Earnings deducted now will morph into reliable income during retirement
Each month, teachers contribute a portion of their gross pay toward their defined benefit pension plan, the Alberta Teachers’ Pension Plan. The Alberta government contributes a roughly equal amount, thereby sharing the cost evenly with teachers.
For the 2014/15 school year, the average contribution rate for teachers is 13.5 per cent of their pay. Specifically, the contribution rate for the first $52,500, or yearly maximum pension earnings (YMPE), is 11.44 per cent. For all earnings beyond $52,500, the contribution rate is 16.34 per cent. Thus, a teacher who earns $92,073 would pay the following amount to her pension:
$52,500 x 11.44% = $6,006.00
$39,573 x 16.34% = $6,466.23
The total amount paid by this teacher into her pension for this year would be $12,466.23, or a little more than $1,000 a month.
The provincial government’s contribution rate is 12.65 per cent of a teacher’s annual pay. This portion is actually deferred income that teachers collect when they retire and draw income in the form of a defined benefit pension.
Teacher and government contributions pay for both the current service cost of the plan as well as any deficiencies discovered at the time of an actuarial valuation (a type of appraisal that estimates future liabilities). The current service cost is the amount required for a pension plan to meet its promise for the future of paying teacher pensions and any ancillary benefits included in that pension plan, including early retirement and cost-of-living adjustment. A deficiency is an amount that the plan is short in order to pay its pension promise. Deficiencies discovered at the time of an actuarial valuation must, by law, be paid within a 15-year time period.
Teachers may feel frustrated to see their money being deducted from their cheques at the end of each month. They may believe there are priorities for that money other than their pensions, but at the end of their careers, they will realize that their monthly contributions have paid off.
Teachers can also feel confident that their contributions are paying for their own pensions and not someone else’s. This is because the pension they earn during retirement is determined by the number of years they contributed to the plan. Teachers’ pensions will be a foundation and, in most cases, their primary source of retirement income, thus making it one of the most important investments in their lives. ❚