April 15, 2009
Dear Brock University Pensioners: RE: Brock University Pension Plan Update
As communicated in the February 4, 2009 pensioner letter, the Brock University Pension Plan has been negatively affected by the market turmoil which the world has been experiencing over the last 9 months. As a result, pensioner’s Money Purchase Pension amounts will be decreased significantly effective July 1, 2009. Due to the potential size of the decrease in Money Purchase Pensions this year, the University will make the necessary adjustment in 2 steps versus the 1 step which is normally done, in an attempt to minimize the effect on pensioners during the last 9 months of the 2009/10 Plan year. The total amount of the adjustment will not be affected by doing the adjustment in 2 steps. The February 4, 2009 letter reviewed how pensioner’s Money Purchase and Minimum Guaranteed Pensions are adjusted annually. This letter will review the timing of the adjustment in the previous years and the timing of the adjustments for this year, using a question and answer format. 1) What has been the timing of pension adjustments in previous years? Pension adjustments in the Brock Pension Plan are effective July 1st of each Plan year. Historically, the adjustment has occurred with the October 1st payment. There is a delay because it takes time to determine the final year end rate of return, analyze pensioner data, determine the magnitude of the adjustment, and implement the adjustment. The result of this delay is either an overpayment or an underpayment for the months of July, August and September (depending on whether pensions are decreased or increased). Historically, years where there has been an underpayment for the 3 months, pensioners received a lump sum amount with their October pay to account for the underpayment. In years when there has been an overpayment for the months of July, August and September, the amount of the overpayment is taken off over the next 9 months (October to June).
Example: Money Purchase Pension amount July 1, 2007: Adjustment to Money Purchase Pensions for July 1, 2008: Money Purchase Pension amount effective July 1, 2008: $1,000 per month -7.7586% $922.41 per month
Amount of overpayment for July to September:
=($1,000 - $922.41) * 3 months =$232.77 =232.77 / 9 months =25.86 per month =$922.41 - $25.86 =$896.55
Adjustment required on monthly payments for October to June: Amount of monthly payment October to June:
2) What will the timing of pension adjustments for the July 1, 2009 to June 30, 2010 Plan year be? This year, pensions will be adjusted in a 2 step process: Step 1 – July 1, 2009 Payment Your Money Purchase Pension will be adjusted, on an approximate basis, starting with the July 1, 2009 payment amount. This adjustment will account for any difference between the assumed rate of return of 4.75% (i.e. 6% per annum for 9 months) and the actual rate of return for the period from July 1, 2008 to March 31, 2009. If your Money Purchase Pension amount drops below your Minimum Guaranteed Pension amount, you will receive your Minimum Guaranteed Pension amount. A letter will be sent to you in June 2009 providing you with details of the change in the amount of your July 1, 2009 payment. Step 2 – October 2009 Payment As in prior years, the final adjustment to your Money Purchase Pension and your Minimum Guaranteed Pension will be calculated once all of the necessary year end factors are known. As such, your pension amounts will change, for a second time, starting with your October 1, 2009 pension payment. A letter will be sent to you in September 2009 informing you of the change in the amount of your October 2009 payment.
3) Why is a 2 step process being used this year? The University recognizes that, this year, there will be a large decrease in pensions effective July 1st. Under the historical practice, because the actual adjustment would not occur until the October 1st payment, there would be a fairly large overpayment to pensioners during the months of July, August and September, which would result in an even greater reduction in the pension you receive in the remaining months in the Plan year. This would make it even more challenging for pensioners to budget between July 1, 2009 and June 30, 2010. Some pensioners have expressed a desire that, in a year such as the current year which has experienced extremely negative markets, there be an initial adjustment made to the July 1st payment in an attempt to minimize the need for a further reduction in pensions starting in October. 4) Will using a 2 step process affect the total adjustment to my pension? Using the 2 step process to make the necessary adjustments to pensions will not affect the total amount of the pension you receive during the 2009/2010 plan year. It is simply an effort to minimize the need for a further reduction in your pension starting in October by minimizing the potential overpayment during the months of July, August and September. 5) What if the markets rebound positively during the months of April, May and June 2009? The effects of the Plan’s rate of return (positive or negative) during the remaining 3 months of the Plan year will be accounted for in the second step of the adjustment. 6) Will the 2 step process be used in future adjustments? The University will review the need for such a process on a year by year basis. It is expected that the 2 step process will be used only in years of extreme negative market conditions, such as the current year. The University will always provide communication to pensioners to inform them if the 2 step adjustment process is being used. 7) Will the timing of adjustment be the same for my Additional Voluntary Contribution Pension or my Special Vested Contribution Pensions? Additional Voluntary Contribution Pensions and Special Vested Contribution Pensions are adjusted in the same manner as Money Purchase Pensions, thus will also be adjusted this year using the 2 step process. There is no minimum guaranteed amount associated with these pensions like there is with Money Purchase Pensions. Additional Voluntary Contribution Pensions are received by pensioners who had contributed additional voluntary contributions to the Plan during their years of employment with the University and elected to use those funds to take an Additional Voluntary Contribution Pension at retirement, rather than to transfer the funds from the Plan. Special Vested Contribution Pensions are received by pensioners who had transferred funds into the Brock Pension Plan from a previous employer’s registered pension plan and elected to use those funds to take a Special Vested Contribution Pension at retirement, rather than to transfer them from the Plan.
8) What if I am already receiving my Minimum Guaranteed Pension amount? The few pensioners who are currently receiving their Minimum Guaranteed Pension amount will not see a change to their July 1, 2009 payment, as their payment amount will not decrease. These pensioners will receive a letter in September informing them of their adjusted Money Purchase Pension amount and Minimum Guaranteed Pension amount. These adjusted pension amounts will be effective retroactively to July 1, 2009, but will start with the October 1, 2009 payment. The amount of any underpayment for the months of July, August and September will be made with their October 1, 2009 payment. 9) How have the markets performed thus far in the 2008/09 Plan year? Quarterly market reviews prepared by Towers Perrin, which provide commentary on market conditions during the quarter, are posted on the University’s pension web site (http://www.brocku.ca/hr/pension/) for member’s reference. Rates of return (from the standpoint of a Canadian investor) in various market indices are summarized in the following table. Market Returns July 1, 2008 to March 31, 2009 Index S&P/TSX Composite (Canada) S&P 500 (USA) MSCI EAFE (Emerging Markets) MSCI World DEX Bond Universe $Cdn -38.11% -21.07% -31.94% -27.26% 5.70%
10) What are the investment results known thus far for the Brock University Pension Plan in the 2008/09 Plan year? Monthly rates of return are posted on the University’s pension web site http://www.brocku.ca/hr/pension/ throughout the Plan year. The known rates to date are: Rate of Return -2.5836% 0.6265% -9.4986% -9.4662% -3.3286% 3.2067% -3.8868% -3.6765% -25.8123%
Month July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 February 2009 Cumulative Rate of Return July 1 to February 28 2009:
Please note that the rate of return for March 2009 is not known at this point in time. We expect that this rate will be available in late April. 11) What are the current amounts for my Money Purchase Pension and Minimum Guaranteed Pension? Your current gross pension amounts for the July 1, 2008 to June 30, 2009 plan year, as communicated to you in September 2008, are: Money Purchase Pension: $###.## Minimum Guaranteed Pension: $###.##
Additional Voluntary Contribution Pension: $###.## Special Vested Contribution Pension: $###.##
These amounts will be adjusted effective July 1, 2009, as outlined in my letter of February 4, 2009. As mentioned above, the total adjustment for this Plan year will be implemented in 2 steps. A letter stating the effect of the first step of the adjustment on your pension will be sent in June 2009. 12) Who do I contact for information regarding my pension? Pensioners can contact Wanda Fast (ext. 4898 or wfast@brocku.ca) or Janice Facey (ext. 3186 or jfacey@brocku.ca) at any time regarding pension related matters.