In simplest terms, a pension fund is a big pool of money: your money, your co-workers’ money and employer money. You and the other members of the MTS Pension Plan make regular pension contributions. These contributions, together with employer contributions from MTS and Participating Employers, are invested in an effort to generate additional funds. At retirement, a portion of the Plan funds are simply used to provide you with a regular monthly income. The actual size of that monthly pension will vary from one Plan member to another. It all depends on the person’s earnings history, the number of years they participate in the Plan and the age at which they choose to retire. Basically, the more you earn and the longer you work, the larger your pension will be.
Contributory Defined Benefit
The MTS Pension Plan is a “contributory defined benefit” pension plan. This means that your benefit is a predictable amount – defined by a formula based on your earnings during the five years when they were the highest and your years of participation in the Plan. Your benefit does not depend on the rate of return earned by the Plan.
Your contributions are set by a formula related to your earnings. In addition, these contributions are fully tax deductible up to Revenue Canada limits. In other words, they reduce the amount of income tax you pay each year. MTS shares the cost of providing your pension. MTS contributes the additional amounts necessary to pay the benefits that you earn as required by pension legislation. This does not mean that MTS contributes $1 at the same time you contribute $1. The timing of MTS’s contribution is determined by pension legislation.
At Arms Length
Contrary to what many people think, your pension is not paid to you directly from MTS. The pension you eventually receive from MTS is paid out of a separate pension fund which is a “trust fund” established by the Company as part of the MTS Pension Plan. This means that the money is held on behalf of you and the Company by an independent third party known as a trustee. It also means that the pension you earn is secure – it isn’t tied to the Company’s financial results. Working with MTS’s unions and retirees, a pension committee has been set up to monitor the Plan’s operations. Your personal interests are directly represented by those employees and retirees elected to participate on the committee.
Unlike government pension plans, your MTS Plan is pre-funded. In other words, the money required to pay your pension is set aside in the Pension Plan trust fund in advance. Funding a large plan (like your MTS Pension Plan) is a complex job to say the least. Your MTS Pension Plan is reviewed or “valued” by an independent actuary on a regular basis to determine the so-called “funded status” of the Plan. It is the actuary’s job to determine whether there is enough money in the pension fund at a given date to pay all of the pensions promised under the Plan. If there isn’t enough in the pension fund to cover the obligations of both current and future retirees, the Company is required, by law, to make up the shortfall over a period of time.
Investing The Money
Unlike your personal RRSP or any other savings arrangements you might have, you won’t have to worry about where to invest your money. MTS is responsible for monitoring the investment of the pension fund in accordance with a written investment policy. The fund itself is invested by professional money managers in a prudent way using investment vehicles such as common shares and government bonds. If the investments underperform, the Company is required to increase its contribution in order to make up the difference. If the investments do better than expected in a given year, the Company may use the additional money to fund Plan improvements or to offset its contributions.
Your MTS Pension Plan provides termination, disability and survivor benefits. As such, the Plan can provide an important source of income to you and/or your survivors … even if you never collect a pension. The Plan also gives you an opportunity to “buy-back” service under certain circumstances. In this way, certain approved leaves won’t necessarily have to impact on the benefit you will receive from MTS.