Bombshell on catch-up Indexation

The most recent “Report of the Retirees Trust Fund (RTF) Trustees to Dalhousie Pensioners,” received in late February, mentioned that a decision on catch-up indexation had been deferred. The trustees met on March 31 and decided, as provided for in our pension plan rules, to use half of the $10 million RTF surplus identified in the January 31, 2020 actuarial valuation to award catch-up indexation.

Such indexation is awarded first to those who have had missing indexation the longest. The amount available will provide the full 1.4728% catch-up indexing outstanding for January 1, 2012, and will provide for 0.6580% out of the 1.5025% January 1, 2013 outstanding catch-up indexing.  For those who retired before December 2009, this will mean an increase of 2.1405%; for those who started pension between December 2009 and January 2012, the amount of increase will be on a reducing scale depending on their retirement date.  Those who retired after December 2012 will not receive an increase from catch-up indexing. It is expected that the retroactive pension amounts will be paid with the June deposits.

No further catch-up indexation can be awarded until after the next actuarial valuation as the available surplus will be that identified by that report. The next valuation is scheduled for no later than January 31, 2023, the end of the maximum three year interval between such valuations.

Automatic indexation is subject to a separate rule, the amount the average three-year return on the RTF exceeds the threshold amount of 5.05% plus any shortfall from previous years.  It is also capped at the Consumer Price Index (CPI) for the past year.

Last year the 3 year average rate of return was 4.8629% which was 0.1871% short of the 5.05% threshold which must be met before any automatic annual indexation can be granted. Rule 9 stipulates that this shortfall must be recovered before pensions qualify for indexation in future years.

Therefore the 3 year amount must be greater than 5.05% +0.1871% or 5.2371%.

A 1-year return to June 30, 2021 in the RTF of 12.5% before expenses would yield automatic indexation of 1%. A return of 15.6% would be required for indexation of 2%. The RTF return for the 9 months ended March 31 was 13.64%.

With the increase in the CPI running close to 2%, some amount of automatic indexation would be a welcome offset for eligible Dalhousie pensioners.

A further action of pension plan administration at Dalhousie planned for this year will be another pension audit. This audit has been delayed by the pandemic, but is anticipated to proceed later in 2021. Those receiving a Dalhousie pension will receive a letter later in 2021 asking they confirm particulars of their pension payment. When an audit was done a few years back many pensioners were suspicious of the request, not having any notice of it coming, and did not reply. It is important that pensioners do reply as otherwise a possible interruption of pension payments could occur.

Randy Barkhouse (Pension Advisory Committee)

4 Replies to “Bombshell on catch-up Indexation”

  1. I haven’t followed this pension thread in detail, so the new information is good to know, but, interpretively, why is this described as a “bombshell”? That is, a quite unexpected, devastating event of (usually) negative implications. I retired in 2006 so should eventually get the 2.1405% described in the 2nd paragraph (good); but this results from a backlog that has apparently existed since 2012 — 2.1% is not much over a long 9 year interval, even given the modest pace of inflation for some years, but which has hit ~2% p.a. CPI recently, you say (bad) .

    Is the bombshell the fact that the stingy Dal Administration actually decided to use “half of the $10 million RTF surplus” for this in the first place? (not given to generous handouts, having cleverly rolled the solvent RTF in with the larger, in-deficit DFA fund some years ago (Nason?), so limiting the ability to grant pensioners regular indexation because of the poor investment returns of the now integral large DFA fund?)

    “No further catch-up indexation can be awarded until … no later than January 31, 2023” (3 years), so not good news, but apparently entirely predictable, so obviously not a bombshell.

    So what IS the bombshell? Is it bad (usual meaning) or good (as sometimes, in “blonde bombshell”)? I can mostly follow the math but don’t understand the English.

    1. Hi Steve,

      The “bombshell” was the entirely unexpected award by the RTF trustees (not the Dal administration) as the amount of RTF surplus was far below the level the trustees had long held as necessary for such an award.

      The award was also not communicated for several weeks after the decision, adding to the surprise nature of it.

      A second surprise of automatic indexation may also be forthcoming soon if the 3-year average return on RTF assets holds to June 30. A year ago this appeared most unlikely. Wait just a few weeks for that next “ka-boom”.

  2. Congratulations to Paul Huber and Randy Barkhouse on their recognition awards.
    Thanks to each of you for your valued contributions and efforts to enhance the
    experience of Dalhousie University Pensioners. Your leadership over the years has
    been much appreciated. I hope that we may have “in person” meetings” as C-19
    diminishes over time.

    Warmest regards,
    Barbara Prime- Walker( Ret’d)
    Dept. of Family Medicine

  3. We have just been made aware that there is an error in the 2nd-to-last sentence of the second paragraph above. The text should have read “Those who retired after December 2011 will not receive an increase from catchup indexing.” This date was erroneously printed as “December 2012” and corrected on June 16, 2021. [David McNeil}

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