days until our Collective Agreement expires, we are preparing, we are united and we will make change.

Pension Committee Update #2 – June 2024

Defined Benefit vs Hybrid Plan:
How are pension benefits different at retirement?

We encourage members to read this bulletin in its entirety.
 
Dear members,

Ever wondered what the difference would be retiring under a Defined Benefit (DB) versus a Hybrid plan?

Members hired on or after November 7, 2011, are on a Hybrid plan.  Members hired before this date, are on a full Defined Benefit (DB) plan.  You can read a general explanation on the difference between a DB and Hybrid plan by clicking HERE.
 
What is the difference at retirement?
The following is to show members the difference between a pure DB pension plan versus a Hybrid plan in terms of pension benefits.

NOTE: This bulletin will compare the pure DB pension plan against the DB component of a Hybrid plan.  It is important to know that the DB component represents 50% of a Hybrid plan.  The other 50% of the Hybrid plan comprises of a Defined Contribution (DC) component which is managed by Manulife.

Also note, the contribution rate and the formula of the DB component of the Hybrid plan is almost half of the legacy DB plan.  As an example, for the pure DB plan, members contribute 4.5% up to the Year’s Maximum Pensionable Earnings* (YMPE) plus 6% above the YMPE.  Whereas, for the DB component of the Hybrid plan, the maximum a member can contribute between 15 to 35 years of service is 3%.  (Contribution rates and the pension formula for Mainline Hybrid members and Air Canada Rouge members are identical.)

*YMPE is set by the government every year.
 
Example 1** – Annual pension amount for members on a pure DB pension plan retiring at 65 years old:

A member on a pure DB plan retiring on January 1, 2016, at the age of 65 years old. 
With 35 years of allowable service.
Average Annual Compensation of $60,000.
Average YMPE of $52,400.
 
Would receive an Annual Pension of $37,415.
 
Example 2** – Annual pension amount from the DB component of the Hybrid plan, when retiring at 65 years old:

A member receiving pension benefits from the DB component of the Hybrid plan, retiring on January 1, 2051 at the age of 65 years old.
With 35 years of allowable service.
Average Annual Compensation of $60,000.
Average YMPE* of $52,400. (*Using 2016 figures and assuming no change until 2051.)
 
Would receive an Annual Pension of $13,572.

**The examples used are the last update provided by the company, which can be referenced in the Employee Pension Booklet.

There is a difference of $23,843 between the pure DB plan and the DB component of the Hybrid plan.  As stated above, the DB component represents 50% of the Hybrid plan, with the DC (Defined Contribution), representing the other 50% of the Hybrid plan.

Would the DC component of the Hybrid plan cover the difference of $23,843?
Projecting the return of a DC plan is difficult as there are many variables.  The return for a DC plan is dependent on the amount invested, the type of investment style one chooses, the annual rate of return, the length of time invested and the market condition upon retiring. 
 
Are you a member of the Hybrid plan? If yes, boost your pension contributions as soon as you can!
As shown above, it would be advantageous for members under a Hybrid plan can increase their contributions for the Defined Contribution (DC) component of their pension plan.

A new member who contributes $100 into their DC plan, are matched at 100%.  Therefore, a member who contributes $100 will have $200 in their DC account.

By taking advantage of this matching, members benefit by compounding their money.  The more money one puts in early in one’s career, the greater the benefit over time.

For more information about increasing your DC pension contributions at Manulife, click HERE.

Regards,

Your Component Pension Committee

Marc Roumy (Chairperson)
Henly Larden (Member)
Caroline Lozeau Gelinas (Member)
Stefanie Falotico (Rouge Member)

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