Defined Benefit Pension Plan

COMMITTEE REPORTS

Defined Benefit Pension Plan

Marvin Krawec, Pension Chair

The teachers of Manitoba subscribe to a Defined Benefit Pension Plan.

Retirement benefits, under a defined benefit pension plan, are based on a formula. The formula provides for a specified percentage of earnings. The employer, as well as the employee, contributes to the plan. With this plan, the retiree knows ahead of time how much basic pension to expect at retirement. This discussion is primarily about the defined benefit pension plan and does not include COLA However, in the last year, there has been much discussion about pensions, especially about the Defined Benefit Pension Plan. It is argued, in some circles, that those who participate in the said plan, have a gold plated pension and that it is too costly. Lately, there has been much talk about a Target Benefit Pension Plan as the plan of the future. It is a hybrid between a Defined Benefit Plan and a Defined Contribution Plan.

This said plan is inferior to what the retired teachers subscribe to now. The fact of the matter is that 75-80% of the pension income is derived from investments. The rest of the contribution is divided between the employees and employers. Those, who are in opposition to a defined benefit pension plan, are disregarding the benefit of such a plan to the economy of this province and the country as a whole. A study done by a Boston Consulting Group, commissioned by four Ontario employee organizations, among them the Ontario teachers, found that those who receive pensions, under the defined benefit pension plan are less likely to collect GIS ( Guaranteed Income Supplement). Estimates are that 10%-15% collect compared to 45-50% of other retirees. The study also found that the defined benefit recipients contribute between $14$16 billion annually to the government coffers through income tax, sales tax and property tax: between $7-$9 billion in income tax, $4billion in sales tax and $3 billion in property tax. In the years 2011-2012, defined benefit plan beneficiaries spent between $56 to $63 billion annually on durable and consumable goods. Defined Benefit Pensions had the greatest impact on smaller rural towns. Approximately 9% of the total earnings are spent in the towns outside of the major centres. This is crucial to the economy of those communities. §

The fact of the matter is that 75-80% of the pension income is derived from investments. The rest of the contribution is divided between the employees and employers.