Vancouver Webcast Pension and Other Benefits 4th Annual General Meeting October 15, 2005

2 Agenda  Basic pension benefits  Purchase of service  Retirement group health benefits

3 Your Basic Pension Benefit  Basic pension is a “defined” benefit  Annual pension is based on:  5-year highest average salary (HAS)  Pensionable service up to 35 years Not dependent on contributions Not dependent on investment performance Highest Priority for Trustees

4 Protection Against Inflation Inflation protection  Members and employers each contribute 1% to inflation protection  Not guaranteed. Adjustments dependent on available funding  High priority for trustees

5 Protection Against Inflation Municipal Plan has provided full CPI inflation protection since 1982  adds considerable value to your basic benefit Pension Date Original Pension Indexing Added Current Pension Indexing% January 1985 $15,000$10,372$25, % January 1990 $15,000$5,461$20, % January 1996 $15,000$3,012$18, %

6 Other Pension Benefits 1. Contribution protection when you are disabled 2. Disability pensions 3. Death benefit MPP provides benefits to protect your pension in times of illness or death:

7 1. Protection When You Are Disabled If you are off work because of illness or injury and You qualify for long term disability benefits from a plan approved by the Pension Plan:  Pensionable and contributory service continues to accumulate as if you were working  No pension contributions are required  Your highest average salary is indexed to keep pace with the cost of living

8 1. Protection When You Are Disabled If you are off work because of illness or injury and You do not qualify for long term disability benefits or if that coverage ends... You may be eligible for a Disability Pension from the Municipal Pension Plan...  Monthly income while you are totally or permanently disabled, and  not entitled to LTD benefits

9 2. Disability Pension Requirements  Must have two years of contributory service  Must be under age 60 (55)  Must apply within two years of your last contribution to the Plan (including the period on LTD when no contributions paid)  Medical certification that you are permanently and totally disabled  Employer confirmation no position is available  Must terminate employment

10 3. Pre-Retirement Death Benefit If you die before retirement and Have contributions in the Municipal Plan... Your spouse or estate are eligible for a Pre-retirement Death Benefit  refund of contributions plus interest  commuted value of your current pension entitlement at retirement  immediate pension

11 3. Pre Retirement Death Benefit Spousal Benefit Age at Death< 2 Years ServiceTwo or More Years of Service Under 55 Contributions plus interest Immediate Pension Greater of:  Contributions plus interest  Commuted value of accrued pension benefit 55 to 59 Contributions plus interest Immediate Pension 60 or older Immediate Pension

12 Enhancing Your Pension Benefit – Purchase of Service You may be able to increase your future pension benefits by purchasing time you worked for a Plan employer... but when no contributions were made to the Plan...  Arrears  Probationary periods, casual hours  Leaves of Absence ending after January 1, or time you have withdrawn from the Plan and wish to reinstate

13 Enhancing Your Pension Benefit – Purchase of Service Leaves of Absence and Probationary/Casual periods  Service before April 1, 2002 must be purchased by March 31, 2007  Service after March 31, 2002 must be purchased by the earlier of:  5 years from the end of the leave, or  termination of employment with current employer There is a five year “rolling window” for purchases. Once the window is closed, the opportunity is lost

14 Enhancing Your Pension Benefit – Purchase of Service  Simplified rules for calculating cost  Most members pay both employer and member shares at the time service is purchased  Employer may share in cost of purchase  check with employer or union

15 Enhancing Your Pension Benefit – Purchase of Service Arrears  Periods when contributions should have been made but were not  incorrect enrollment  contributions stopped  Purchase of arrears periods can increase your service and your pension benefit

16 Purchase of Service Arrears Service before 1988  Must pay member contributions to get full service credit  If you pay, your employer must pay the employer’s share  Full service credited Service after 1987  50% service credit just for applying  Plan bills employer for employer’s share  50% service credit if you decide to pay members contributions

17 Purchase of Service Purchase of Service may affect your income tax!  Additional contribution may exceed annual limit on retirement contributions  includes RRSP and registered plans  Past Service Pension Adjustment may result in:  additional income tax owed  reduced RRSP room Discuss impacts with Municipal Plan Seek advice from your financial advisor

18 Online Tools at pensionsbc.ca  Purchase Estimator  estimate purchase of service cost  Pension Estimator  determine pension benefit change with additional service  Online Application Form  to apply to purchase past service

19 Pensionfacts Online at pensionsbc.ca  Long Term Disability Benefits  Disability Pensions  Pre Retirement Death Benefits  Purchasing Non-contributory Service  Purchasing Leaves of Absence  Purchasing Arrears  Reinstating a Refund  Your Pension and the Canada Revenue Agency or contact the Municipal Pension Plan for information

20 Non-Pension Benefits Post Retirement Group Benefit Program 1.What is provided 2.How are the Benefits Funded? 3.The Dilemma for Trustees 4.Board of Trustees Review

21 Post Retirement Group Benefits The Program  Offered to Plan retirees, spouses and dependents  Benefits are not guaranteed:  funding arrangement outside Basic Pension Benefit  provided on a “funding available” basis

22 Post Retirement Group Benefits The Program  50% of Medical Services Plan premiums  paid from employer contributions to Basic Account  Extended Health Benefits  prescription drugs, para-medical, optical  Dental Benefits  check ups, basic care, crowns, dentures

23 Post Retirement Group Benefits  Costs shared between Plan and retirees  Premiums paid for participation  Co-insurance/deductibles  MSP  $28 million annually  Split evenly between plan and retirees  Extended Health/Dental  $27 million net cost to Plan 2004 Cost to Plan $41.4 million

24 Basic Account Supplemental Benefits Account Inflation Adjustment Account Employee Contributions Employer Contributions Pension Plan Funding Basic Pension Benefit Future Indexing Group Benefits

25 Basic Account Supplemental Benefits Account Inflation Adjustment Account Employee Contributions Employer Contributions Basic Pension Benefit Pension Plan Funding 7.49% of salary 5% to 13% of plan members salaries 0.25% of salary

26 Basic Account Supplemental Benefits Account Inflation Adjustment Account Employee Contributions Employer Contributions Future Indexing Pension Plan Funding 2.0% of salary 7.49% of salary 5% to 13% of plan members salaries $ Basic Pension Benefit 0.24% of salary

27 Basic Account Supplemental Benefits Account Inflation Adjustment Account Employee Contributions Employer Contributions Future Indexing Group Benefits MSP Premiums Extended Health Dental Pension Plan Funding 7.49% of salary 5% to 13% of plan members salaries 1.0% of salary % of salary Basic Pension Benefit

28 Group Benefits Funding Funding  Employer contributes 1.0% of active members salary to the IAA  intended to fund future inflation adjustments for active members  Group Benefit costs are “carved” from the 1.0% of employer contributions and directed to the Supplemental Benefits Account  to the benefit of retired members

29 The Dilemma for Trustees 1.Given that the employer’s contribution to the IAA is intended to fund future indexing costs How much should be diverted to pay the current costs of Post Retirement Group Benefits? 2.Given that the cost of the Post Retirement Group Benefit Program is rising much faster than the growth in employer contributions How should the Post Retirement Group Benefit Program be structured in terms of benefits and shared costs?

30 Value of Indexing Municipal Plan has been able to provide full CPI inflation protection since 1982  adds considerable value to your basic benefit Pension Date Original Pension Indexing Added Current Pension Indexing% January 1985 $15,000$10,372$25, % January 1990 $15,000$5,461$20, % January 1996 $15,000$3,012$18, %

Value of Indexing Pension after 10 years Pension after 20 years Pension after 30 years 100% of CPI all years all years$24,532$34,605$48,814 Full indexing 15 years, then 25% of CPI $24,532$30,434$33,204 Full indexing 5 years, then 25% of CPI $21,575$23,53925,682 This table illustrates the value of full indexing.  Starting annual pension of $18,000  3.5% CPI per year.

32 Value of Indexing The IAA is not managed on a fully actuarial basis  contributions are not tied to long term costs  no guarantee that full indexing will be available in the future  insufficient funding to provide full CPI indexing in the future  actuary indicates shortfall exceeds $5.0 billion  Shortfall acknowledged in Joint Trust Agreement  transitional financial arrangements require $500 million of surplus to be directed to the IAA

33 Value of Indexing Actuarial Base Case Projections for indexing

34 The Dilemma for Trustees 1.Given that the employer’s contribution to the IAA is intended to fund future indexing costs and given that there is insufficient funding to provide full CPI indexing into the future How much should be diverted to pay the current costs of Post Retirement Group Benefits?

35 The Dilemma for Trustees 2.Given that the cost of the Post Retirement Group Benefit Program is rising much faster than the growth in employer contributions How should the Post Retirement Group Benefit Program be structured in terms of benefits and shared costs?

36 The Cost of Group Benefits Group Benefit Costs increased 65% from 1999 to $ millions

37 The Cost of Group Benefits Cost drivers of group benefits:  demographics  retirees are living longer  increasing numbers of retirees in relation to number of active members... ... available funding remains the same while costs increase  increasing cost of drugs  provincial offloading of MSP costs  MSP premiums increased by 50% by provincial government; Pharmacare changes in 2002  changes in Pharmacare coverage

38 The Cost of Group Benefits... and we’re in danger of exceeding the available funding 0% 50% 100% 150% 200% 250% % of Employer IAA Contributions Used Projected Group Benefit costs exceed available funding Group Benefits Costs as a % of Employer IAA Contributions

39 The Cost of Group Benefits... forcing the Trustees to change the Program beginning in 2003 $ millions

40 benefit changes in 2003/2004 only delayed critical point! The Cost of Group Benefits Group Benefits Costs as a % of Employer IAA Contributions 0% 50% 100% 150% 200% 250% % of Employer IAA Contributions Used Projected Group Benefit costs exceed available funding

41  The plan rules require that post retirement group benefit costs not exceed 100% of employer IAA contributions % of Employer IAA Contributions Used ActualForecast % Year Funding Policy Maximum (100%) 77% 52% 64% 111% The Cost of Group Benefits Group Benefit Costs of Employer IAA Contributions

42 The Dilemma for Trustees  the Group Benefit Program is not financially sustainable beyond 2007/2008  even if the full 1% employer contribution is available  Trustees cannot increase the available funding  only the plan sponsors can change the funding  Registered Pension Plan contributions cannot be used to fund group benefits  income tax rules do not permit

43 The Dilemma for Trustees  a Benefit Trust is not a short term option (funding, tax and governance challenges) nor one within the authority of trustees  Trustees must balance the need for inflation protection for current and future retirees versus the cost of Group Benefits  whether the program is subsidized by current contributions or paid in full by retirees, what Group Benefits would be of value to members?

44 The Future of Group Benefits  Benefits Committee undertaking an extensive review of options  Based on benefit priorities 1.ensure basic pension benefit can be provided 2.maximize capacity to provide inflation protection 3.continue to offer non-pension benefits  Decision by Trustees in 2006  for implementation in 2007

45 The Future of Group Benefits The Principles  take advantage of risk pooling and group purchasing power  longer term financial solution  protection against catastrophic coverage  may require changes to:  benefit eligibility  available coverage  premium subsidy arrangements  deductibles and co-insurance levels  will include member input

46 Municipal Pension Plan PO Box 9460 Victoria BC V8W 9V8 Victoria Lower Mainland Toll-free in BC Fax Websitepensionsbc.ca Contact Information

Vancouver Webcast Pension and Other Benefits 4th Annual General Meeting October 15, 2005