PENSION NEWS

An information bulletin about the York University Pension Plan

MORTON ABRAMSON, Ph.D.
Professor, Department of Mathematics and Statistics
Member, Board of Trustees, York University Pension Fund
February 20, 1997

HOW DID WE DO IN 1996?
The BEFORE EXPENSES RATE OF RETURN for 1996, for the York Pension Fund was, subject to audit, approximately 17.6%. I estimate that after expenses, the rate was approximately 17%.

See table 1 for a summary

For the purposes of a 1996 rate comparison,
the Toronto Stock Exchange 300 Index was up 28.4%
the Scotia McLeod Bond Universe Index was up 12.3%.

WHAT KIND OF FUND IS THE YORK PENSION FUND?
The York Pension Fund is a balanced Fund with approximately 40% in Canadian equities (stocks), 40% in Canadian debt securities (bonds) 20% in Foreign investments.

WHAT IS A BALANCED FUND?
Canadian Balanced Funds are those, "in which the primary objective is to combine growth with income and price stability. These aim to maintain a portfolio balance between bonds, debentures, and preferred and common stocks." (Globe and Mail, February 6, 1997. )

WHO MAKES THE INVESTMENT DECISIONS? The actual investment decisions for the Fund are made by three professional management companies. The performance of the Fund is monitored by a sub-committee of the Board of Trustees of the Fund.

HOW DOES OUR RATE OF RETURN COMPARE TO OTHER BALANCED FUNDS?
A rate of return of 17% on an absolute basis may seem on the high side. However, please consider: SEI is a rating service that the Fund employs to evaluate performance. SEI rated the York Fund as relatively low for 1996 compared to similar, but unidentified, Funds. Our fund , when compared to two of the best Canadian Balanced Funds, performed favourably according to the Globe and Mail's 15-Year Mutual Fund Review of February 6, 1997. This comparison shows the performance of the York fund since 1983 when the York fund was first evaluated on a calendar year basis. The fund also performed favourably when applying the formula for "moving 4 year equivalent compounded yearly returns". These use equivalent yearly compounded returns for $1 invested 4 years prior to the end of a given year.

See tables 2 and 3

MONEY PURCHASE ACCOUNT
Each employee has his/her own individual account called the money purchase account in the York Pension Fund. Annually, each employee contributes a proportional percentage of his/her salary to his/her money purchase account. The University then contributes an additional amount of money which is equal to 103% of the employee's contribution to the employee's money purchase account. At retirement this account is used to pay for the employee's pension.

MINIMUM GUARANTEE FUND
At retirement an employee will receive a yearly amount of pension that is at least equal to a minimum amount.. This minimum amount is calculated according to a formula, based on the average of an employee's five years of highest earnings, and years of credited service. If the amount of the yearly pension payment the member receives at retirement, as a result of his/her money purchase account, is less than this minimum amount, than the difference required to raise the yearly pension to this minimum amount will be paid from the Minimum Guarantee Fund. The actual pension that one receives may be higher than this minimum amount. In this case the total amount of pension received would come as a result of the employee's money purchase account This fund is the responsibility of the University and any shortfalls in the minimum guarantee are made up by the University.

PENSION SURPLUS
The surplus is an amount in the fund which is in addition to fund reserves. This is sometimes referred to as a surplus on the surplus. The reserves are required to guarantee your pension payments. The fund would be fully funded even if the surplus would be $0. A pension surplus is anticipated in 1996 and the next few years.

WHAT IS A "PENSION CONTRIBUTION HOLIDAY"?
According to a clause in The Pension Plan, the University may use the surplus in the Plan to pay for part or all of its 103% required contributions to the members money purchase accounts. Using the Surplus funds in the Plan instead of using its own funds to pay for its contributions is called a, "pension contribution holiday."

WHEN CAN A "PENSION CONTRIBUTION HOLIDAY" BE TAKEN?
This can only be done if the Actuary, in consultation with the Board of Trustees of the Fund, and subject to the Board of Governors approval, confirms that the financial health of the plan is not weakened by a pension contribution holiday. In the past, the major employee groups have agreed to pension contribution holidays.

DO MEMBER BENEFIT FROM CONTRIBUTION HOLIDAYS?
Discussions are currently underway between groups representing the members of the plan, and the University, with regard to sharing the money that the University saved as a result of the current University Contribution Holiday.

DOES THE UNIVERSITY HAVE SOLE DISCRETION IN TAKING A CONTRIBUTION HOLIDAY?
This is a somewhat contentious issue. Some employee groups dispute the University's claim that the University can, without members approval, but on the advice of the Actuary, declare a contribution holiday.

WILL MY PENSION BE HARMED IF THE UNIVERSITY TAKES A CONTRIBUTION HOLIDAY?
No. Your money purchase account will accumulate to the same amount and your minimum guarantee remains the same regardless of a pension contribution holiday.

[The contents and interpretations given in this newsletter are those of Morton Abramson, Professor in the Department of Mathematics and Statistics and member of the Board of Trustees of The York Pension Fund. If you have comments or questions, please contact Prof. Abramson at Dept. of Maths. N505R, X66087, or at abramson@mathstat.yorku.ca. Other Pension information can be found at http://www.math.yorku.ca/Who/Faculty/Abramson/Fund.]