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Important Message on Pensions

by Walter Whiteley, YUFA's Nominated Pension Fund Trustee

10 Mar 11 - The University is presently responding to recent changes in Ontario Law around payment of going-concern and solvency pension deficits. From within the YUFA working group on pensions and the Article 14.01 (d) Joint Committee looking at a range of pension issues, the YUFA Executive has appointed a three person committee to meet with the Employer and other representatives of other employee groups (union and non-unionized) to discuss these changes. The three people are Arthur Hilliker, Brenda Spotton Visano, and Walter Whiteley, supported by Brenda Hart, YUFA staff. In addition to this YUFA team, YUFA receives advice from a pension lawyer and an actuarial firm hired by YUFA.

We have had three joint meetings over the past month with the Employer, other employee groups, and pension advisors. In many ways, these meetings have been 'fact finding' – understanding the law as it evolves, the regulations, the assumptions being used for the actuarial valuation, and their combined consequences.

Before summarizing the issues at hand, recall that for monitoring pension plans, there are two types of calculations reported:

  1. Going-Concern Calculation – assuming the Pension Plan runs for the life of the institutions, over many decades, the going concern calculation addresses the question: does the money currently in the Plan, and the added money coming in, cover the payments of pensions for current and future retirees? If the answer is no, such that current and future contributions are less than expected payments, the fund is said to have a going-concern deficit;

  2.  Solvency Calculation – if the Plan was to be wrapped up in the next year (e.g., Nortel situation), the solvency calculation addresses the question: do the current assets in the Plan cover the current liabilities? If the answer is no, and the value of assets is less than the value of liabilities, the solvency deficit identifies the extent of that shortfall (e.g., 86 cents of the dollar).

The 2010 valuation of the York University Pension Plan is expected to show both going-concern and solvency deficits. YUFA's primary concern is with the going-concern deficit. This deficit is due to a variety of pressures, including lags in updating mortality tables and the year-by-year growth in promised pensions, which is a bit bigger than the growth in the Pension Fund. For more information, click here.

The shared objective of all Plan members is to find a way to ensure the Pension Plan is sustainable on a going-concern basis. A Plan that is sustainable in this way will see expected contributions equal expected payments over the long term. Given the lower interest rates (and reduced average earnings on investments) this goal of sustainability on a going-concern basis is a major issue that must be addressed in the medium term. To address the going-concern deficit and meet the sustainability goal, changes in regulations require the University to start paying off the accumulated going-concern deficit next January. These payments will be substantial (the payment required to bring the going concern calculation into balance is currently estimated to be about $200 million, spread over 15 years). 

The Ontario changes have also triggered a discussion of the solvency deficit, which under existing rules must be paid off at a faster rate (i.e., over 5 years). Very recent changes in the Ontario law offer a window of 3 years inside which required solvency deficit payments may be suspended. The 3 year window is intended to allow time to design changes to the Plan that will ensure a solvency balance going forward. To be eligible for this 3-year suspension of solvency deficit payments, an institution must file a “preliminary stage 1 report.” The University will be filing such a report later this month (by 23 March 2011). Neither the decision to file the report nor its content requires employee consent. Rather, the University has opted to be transparent enough with all employee groups that we know what is happening in a timely manner. If the report the University files is accepted by the government, then the University will be allowed to postpone for 3 years all payments required to address the solvency deficit (but it must still make payments required to address the going-concern deficit). Acceptance of the report by the government also opens a short window of 3 years to discuss / agree on changes to the Plan which would have to meet certain technical savings metrics intended to improve sustainability of the Plan on a solvency basis.

In brief then,

  1. there will be substantial additional pension payments by the University to address the going-concern deficit and ensure the Plan has the money to pay all current pensions and current promises for those not yet retired; and

  2. the implications of the recent changes in Ontario law are that there will be discussions about potentially significant changes to the Plan needed to make the Plan sustainable on a solvency basis (increased contributions, possibly modified benefits) over the next 3 years involving all employee groups.

To prepare for these discussions, YUFA representatives will work with our consultants to fully understand the options open to us and assess the impact of the range of possible changes we might consider. The shared objective of all Plan members is to develop the most effective plan for achieving longer term overall sustainability.

We note in closing that pension restructuring is happening across the province’s university sector. Both OCUFA (via sharing of information among university faculty associations) and COU (via concerted lobbying of the government by all the university administrations) are involved. As we move forward with pension discussions here at York, the discussions will occur in a province-wide context, informed by the experience of and ideas from other universities with similar Plans and similar problems.