Board Communique: March 29, 2021

Plan changes will improve equity and sustainability.


New rules for the Municipal Pension Plan will go into effect January 1, 2022. The changes will improve equity for members, align benefits with how members use those benefits, maintain a strong foundation for the sustainability of the plan and stay within the current costs to run the plan.

As part of our shared governance of the plan, we, the Municipal Pension Board of Trustees, asked the plan partners to review the plan’s design to make sure it remains sustainable and fair for current and future members. After years of work, the plan partners have agreed on changes. We have approved plan rule amendments to make the changes. The partners are the Government of British Columbia, the Union of BC Municipalities as the employer partner and the Municipal Employees’ Pension Committee as the employee partner.

The plan partners researched legal, actuarial and policy considerations for various plan design options. They looked at plan member demographics and retirement trends to determine how changes would affect members and employers across different unions, member groups and income levels. They also sought member and employer feedback in September and October 2020 prior to coming to final agreement.

For an explanation of the changes, see Plan changes.

Why is the plan changing?

This is the first major plan design review in more than 50 years. These updates address the changing ways we work, improvements in Canada Pension Plan benefits and how the majority of members use their benefits.

The changes improve equity in three ways:

  • Members will earn the same benefit in proportion to their salary according to their member group.
  • In each group, a single contribution rate will replace the current tiered rates in order to ensure members contribute the same rate on all salary.
  • Group 1 members who retire before age 60 will no longer be subsidized by all Group 1 members’ contributions. This results in savings that fund an improvement to the lifetime pension for the majority of members.

Who is affected by the changes?

Changes to pension benefits affect active members and employers.

Sustainability improvements will increase value for all members, including retired members.

How will the changes affect me?

You will not lose benefits earned before January 1, 2022.

Almost all active members who earn service on or after January 1, 2022, will receive an improved lifetime pension (the amount you receive throughout retirement, excluding the bridge benefit).

You may see an increase or decrease in contributions:

  • If your salary is below the year’s maximum pensionable earnings (YMPE), you may have a marginal increase in your contribution rate. With this relatively small increase comes an improved lifetime pension.
  • If you have higher earnings, your contributions may decrease, as the current higher contribution rate above YMPE exceeds the flat contribution rate.

How the changes affect you will also depend on your member group:

  • Group 1 is all members who are not police officers or firefighters
  • Group 2 is police officers and firefighters who are not in group 5
  • Group 5 is police officers and firefighters who have enhanced pensions through collectively bargained agreements by the employer and union and by application to the board

What is changing?

Pensionable service earned on or after January 1, 2022, will be governed by new rules.

The changes are described below.

Contribution rate (the amount you contribute with each paycheque)
What’s changing: You and your employer will contribute a flat percentage of salary instead of one rate below and a different rate above the YMPE.

Why it matters: The rates below and above the YMPE have fallen out of step with the benefit earned. You will now contribute the same percentage on all your salary.

Pension contributions

  Applies to all service
through 2021
Applies to service
beginning in 2022
General
(Group 1)
8.5% up to YMPE
10.0% above YMPE
8.61% of all salary
Group 2 8.5% up to YMPE
10.0% above YMPE
8.92% of all salary
Group 5 10.44% up to YMPE
11.94% above YMPE
11.12% of all salary

Accrual rate (a variable used to calculate your lifetime pension)
What’s changing:

  • Groups 1 and 5 will have a single benefit accrual rate, according to their member group.
  • Group 2 accrual rates will not change. This is because of small numbers and similar demographics in this group

Why it matters: Most of you will receive a higher lifetime pension than under the current rules.

Pension formula

  Applies to all service
through 2021
Applies to service
beginning in 2022
General
(Group 1)
For each year of pensionable service:
1.3% of HAS up to YMPE and
2.0% of HAS above YMPE
For each year of pensionable service:
1.9% of HAS
Group 2 For each year of pensionable service:
1.3% of HAS up to YMPE and 2.0% of HAS above YMPE
Group 5 For each year of pensionable service:
1.63% of HAS up to YMPE and
2.33% of HAS above YMPE
For each year of pensionable service:
2.12% of HAS

Early retirement rules for group 1
What’s changing:

  • Currently, when your age plus years of contributory service equal at least 90, you can retire before age 60 without your pension and bridge benefit being reduced (this is known as the “rule of 90”). The rule of 90 will continue to be based on your total contributory service (pre- and post-January 1, 2022), but it will only apply to the pension and bridge benefit you earn before January 1, 2022. For any pension you earn after January 1, 2022, the rule of 90 will not apply and there will be a reduction if you retire before age 60.
  • Currently, the plan subsidizes the reduction factors for early retirement. Subsidies will not be available for service on and after January 1, 2022, when retiring prior to age 60.

Why it matters: While all members contribute toward current early retirement costs, only about a third of members are able to retire before age 60. These changes mean that those who retire early pay the actual cost.

Eligibility for unreduced pension

  Applies to all service
through 2021
Applies to service
beginning in 2022
General
(Group 1)
One of the following:
  • At least age 55 and age plus years of contributory service is at least 90
  • At least age 60 and at least two years of contributory service
  • At least age 65
One of the following:
  • At least age 60 and at least two years of contributory service
  • At least age 65
Group 2/5 One of the following:
  • At least age 60
  • At least age 55 and at least two years of contributory service
  • At least age 50 and age plus years of contributory service is at least 80

Reduced pension

  Applies to all service
through 2021
Applies to service
beginning in 2022
General
(Group 1)
If you have at least two years of contributory service:
3% or 5%* per year that retirement occurs before age 60 or that your age plus years of contributory service is less than 90 (the “rule of 90”)—whichever results in the lowest reduction

If you have less than two years of contributory service:
3% per year that retirement occurs before age 65
If you have at least two years of contributory service:
6.2% per year that age is less than 60

If you have less than two years of contributory service:
5.2% per year that age is less than 65
Group 2/5 If you have at least two years of contributory service:
3% or 5%* per year that retirement occurs before age 55 or that your age plus years of contributory service is less than 80 (the “rule of 80”)—whichever results in the lowest reduction

If you have less than two years of contributory service:
3% per year that retirement occurs before age 60

*The 5% per year reduction applies when you end employment before age 50 (45 for groups 2 and 5 members) or end employment at or after age 50 and before age 55 (at or after age 45 and before age 50 for groups 2 and 5 members) with less than 10 years of contributory service. The 3% per year reduction applies in all other cases.

Bridge benefit (a temporary benefit paid to age 65 or death, whichever comes first)
What’s changing:

  • For group 1, the bridge benefit will not apply to service earned on or after January 1, 2022. It will continue to apply to all service earned before January 1, 2022.
  • For group 2, the bridge benefit is not changing.
  • For group 5, the bridge benefit will be reduced for service earned on or after January 1, 2022, due to Income Tax Act limits. The current bridge benefit accrual will continue to apply to all service earned before January 1, 2022.

Why it matters: All members contribute to this benefit but not all take advantage of it. It is a temporary benefit and some members are surprised

Bridge benefit

  Applies to all service
through 2021
Applies to service
beginning in 2022
General
(Group 1)
For each year of pensionable service:
0.7% × HAS up to YMPE
n/a
Group 2 For each year of pensionable service:
0.7% × HAS up to YMPE
Group 5 For each year of pensionable service:
0.7% of HAS up to YMPE
For each year of pensionable service:
0.21% × HAS up to YMPE

Temporary annuity (an optional top up to age 65)
What’s changing: You will have additional temporary annuity options to top up your pension to age 65. Currently, members can purchase a temporary annuity equal to the maximum old age security benefit available when they retire. After January 1, 2022, members will be able to choose a half or quarter option in addition to the existing full annuity.

Why it matters: A temporary annuity can help offset reduced bridge benefit payments and changes to early retirement rules. A temporary annuity increases your monthly payment until you reach age 65 or your death, whichever comes first. You pay for it with a lower lifetime pension. In other words, once your temporary annuity payment ends, your lifetime pension is permanently reduced.

Highest average salary (a variable used to calculate the lifetime pension)
What’s changing: If you are in groups 2 or 5 and terminate after December 31, 2021, your highest average salary (HAS) will be a four-year average rather than a five-year average. For group 1, the HAS will remain a five-year average.

Why it matters: This will have a positive effect on your lifetime pension as most public safety members have a higher salary toward the end of their careers because of wage increases and promotions.

Normal form of pension (the default used to calculate the pension)
What’s changing: If you are in groups 2 or 5 and terminate after December 31, 2021, the standard form of pension will be single life with a 10-year guarantee rather than a single life without a guarantee period. For group 1, the default will remain a single life without a guarantee period.

Why it matters: This makes a guarantee period part of your pension without it being reduced because of that choice. If you choose not to take a guarantee option, you will see a small improvement in your pension payment. If you decide on a longer guarantee period, it will have less effect on your pension than if your default was a no guarantee period.

Standard pension option

  Applies to all service
through 2021
Applies to service
beginning in 2022
General (Group 1) Single life without a guarantee period
Group 2/5 Single life with a 10-year guarantee period

Employer contribution rates
What’s changing: A single employer contribution rate for each member group will be lower than the lowest current tiered contribution rates as a result of plan design changes.

Why it matters: This better aligns employer contribution rates with employee contribution rates, as envisioned in the Joint Trust Agreement. The single approach to contribution rates simplifies administration and management of the plan.

  Pension contributions
prior to January 1, 2022
Pension contributions
after December 31, 2021
Group 1 9.66% of salary up to YMPE
11.16% of salary over YMPE
9.31% of salary
Group 2 12.75% of salary up to YMPE
14.25% of salary over YMPE
12.42% of salary
Group 5 14.71% of salary up to YMPE
16.21% of salary over YMPE
14.67% of salary

Health benefit trust
What’s changing: A new health benefit trust will help fund access to group health benefits for retired members.

Why it matters: This will provide more flexibility in funding retiree group health benefits while recognizing that member premiums will still be required. The trust will allow funds to accumulate and earn interest from year to year.

Inflation adjustment account/rate stabilization account
What’s changing: New provisions in the plan’s Joint Trust Agreement mean that future surpluses will be shared equally between the inflation adjustment account and the rate stabilization account (after first paying off any funding shortfalls).

Why it matters: The inflation adjustment account funds cost-of-living adjustments for retired members. The rate stabilization account is used to reduce the likelihood of contribution rate increases for active members and employers. In other words, future surpluses will be used to benefit both retired and active members.

Group contribution rate rebalancing account
What’s changing: A proportionate amount of the surplus from the 2018 actuarial valuation will be put into an account to help protect against future contribution rate increases for both groups 2 and 5 members and employers.

Why it matters: Contribution rates may be rebalanced following the plan’s triennial actuarial valuation. When rebalancing is required, the changes generally affect groups 2 and 5 more significantly because of the small size of these groups relative to the rest of the membership. The rebalancing account will help stabilize contribution rates.