Pensioner Issues - Share of Surplus

SURPLUS DISTRIBUTION

The Board of Regents approved the Pension Committee's proposal for distribution of $3 million of current surplus pension funds. Individual election forms will be forwarded in the next few weeks together with material fully explaining the options.

Distribution
The proposed distribution remains subject to the approval of the Manitoba Pension Commission and Canada Customs and Revenue Agency (the new name for Revenue Canada). The University will make every effort to persuade the Canada Customs and Revenue Agency to permit the proposed increase to pensions in payment; however, they may insist that any surplus distribution to pensioners be paid in cash.

Pensioners

The distribution will be in one of three forms and will be equal to 6.5% of the contribution account balance at retirement date plus interest at the rate credited to active members' accounts to December 31, 1999, less 50% of the amount of benefits paid to the pensioner since retirement to December 31, 1999. However, if 6.5% of this updated account balance is less than two (2) months' pension, the distribution will be equal to two (2) months' pension (excluding ERO 3 bridge benefits).

a. All Cash.
b. A member may elect to have his/her monthly pension increased, subject to Revenue Canada maximum regulations; plus receive a cash payment equal to 3% of the account balance determined as indicated above. The total value of this option will be the actuarial equivalent of option a).
c. A member may elect to have his/her monthly pension increased, subject to Revenue Canada regulations. The value of this option will be the actuarial equivalent of option a).

Note: Members who have retired and elected a partial transfer of funds qualify for the minimum distribution of two (2) monthly pension payments (excluding the $600 bridge benefit).

Cash Payments
All cash payments will be made in the 2001 calendar year. Federal withholding tax will be deducted from all cash payments at the rate of 10% - 30% depending upon the amount of cash payment. It is anticipated that most cash payments will be subject to the minimum withholding tax of 10%. This is a withholding tax only and may not reflect the total tax owed by the member.

Background

Eligibility

The distribution will be to all Plan members who had funds in the Plan at December 31, 1999. Members who retired or terminated and who transferred all of their funds out of the Plan prior to December 31, 1999 would receive no share of the distribution. The Pension Plan has the following categories of members:
1) active members - are currently earning entitlement during their employment.
2) inactive and deferred members - have terminated employment but still have funds remaining in the plan;
3) pensioners - are retired; or are survivors of deceased retirees; and are receiving pension benefits.
Members of the Pension Plan have contributed to the plan for varying lengths of time pre-dating the surplus or may have just joined the Pension Plan after the surplus was declared.

Method of Distribution

The Pension Committee feels that the members' contribution account balance is a reasonable measure of each member's equity in the Plan. The account balance approach deals equitably between those who will retire in the near future and those who have retired in the recent past. In particular, for a member who retired on January 1,2000, the distribution is the same whether the member is treated as an active member or a pensioner. Other methods of distribution, such as one based on actuarial liabilities, would not produce such a result.

The reason for the reduction of the inactive/deferred member and pensioner account balance by 50% of the pension paid rather than 100% (or any other proportion) is to recognize that the funding structure of the Plan implies that the member's own contributions have paid for 50% of the pension.

Sufficient information is not available to determine the account balances of those who retired some time ago and the account balances of some of the other older pensioners were negative which would have resulted in no distribution for such members. The Pension Committee felt that all members at December 31, 1999 should receive some distribution and therefore provided for a minimum distribution of 2 months' pension.

Human Resources