Retired Teachers' Association

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ELK VALLEY BRANCH PROPOSED PENSION MOTION TO THE BCRT AGM

The Elk Valley Branch of the Retired Teachers' Association put forward a motion regarding how inflation adjustments are applied to Pensions at this year's B. C. Retired Teachers' Association Annual General Meeting, The motion was referred to the Pensions and Benefits Committee of the BCRTA for investigation, with a report back to the 2011 AGM. This is a prudent approach to take to a decision of this magnitude.

In any democratic organization, an informed membership is one most likely to make correct decisions. To this end, EVRTA wishes to share our research and thoughts on the revision to the IAA distribution with all members before the vote at the 2011 AGM.

Members of the Elk Valley Branch proposed the following motion:

“ That the BCRTA request that the Teachers’ Pension Plan Board of Trustees amend the policy of Inflation Adjustments by replacing the across-the-board percentage increase with a dollar amount that is the same for every retiree”.

The Issue:

First: This is NOT a request for a complete overhaul in the philosophy and operation of the Inflation Adjustment Account.

Second: How salaries of working educators and consequently, their pensions are calculated is NOT at issue.

Working educators have opportunities to increase their salaries and indexing, by adding an across-the-board percentage to each salary, rewards those who do, with larger salaries and Consequently, they enjoy larger pensions throughout their retirement.

Since the contributions to the pension plan are a set percentage of salary, the teacher with the lower salary contributes less to the pension plan than does the teacher with the higher salary. Similarly, the teacher with the shorter service has contributed less to the pension plan. Therefore it is equitable that the pension of the short service or lower salary teacher is less than the longer service or higher salary teacher

This is not to suggest that the salary or pension determination model is flawed.

How inflation Adjustments are applied to those pensions is the issue.

Since the Inflation Adjustment Accounts were created in the early 1980s “full cost of living increases, based on the Canadian Consumer Price Index (CPI) have been granted every year”. By applying these increases to pensions as across-the-board percentage increases, small pensions have become relatively smaller and larger pensions have become relatively larger.

There are retired teachers with small pensions and limited household incomes whose financial insecurity is exacerbated by the fact that the income gap widens as smaller pensions become relatively smaller and the larger ones become relatively larger with compounding inflation protection increases.

Some of you have seen the chart – all of us know the effect of compounding salaries*.

I’m going to give you a few figures that I’d like you to think about illustrating the long-term effect of compounding inflation protection increases on smaller and larger pensions:

With an example of 3% cost of living increases, compounded, the retiree starting with $20,000 has an income of $48,574 after 30 years, whereas the retiree starting with $50,000 has an income of $121,363.

While the difference in income at the time of retirement was $30,000, the difference after 30 years will be $72,789.

This brings us to the Rationale for raising the issue:

It is evident that, while retired teachers are generally characterized as "financially and medically secure", it is not true for everyone.

I repeat,
There are retired teachers with small pensions and limited household incomes whose financial insecurity is exacerbated by the fact that the income gap widens as smaller pensions become relatively smaller and the larger ones become relatively larger with compounding inflation protection increases.

Whereas, again applying the 3% Inflation Factor, the retiree beginning with a $50,000 pension has an additional $71,363 to deal with these costs after 30 years, the retiree whose pension began at $20,000 has to contend with these same costs with just $28,574.

According to the Constitution, one purpose of the BCRTA is to “promote the interests and to guard the welfare of its members” The argument is that this implies ALL members, not just those with large pensions and the inequity in applying the \inflation Adjustment Account money as an across-the-board percentage does not meet this criterion.

Similarly, the BCTF has long held the goal of maintaining the economic welfare of its members, both working and retired. To that end their policy states: “That the goal be the attainment of a pension plan that …maintains the relative economic status of members of the pension plan and/or their designated beneficiaries following retirement, disability, or death.” **

Because the income gap widens as smaller pensions become relatively smaller and larger ones become relatively larger, the relative economic status of members of the pension plan is not being maintained. This criterion is not being met.

How can the issue be resolved?

To maintain the relative economic status, every pension should have the same amount of dollars applied when the Inflation Adjustment is added.

When the Teachers Pension Plan subsidized the medical benefits for members from the Inflation Adjustment Account every retiree got the same benefit. It can be done.

One way to benefit all retired educators equally, might be that each could receive an annual increase calculated by totaling the amount it would cost if the cost-of-living adjustment percentage were applied to each pension, divided by the number of pensions.

If the annual increases were, for example, $1,000/year to each retiree, after 30 years the $20,000 pension would have grown to $50,000 while the $50,000 pension would have grown to $80,000. The relative economic status of all members will have been maintained.

Why now?

The question should probably be, “Why hasn’t the issue been raised before?”

1. It has, but some people simply DON’T want this. Some of those who have earned large pensions don’t want to lose any part of their annual “bonus”.

2. Also, there is some confusion over the %, “fully indexed”, terminology. Because the CPI is expressed as a percentage, some retirees assume that Inflation Adjustments must be applied as a percentage. They don’t have to be, and shouldn’t.

3. Some retired teachers are reluctant to challenge the status quo as seen using the salary determination model in which an across-the-board percentage amount based on the CPI is added. After all, most of us have spent our teaching years encouraging students to follow the rules and respect traditional values, including the status quo.

If you retired prior to 2002, a major consideration was the levels of Extended Health Benefits, Medical and Dental Plan coverage in effect at that time, since premiums that did not have to be paid were an asset. Since then, things have changed.

The recent pension consultation that the BCTF conducted showed that both active and retired teachers valued indexing over the health benefits. We have lost the subsidy for MSP and Dental and in January 2012, will lose the subsidy for EHB.

Every retiree had the same benefits.

As one of our members pointed out yesterday, the impact of losing this premium coverage is more significant for the person receiving a small pension***.

Also, as more teachers work at part-time teaching positions, job-share, and are not able to acquire tenure for one reason or another; or opt for early retirement with less than full pensions, we need to be aware of their needs.

Conclusion:

While retired teachers are generally characterized as "financially and medically secure", it is not true for everyone.

Once our members

1. realized how inequitable the long-term results are, due to compounding inflation protection increases resulting in the fact that the relative economic status of members of the pension plan is not maintained, and
2. recognized that just because the CPI is expressed as a percentage, the cost of living adjustment for pensioners does not have to be a percentage of their pensions, but can be an amount the same for everyone,

they felt that the time had come to challenge the status quo, and bring this motion to the BCRTA, as our agent to “guard the welfare of members”.

American politician, E. M. Dirksen (1896-1969) said, “There is no force as powerful as an idea whose time has come”.

The motion before you has been made by members of the Elk Valley Branch:

in spite of the protests of those with large pensions who don’t want to lose any part of their “annual bonus”
and most importantly,
on behalf of those teachers who retired with small pensions who will not get rich if they receive the same annual cost of living adjustment, but who will then have the same amount of additional income to cope with the cost of inflation.

We urge you to support this motion.

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* Table illustrating the long-term effect of compounding inflation protection increases on smaller and larger pensions: (in the written, Position Statement)

CPI	3%	3%	3%	3%
Pension	$20000	$30000	$40000	$50000
10 years	$26878	$40317	$53757	$67196
20 years	$36122	$54183	$72244	$90306
30 years	$48574	$72818	$97090	$121363

**(Rec. 19 Pension goal 26.A.01.A)

*** Table illustrating the effect of losing health and dental premium subsidies on smaller and larger pensions: (in the written Position Statement)

Pension	$20000	$30000	$40000	$50000
MSP=$64.00	3.84%	2.56%	1.92%	1.56%
Dental=$56.24	3.37%	2.25%	1.69%	1.35%
EHB=$55.00	3.3%	2.2%	1.65%	1.32%