This is a summary of the Pension Plan changes ratified by the CCROU, BMWE, and the IBEW.
Once all collective agreements have been ratified, there will be immediate improvements to pension benefits. The value of these improvements is better than any that has ever been negotiated in one renewal agreement.
Changes include:
Increases to annual pension benefits of up to $1200 for employees who are active as of January 1, 1998
CN's current pension formula is calculated by taking 1.3% of your best 5-year average earnings (up to YMPE*) multiplied by years of service (up to a maximum of 35 years). This rate will increase to 1.4% effective January 1, 1998, for all years of service in the plan.
Effective January 1, 2000, it will increase to 1.5% for future pensionable service.
The 2% applied to earnings above the YMPE (multiplied by years of service) remains the same (see example on right).
By closing the gap between 1.3% and 2%, these improvements benefit both low- and high-income earners. However, annual pension cannot exceed $1,715 per year of pensionable service (maximum of $60,025).
Improvements to indexation
Pension income is currently indexed to 50% of the rate of inflation up to a maximum rate of 6%. Effective January 1, 1998, the 50% is increased to 60% (as long as the funds in the Escalation Account remain above a certain threshold).
Pension income, which is subject to indexation, will increase immediately from $1,625/month to $2,000/month. It will continue to increase, reaching $2,500/month by the year 2000.
This represents an increase of over 50% of pension income (subject to indexation) over the term of this collective agreement.
After the year 2000, pension income (subject to indexation) will increase by $250/month each year of the subsequent contract. This could reach a maximum of $3,250/month if the term of the next contract is three years. This would represent a 1 00% increase over the existing $1,625/month.
The minimum age to qualify for indexing is reduced from age 63 to 60. The 5-year minimum to qualify stays the same. This means that someone retiring at age 55 will now qualify for indexing at age 60 instead of wafting 8 years to qualify at age 63.
A further $20 million is allocated to increase pensions for those pensioners who retired prior to 1 990, when the wafting period for indexing was longer.
Other improvements
All current pensioners receiving 50% survivor benefits will have their pension income increased to 55% effective January 1, 1998. This also applies to future survivor pensions.
Improvements have also been made to disability and buy-back provisions.
The total value of these improvements is more than $300 million.
Sample calculation using improved pension formula
When John retires on December 31, 1998, he will be 55 years old with:
Final 5-year average YMPE of $35,480
33 years of pensionable service
Pension calculation
(1.3% x $35,480) x 33 + $21,504 2% x ($45,000 - $35,480) x 33
(1.4% x $35,480) x 33 + $22,675 2% x ($45,000 - $35,480) x 33
Increase = $1,171 per year
The same increase would apply if John's best average earnings were lower than $45,000 but more than $35,480.
New Pension Committee
The current Pension Board will be replaced by a Pension Committee with representation from the company, unions, and pensioners.
This new committee has authority to decide how monies will be used in the newly created Improvement Account (for current unionized employees) and portions of the monies in the existing Escalation Account (for current pensioners).
This means that the Pension Committee can now make changes to improve unionized employees' pension benefits during the life of the collective agreements without having to wait for the next round of negotiations.
Sharing the gains
A new Improvement Account for unionized employees will be created starting in 1998. This account will be credited each year with 50% of the gains or losses from investment earnings.
The amount will be based on active unionized employees' proportion of total liabilities.
The agreement provides the ability to make further improvements to benefits during the term of this agreement using the funds accumulating in the new Improvement Account.
$45 million is being put into the improvement Account for unionized employees to help ensure that future improvements can be made.
No other large Canadian pension plan is known to have a mechanism for making improvements during the closed period of the contract by sharing gains made through improved performance of the fund.
Because of this mechanism and the ability of the Pension Committee to introduce changes during the term of the agreement, no other modifications are to be introduced until the end of the subsequent collective agreement.
CN Board of Directors approval
All changes to the Pension Plan require approval by CN's Board of Directors. Once all of CN's unions have ratified their respective collective agreements, CN's Board of Directors will be asked to approve these changes.
Financial Condition of the Plan
There are currently about 48,000 pensioners with an annual pension payroll of approximately $550 million. That's more than twice the number of employees at CN who are now contributing to the Plan.
Over the last fifteen years, CN has contributed almost $2 billion to the plan, compared with $1.3 billion by employees.
Company and member contributions, along with strong returns on investments, have put the Plan in good financial health. With continued good management, the improvements outlined in this plan can be made without mortgaging the future.
Copyright © 1998 Brotherhood of Locomotive Engineers - National Legislative Board - Canada