Our Pension Q&A
by Léo Richer | Chair, Pension & Financial Wellness Committee
Lack of information is detrimental at any time; misinformation is equally damaging. Pension information is no exception, including the ongoing controversy concerning the management of the teachers’ pension plan in Alberta. To dispense with some of those myths, the Pension & Financial Wellness Committee has compiled a series of Q&A. While most of these questions came from teachers, the information is relevant to anyone with a pension plan.
Q1. Why is the ATA filing a legal challenge on pensions?
Documents submitted with the Court of Queen’s Bench on March 10, 2021, outline how the terms and conditions imposed in Finance Minister Travis Toews’ Ministerial Order are inconsistent with the Alberta Investment Management Corporation (AIMCo) Act and the Teachers’ Pension Plans Act. The Ministerial Order gives more rights to AIMCo and infringes on Alberta Teachers’ Retirement Fund (ATRF) rights as they are provided in those two pieces of legislation. The Alberta Teachers’ Association (ATA) is also challenging the Government’s breach of duty of procedural fairness owed to the association. The above order imposed terms and conditions for the relationship between the ATRF and AIMCo after unsuccessful negotiations to reach an investment management agreement.
Q2. Does the Alberta Government guarantee teachers’ pensions?
No, the Alberta Government has not guaranteed teachers’ pensions since a negotiated pension agreement was reached in 2007.
Q3. Is my pension safe?
The teachers’ pension plan is not in debt. Every year, the plan collects more money in contributions than it requires to meet its obligations to current pensioners. Pension benefits accrued since September 1992 are funded as they are earned, and plan assets continue to grow. As of August 2020, the plan had over $19.3 billion in assets. The plan was 82% funded in 2015 and 96% funded in 2020, with plans to be 100% funded in 2027.
Q4. How is the plan funded?
Our pension fund comes from contributions made by us and our employer — the provincial government — while we were active teachers. These funds are invested for the long term with the view of growing the value of the fund. Over 80% of our pension is generated from the investment of these funds.
The ATRF board modifies contribution rates, as required, following each actuarial valuation. Contribution rates are set to cover the cost of the plan benefits currently being accrued. This includes the cost-of-living adjustments (COLA). Retired members are entitled to receive an adjustment equal to 60% of the change in the Alberta Consumer Price Index for service prior to 1993, and 70% for service after 1992.
Q5. Is the ATRF pension a good deal?
The average teacher lives thirty years after retirement. Most teachers will continue to get more out of the pension plan than they ever put into it. For every dollar that teachers contribute to their pension, they get eight dollars back in retirement. The cost of managing the Teachers’ Pension Plan is about one-fifth of the cost of investing on your own. Your pension is guaranteed for life and is inflation-protected. The risk of lower-than-expected returns is not borne by the pensioner but shared between all contributing teachers and the Alberta Government.
Q6. When was our pension plan created?
In 1939, Alberta teachers and the Government had the foresight to allocate some of that year’s education budget, which would have otherwise been available for salaries, to the teachers’ pension plan.
Q7. I’ve heard people say my pension is really a deferred salary. What does this mean?
Each month, teachers have a portion of their salary placed into the ATRF. The government matches each teacher’s contribution (teachers pay a bit more to increase COLA payments from 60% to 70% for service since 1992). These contributions are invested on our behalf by the ATRF. When we retire, our contributions and the investment returns generated by those contributions are returned to us, slowly, over the course of our remaining lives.
Q8. What is a defined benefit plan?
A defined benefit plan provides members with a defined pension income when they retire. The formula used to determine a member’s benefit usually involves factors such as years of membership in the pension plan and the member’s salary. Teachers contribute their monthly contributions designated for the pension fund from their take-home pay, and the employer’s portion is part of the teacher’s financial compensation package. Teachers agreed to defer that compensation and to take it as pension in retirement instead. Those monthly contributions and the profit from the investments over the course of a teacher’s career are an efficient and cost-effective way to provide teachers with retirement income.
Q9. What is a full pension?
For Alberta teachers, there is no full pension. The 85 factor (age plus years of service) provides an unreduced pension — they are not penalized for drawing their pension too early. Teachers can continue to earn pensionable service and pay their monthly pension payments, up to age 70, if they have the stamina and drive to teach that long! Each year of service adds to their eventual pension income.
Q10. People say our pensions should give us 70% of our teaching salary. How does that work?
The key word here is pensions, which include both our teachers’ pension plan and the Canada Pension Plan (CPP). The two pension plans make several significant assumptions: 1) you retire at age 65; 2) you contributed to the plans for at least thirty-nine years (to receive maximum CPP); and 3) your contributions were at or exceeded the yearly maximum pensionable earnings (YMPE). The CPP is designed to cover 25% of your earnings but only to the YMPE, currently $61,600 (adjusted annually). Your teacher’s pension could be between 50% and 55% of your best five-year average salary depending on the number of full-time years. Our full-time salary exceeds the YMPE, so when we add the two pension amounts, we get around 70% of our best five-year average salary. Old Age Security payments often bring that number above 70%.
Members of the Pension & Financial Wellness Committee worked together to write this article. They sought advice from individuals and used previously written material from both the ATA and ATRF. Many thanks to Sheila MacKay, Blair Lowry, Ray Hoger, and Marilyn Bossert.