Benefits for Participants

TO:                Participants, Retirees, and School Boards

FROM:          Howard Van Mersbergen, Executive Secretary-Treasurer

  

As part of their process of ensuring that the Plan remains adequate and up to date the Trustees recently posed the following question to the Plan’s consultants at William M. Mercer: 

            Does the Canadian Christian School Pension Plan provide adequate retirement income?

 

The Trustees requested that a comparison to a public school retirement plan be included in the analysis.  Following is the response from the consultants at William M. Mercer which includes a comparison to the Ontario Teachers’ Pension Plan; we are providing you this analysis since it provides helpful information about the Plan and will assist many in planning for retirement.

 

If you would like further information or have questions, call or write us at:

Canadian Christian School Pension Plan

P.O. Box 8709

Grand Rapids, MI  49518-8709

1-800-635-8288, Ext. 231

  

We can also provide individual retirement calculations.  Just let us know the termination date(s), retirement date(s) and an estimate of the percentage change in salary going forward.

In answering this question, it is important to consider the role of public retirement income plans, the length of a participant's career and the age at which participants retire.

 

Income Replacement 

When asked how much income is needed at retirement, many financial planners will indicate that about 70-75% of pre-retirement income is generally deemed to be adequate.  This percentage is arguably higher for lower paid individuals and lower for higher paid individuals.  For example, an individual earning $20,000 per year likely would need more than 75% replacement while individuals with earnings of $100,000 could likely maintain their standard of living with less than 70-75% replacement.  The average earnings of Canadian Christian School Pension Plan participants was $35,400 as of September 1, 1995. 

The following shows approximate income replacement at age 65 provided by public retirement plans in Canada: 

Public Retirement Plan

Earnings Before Retirement

 

$35,000

$75,000

Canada Pension Plan

    $8,625

          24%

      $8,725

          12%

*Old Age Security

    $4,800

          14%

      $4,800

            7%

 

Old Age Security will likely be replaced by the Seniors Benefit starting in 2001.  After-tax benefits will be similar to those paid under OAS for lower paid individuals and are less for higher paid individuals. 

Old Age Security is only payable from age 65.  Canada Pension Plan benefits can begin at age 60 with a 6% reduction for each year prior to age 65.  Both plans currently provide for automatic increases equal to 100% of inflation.

It is possible, and perhaps even likely, that government retirement benefits will change in the future.  This information presents what is currently in place and no attempt is being made to predict the possible changes.

 

Canadian Christian School Pension Plan 

The Canadian Christian School Pension Plan provides benefits equal to 1.38% x best 3 year average earnings x years of adjusted credited service.  Participants who contribute 4% instead of 3% receive 4/3 of this amount.

The pension is payable for life with a 10 year guarantee.  Normal retirement age is 65, but employees may retire at age 60 with no reduction in pension if they have 10 years of service.

Pension benefits payable after 30 years of service at age 60 or later are as follows:

 

 

Earnings at Retirement

 

$35,000

$70,000

 

Contribution Level

 

Pension Income

 

Replacement

 

Pension Income

 

Replacement

3%

$13,940

40%

$27,880

40%

4%

$18,590

53%

$37,180

53%

 

CSI pensions are not automatically increased for inflation.  However, CSI has a track record of providing ad hoc increases based on affordability.

 

Total Income Replacement

When government and CSI pensions are combined, the total estimated income replacement ratios for a participant with 30 years of service are as follows:

 

 

 

Retire at

*Age 60

Retire at

Age 65

 

3% Plan

Combined Income

Replacement Ratio

Combined Income

Replacement Ratio

$35,000

$19,980

       57%

$27,365

       78%

$70,000

$33,990

       49%

$41,405

       59%

 

4% Plan

Combined Income

Replacement Ratio

Combined Income

Replacement Ratio

$35,000

$24,630

       70%

$32,015

       91%

$70,000

$43,290

       62%

$50,705

       72%

Excludes OAS, which is only payable at age 65.  The income added at age 65 is $4,800 (plus indexing increases) which represents additional income replacement of 14% at $35,000 and 7% at $70,000.

 

Comments

Overall, the Canadian Christian School Pension Plan, combined with government benefits provides income replacement at retirement which can be viewed as adequate at early and normal retirement under the 4% Plan.  Benefits are adequate upon normal retirement at age 65 under the 3% Plan for most employees.  Higher paid employees would receive less than a 70% income replacement at age 65 under the 3% Plan. 

Benefits are below the income replacement target upon early retirement under the 3% Plan.  This is not unexpected given that OAS is deferred until age 65 and CPP benefits are reduced.

 

Comparison with Ontario Teachers' Pension Plan

The following table shows a comparison of some provisions of the CSI and the Ontario Teachers' pension plans:

 

 

CSI

Ontario Teachers'

 

Pension Formula:        

 

1.38% Average "Best Three" Salary

 

 

Before Age 65:  2% Average "Best Five" Salary

Age 65 and After:  2% Average "Best Five" Salary less CPP Benefit

 

Indexing:                     

 

 

Not Provided (Ad hoc increases based on affordability)

 

100% of change in Consumer Price Index to a maximum of 8%

 

Unreduced Early

Retirement:

 

Age 60 with 10 years of Service

 

90 factor (Age plus qualifying years add up to 90)

 

Required

Contributions

 

Employee:   3% or 4% of                    Salary

Employer:   100% match of Employee Contributions

Total:          6% or 8% of                    Salary

 

Employee: 7.3% up to YMPE                   plus

                  8% in excess of the YMPE

Employer: 100% match of Employee Contributions

Total:        14.6% up to YMPE plus 16%  in excess of the YMPE

                 

The major differences with regard to the pension benefit between the two plans are the benefit accrual rates (1.38% versus 2%) and the provision for indexing pension benefits.  The replacement ratios for a 30 year employee under the Ontario Teachers' Plan, plus CPP and OAS, are as follows:

 

 

Age 60

Age 65

$35,000

77%

78%

$70,000

72%

69%

 

In order to fund its more generous provisions, the Ontario Teachers' Pension Plan requires members and employers to contribute twice the amounts that is being required from participants and employers under the CSI 4% Plan and more than double under the CSI 3% Plan.

Overall, the Canadian Christian School Pension Plan provides competitive benefits under the 3% Plan and generous benefits under the 4% Plan.  The early retirement subsidy is much better than average.