Non-Reduction Reserve is used to maintain pensions at their current level if the returns for the York Pension Plan (YPP) fall below 6%, the amount the fund is assumed to earn when your initial pension amount is calculated. Due to poor returns in the recent past and foreseeable future, the actuaries employed by the YPP have determined that an increased transfer is necessary to maintain the NRR.
If you are contemplating retirement, you will want to know the likely effect of this change on your retirement pension. Currently, a large percentage of YPP members retiring do so on a minimum guarantee. If this is your case, there will be no change in your pension. (You can check your own situation by using the Retirement Planner on the York Website).
If this is not your case, there is another technicality you need to know about. These transfers only affect the money in your MPA which arise from contributions made from January 1, 1992. Thus if you are a long-service employee, the amount actually transferred is probably much less than the percentages quoted.
If you are one of the few who will get a pension based on the funds in your MPA and you retire before January 1, 2013, 3.5% of the amount in your MPA due to contributions from January 1, 1992 will be transferred to the NRR. If you retire on or after this date, the amount transferred will be increased to 6%.
Should you be concerned about this upcoming change? If you retire on a minimum guarantee, the answer is clearly no. If your pension would be above this amount under the current rules, the change may mean that your pension will be based on the minimum guarantee. In any case, the amount of reduction in your pension due to the new rules would be no more than 2.5% and probably less.
Remember that if you retire between the ages of 60 and 65, your pension will be reduced by a quarter percent for every month you are below the age of 65. Thus it is very unlikely that it would be financially beneficial to retire early to avoid the increased transfers. Since individual cases vary considerably, it would be wise to seek advice from a financial advisor before making any firm decisions on this matter. (Under Article 14.07 of the Collective Agreement, you are entitled to $850 in financial assistance toward individual financial counseling.)