Retirement Options For Machinists In British Columbia 29/04/20111IAMAW DL250 Pension Options

29/04/20112IAMAW DL250 Pension Options

Retirement Income Where Will It Come From? The retirement income system in Canada rests on three pillars: 1)Universal government benefits for seniors 2)The Canada Pension Plan 3)Employment Pension Plans and Individual Retirement Savings 29/04/20113IAMAW DL250 Pension Options

Pillar One Universal Old Age Security (OAS) – $ / month Guaranteed Income Supplement (GIS) Benefit based on other income excluding OAS, GIS and SPA (monthly) – Single, divorced or widowed $0 /month  $661.6 $15,888 / year  $0 – Married $0 /month  $ $20,640 / year  $0 29/04/20114IAMAW DL250 Pension Options

Pillar One (con’t) Spouses Allowance (SPA) SPA is a bridge for partners of retirees aged 60 to 64 while waiting to receive OAS benefit$0 / month  $ income $29, 376  $0 29/04/2011 5IAMAW DL250 Pension Options

29/04/2011 6IAMAW DL250 Pension Options

Pillar Two Canada Pension Plan (CPP) CPP based on previous yearly incomes $960 max / $504 average per month 29/04/20117IAMAW DL250 Pension Options

Pillar Three Pension Plans Pension Plans can be employer, Union or multi- employer. A Defined Contribution (DC) pension has a set contribution by the employer to an employee account A Defined Benefit (DB) pension has a set benefit based on years of service A Hybrid pension has aspects of both DB and DC pensions Employer pensions are dependent on the health of the sponsoring employer. Many bankrupt companies, such as Nortel, have reneged on promised benefits. 29/04/20118IAMAW DL250 Pension Options

Pillar Three: Pension Plans (con’t) A Union pension is dependent on sound investment and sustainable benefit levels. A multi-employee pension administers for many employers, allowing small companies to offer pensions. The plan is independent of the employers and, like a Union plan, needs prudent management of funds and benefits. No benefits are cast in stone. A plan may increase benefits if returns on investment are good and reduce benefits if the assets of the plan are hit in a recession. All registered pension plans are supervised by the Commissioner of Pensions who makes sure pension can pay the retirees' pensions. If a plan assets slip below 100% of what is needed to pay out all obligations, the Commissioner of Pensions will order remedial action either by reducing benefits or increasing contributions. Likewise if the funds of a plan grow too great, the plan will be required to reduce contributions or increase benefits. A company plan will always do the former whereas a Union plan increases benefits. 29/04/20119IAMAW DL250 Pension Options

Pillar Three: RRSPs RRSP savings are the most common form of personal retirement savings. A maximum of $22,450 per year can be contributed in Money going in is not taxed but withdrawals are. 29/04/201110IAMAW DL250 Pension Options

Pillar Three: RRSPs (con’t) RRSPs have two major drawbacks. – First, the value of your savings is subject to the economy, stock market and interest rates. – Second, the fees on RRSPs average 2 ½%. That is 2.5% which will be subtracted from any growth in your fund. – A pension typically has a cost of 0.5% meaning 2% in extra returns per year over a RRSP. 29/04/201111IAMAW DL250 Pension Options

Pillar Three: RRSPs (con’t) If two people saved each $500 a month for 25 years with an average return of 6.5%, their Pension account could accrue approximately $346, 500 But the RRSP, with higher service fees, would come up to $257,000, nearly $90,000 less. If you think of the amount in terms of monthly retirement income, this amounts to $478 per month over a period of 24 years, based on a 4% interest rate for a total difference of $137,000! 29/04/201112IAMAW DL250 Pension Options

Pillar Three: TFSA Tax Free Savings Accounts (TFSA) – TFSA program allows a maximum investment of $5,000 per year. – Unlike RRSPs, money going in is taxed; money coming out is not. – This is an ideal savings plan for low income earners whose income tax rate is low. – It is also a place to save if the RRSP contributions are maxed out for the year. 29/04/201113IAMAW DL250 Pension Options

Pillat Three: RRIF All RRSPs must be cashed out or converted to Registered Retirement Income Funds (RRIF) by age 71. Otherwise taxes on entire balance become payable. The return on a RRIF is dependent on interest rates or investment depending on which flavour you choose. It is subject to fees like RRSPs. You are required to withdraw a minimum each month but may draw more up to a set limit. All withdrawals are subject to taxation. Retirees often outlive their RRIF money and are reduced to poverty. 29/04/201114IAMAW DL250 Pension Options

29/04/201115IAMAW DL250 Pension Options

Membership Options Option 1 RRSP Plan - remain with current plan 29/04/201116IAMAW DL250 Pension Options

Membership Options (con’t) Option 2 – RRSP Plan - with a different group – Look for better service and /or better fee structure – Some financial institutions are reluctant to set up new group accounts 29/04/201117IAMAW DL250 Pension Options

Membership Options (con’t) Option 3 – The IAM Labour Management Pension Fund (Canada) – This is a true defined benefit plan where a set contribution per hour earns a set monthly pension times the number of years of service 29/04/201118IAMAW DL250 Pension Options

Membership Options 3 (con’t) The IAM Labour Management Pension Fund (Canada) A defined benefit pension plan gives a set benefit for so many years of service. The IAM Multi-Employer Pension Fund (“the Fund”) is a hybrid plan because it gives a defined benefit based on years of service and the contribution rate. At retirement, the Fund pays a monthly pension as long as the member, or the spouse, is alive. The exact amount of pension a contribution rate will earn varies slightly due to demographic differences between shops but, as a general guideline, $2.00 per hour will pay $80 times the year of service a month. A $2 / hour contribution for 10 years will pay a pension of 10 X 80 = $800 a month at age /04/201119IAMAW DL250 Pension Options

Membership Options 3 (con’t) The IAM Labour Management Pension Fund (Canada) The Plan was created in Canada by Machinists, for Machinists. The Plan is intended to give employees of small employers the same ability to have pensions as those who work for large corporations. The plan does allow small company's management to participate in the Fund as a sweetener for the employer as they also have no access to a true pension plan. This solidifies the relationship between the Union and the employer, making decertification attempts unlikely. 29/04/201120IAMAW DL250 Pension Options

Membership Option 4 Lodge 692 Machinists Pension Plan Each member has a dollar account in his name which is used to calculate his / her pension at retirement. For members of the 692 Pension Plan, upon retirement a monthly pension is paid, avoiding the need for a fee-based Register Retirement Income Fund (RRIF). Your money will be paid as long as you or your spouse is alive. There is no danger you will run out of savings during your retirement; a calamity which does happen to those who must convert their RRSP money into a RRIF at retirement. 29/04/201121IAMAW DL250 Pension Options

Membership Option 4 Lodge 692 Machinists Pension Plan (con’t) The Plan uses a professional money manager, Leith Wheeler, and has enjoyed average annual returns of 8.75% over the last 20 years. The assets of the plan have grown since 1988 from a little over $10,000,000 to over $95,000,000 today. The plan is on sound financial footing and can continue to serve Machinists as long as the need is there. The 692 Pension Plan was created in British Columbia by and for members of the Machinists Union. 29/04/201122IAMAW DL250 Pension Options

Machinists Pension Plan (LL692) Returns % % % % % % % % % % % % % % % % % % % %2010~10.750% % % Average Return 8.78% 29/04/2011IAMAW DL250 Pension Options23

SAMPLES OF RETIREMENT BENEFITS WITH THE MACHINISTS PENSION PLAN (LL692) SAMLES OF RETIREMENT BENEFITS Retired Early Age at Retirement Contributions earned to Retirement NORMAL FORM Life Guaranteed 5 Years NORMAL FORM Single Guaranteed 10 yrs ANDY 65$315,640$4,532n/a BARRY 65$230,029$2,702n/a DENNIS (early)58%58$240,790$1,761n/a GEORGE (early)58%58$207,870$1,534 HARRY (early)76%61$240,660$2,150n/a TONY (early)88%63$132,865$1,836n/a WALTER (early)89.5%63.25$147,170$1,865n/a 29/04/2011IAMAW DL250 Pension Options24 The next 4 slides compare these pension payouts to a RRIF

RRIF Payout Comparisons 29/04/2011IAMAW DL250 Pension Options25

29/04/2011IAMAW DL250 Pension Options26 RRIF Payout Comparisons

29/04/2011IAMAW DL250 Pension Options27 RRIF Payout Comparisons

29/04/2011IAMAW DL250 Pension Options28 RRIF Payout Comparisons

Vesting Vesting is the number of years required to become a full member of a plan. Pension members always will receive credit for personal contributions. Company contributions are only locked in once vested. The vesting period is currently 2 years but legislation is expected to remove the vesting period like Ontario did. The IAM Labour Management Fund gives past credits for current employees. If you have worked at your employer for two years, you will probably be vested. The Machinists Pension plan requires 350 hours in two consecutive years to vest. 29/04/201129IAMAW DL250 Pension Options

Happy Dreams! 29/04/201130IAMAW DL250 Pension Options