PENSION BARGAINING BULLETIN
A Commentary by National CAW Pension & Benefit Rep,
The current economic climate poses significant challenges for pension funds. The
combination of market volatility, negative investment returns, and historically low long-
term interest rates have pushed many pension funds into deficit.
Like many other pension funds, the McMaster University Salaried Pension Plan
(McMaster salaried plan) has a deficit. Based on the most up-to-date financial report (or
valuation report), as at July 1, 2007 the McMaster salaried plan was 97% funded, with a
shortfall of $66 M.
This deficit ratio is modest in comparison to the average funding level of a typical
defined benefit pension plan in Canada, which is currently around 62%.
The McMaster University Salaried Pension Plan is in better shape than most other
pension funds and the benefit promise is secure.
McMaster U Salaried Pension Plan Cost
The total cost of the pension plan in the 2008/09 plan year is $49.959 M and $52.743 M
The University is required to make special payments of $7.134 M annually, amortized
over fifteen years, to fund the $66 M shortfall. The $7.134 M payment is in addition to
the University’s required minimum payments to fund the on-going cost of the pension
plan, which is $28.7 M for the plan year 2008/09 and $30.7 M for 2009/10. In total, the
University is required to pay a total of $35.8 M in 2008/09 and $37.8 M in 2009/10 plan
Aggregate member contributions are estimated at $14.1 M in 2008/09 and $14.9 M in
TOTAL COST OF SALARIED PENSION PLAN
BASED ON JULY 1, 2007 VALUATION REPORT ($000)
2007/2008 2008/2009 2009/2010
$12,933 $14,147 $14,894
$27,278 $28,678 $30,715
(Current Service Cost)
Minimum Special Payments $7,134 $7,134 $7,134
TOTAL COST $47,345 $49,959 $52,743
Riding the Wave of Surplus
This deficit position follows years of plan surpluses wherein the University took
contribution holidays, using the surplus within the pension fund to pay for its share of the
cost. The plan year 2006/07 represents the first year in many whereby the University
paid its full share of the pension cost from its operating revenues/internally restricted
In the five years between 2000/01 and 2005/06, the University took contribution holidays
totaling some $99 M, and in the thirteen years leading up to 2000, the University did not
contribute at all to the fund. In essence, members paid for their own pension benefits.
PLAN NORMAL MEMBERS’ UNIVERSITY’S SURPLUS
YEAR COST CONTRIBUTION CONTRIBUTION USED
2000/2001 $22,186,260 $2,873,868 (50%) $0 $19,312,392
2001/2002 $23,560,783 $0 $20,508,868
2002/2003 $23,619,000 $0 $20,667,000
2003/2004 $24,542,077 $6,015,215 $3,340,062 $15,186,800
2004/2005 $29,764,000 $7,295,000 $7,343,000 $15,126,000
2005/2006 $34,892,000 $8,552,000 $18,454,000 $7,886,000
2006/2007 $36,898,000 $10,265,000 $34,801,000 $0
The unilateral use of contribution holidays is common in the university sector as many
university employers ‘rode the wave’ of surplus during good times in the stock market,
applying the pension contributions towards other uses such as infrastructure.
Many employers justified the use of contribution holidays by pointing to the Revenue
Canada rule that prohibits employer contributions when the pension fund has ‘excess
surplus’. However, this ‘excess surplus’ could have been used to improve plan member
benefits, and by doing so, the surplus would have dwindled to an allowable limit under
Revenue Canada requirements.
Pensions Under Attack
Now that challenging economic times are upon us and there is no surplus to pay for the
employer’s share of the cost, employers are looking to plan members to make sacrifices
so as to limit their own contributions and risk.
Now that employers are on the hook to contribute to the plan, they are insisting that plan
members pay more out of pocket. The employer community is also wanting to water
down early retirement provisions, convert defined benefit pension plans to Group RRSPs,
freeze credited service in existing plans, limit new plan entrants, and establish two-tier
pension structures. Post-employment health care benefits (i.e. retiree benefits) are also
Virtually every bargaining committee is facing one or all of these demands in contract
In the last set of negotiations in 2006, member pension contribution rates increased by
0.75% in the first year, 0.75% in the second year and 0.5% in the third year, bringing
CAW Local 555 member contribution rates to 5.5% of earnings up to the YMPE (Year’s
Maximum Pensionable Earnings which is $46,300 in 2009) and 7.0% of earnings in
excess of YMPE. These pension contribution rate increases were offset by identical
across-the-board wage increases which were rolled into base earnings.
Compared to other university pension plans, CAW Local 555 member contributions to
the pension plan are ‘mid-range’.
The funding shortfall in the McMaster salaried plan did not arise as a result of low
member contribution rates. Besides, increasing member contributions will have minimal
impact on improving the funding position of the plan. The plan’s funding position will
recover when the economy rebounds and investment returns improve.
University Pension Plan Member Contribution Rates
McMaster U of T Ottawa Waterloo Queen’s
5.5%/7.0% 5.0%/6.0% 4.25%/6.5% 5.05%/7.85% 4.5%/6.0%
Western Windsor Guelph Trent
2.5% 4.2%/6.0% 6.16%/6.25% 6.0%
Factor 80 – Unreduced Early Retirement
Our biggest challenge in the last set of negotiations in 2006 was to maintain our early
retirement provision – “Factor 80” - which provides for an unreduced pension when your
age and credited service totals 80 points. Prior to the commencement of our negotiations,
the faculty association agreed to water down Factor 80 for its members, with a complete
phasing out of factor 80 to factor 85 by 2016 for existing faculty and immediately for
post-2006 faculty hires. This put severe pressure on us to agree to the same concession.
We were successful in defending Factor 80 in the last round of negotiations. This is
because the membership supported the bargaining committee, sending a loud and clear
message to the University that we would not concede.
Factor 80 is invaluable to CAW Local 555 membership given the differing nature of our
work compared to faculty and the early age at which a majority of our members
commence employment at the University. Administrative staff and workers at other
universities have similar early retirement provisions.
McMaster U of T Ottawa Waterloo Guelph Trent
Factor 90 or Age 60 and
Factor 80 Factor 80 Age 62 Factor 85
Age 60 Factor 80
Two-Tier Pension Plans
Two-tier pension structures occur where one group of members belong to a defined
benefit pension plan and another group, usually new hires, belong to a pension plan that
provides a lesser benefit such as a Group RRSP. This is a common demand made by
employers at the bargaining table.
Not only are two-tier structures divisive to the membership, but eventually, as
demographics shift, the defined benefit pension plan becomes unsustainable and difficult
to negotiate. Two-tier structures are unfair to new hires and eventually cause grief for
more senior members.
If you have any questions regarding this newsletter, please contact Cara MacDonald,
CAW National Representative in the Pension & Benefits Department, at 1-800-268-5763
CAW Local 555 Education Committee is also hosting Pension Information Sessions on
April 22 and May 19. Contact the local for more information and to register.