York University administration plans cuts to members’ money purchase pensions

The York University senior administration is warning that it may impose a 5% cut to members’ money purchase pensions. This is related to the non-reduction levy charged to money purchase pensions and so would not apply to members who will be receiving a minimum guarantee pension. YUFA is concerned that the employer has not yet indicated to members that they may impose this cut – possibly as early as January 1, 2023 - and as a result members may be giving notice of retirement only to find out that their pension may be lower than expected.

The proposed cut would take the form of a 5% increase to the non-reduction charge that is levied on members’ money purchase accounts when those accounts are converted to an annual pension. Currently the levy stands at 5% and the proposal would bring this to 10%. It is intended to pay for the (supposedly) increased cost of protecting member’s pensions from reduction during retirement. Under pension regulations a money purchase pension must be self-funding. One way to achieve that goal is to allow pension payments to vary – up or down – according to the financial earnings of the Plan’s fund. Hence, our Plan’s provision which guarantees non-reduction (no downward variability) must be paid for to account for the fact that the financial performance of the fund over time might not be good enough to support future pension payments under that guarantee. By contrast, the non-reduction protection built into minimum guarantee pensions does not have to be funded since it is a normal feature of a “defined benefit” pension under law.

It is YUFA’s position that the employer’s proposal to double the non-reduction levy is unreasonable, and there is support for our position among other employee groups at the All University Pension Committee (AUPC) where this is being challenged (with possible litigation to follow). The employer’s position is based on an actuary’s report that includes speculative assumptions (made before recent market declines) about poor future financial returns. Perhaps more importantly, it is based on an invalid modeling of the York Plan. Remarkably, the administration and the actuary have both admitted that the non-reduction protection is being priced using a model that assumes that members’ pensions without that protection could be subject to unlimited reductions. This is clearly incorrect since the York Plan is a hybrid plan with a clearly established minimum guarantee floor. Pensions paid at the minimum guarantee amount are “defined benefit” pensions which are insured by the university (the Plan sponsor) under the legal provisions of the Plan and therefore do not need to be self-financing.

It is clear that by pricing the non-reduction guarantee to protect against full variability (as if there was no floor) the university is overpricing the guarantee. In effect, they are inappropriately diverting some of the pension benefits owed to members to offset a portion of the employer’s own funding obligations under the legal terms of the York University Pension Plan. Unfortunately, this unwarranted attempt to reduce retiree support for recipients of money purchase pensions is coming at the same time that the administration is refusing to convert new funds for retiree benefits into an improved retiree benefits plan (see item in next YUFA newsletter).

Given the large increases to inflation, as well as the lack of inflation indexing in either our pension plan or our retiree benefits plan, YUFA understands that this news may be frustrating for members considering retirement. Money purchase pensions are already likely to decline due to large investment losses for the Plan this year. YUFA advises members that under Article 14.02 (a) there is a provision to postpone retirement decisions (for July 2023) beyond the default date of September 30. This would allow members to wait to finalize their decisions once they know the fate of proposed adverse pension changes.

Members with questions or concerns are encouraged to email [email protected].