By John Holmes, Chair, QUFA Pension Working Group, 16 August 2010
On 5 August 2010, the Ontario Minister of Finance announced that the government will soon introduce measures to provide temporary solvency relief for university pension plans, such as the Queen’s Pension Plan (QPP). The administration posted an incomplete and misleading report of this announcement on the Queen’s Web site on 12 August 2010.
For months, University administrations have been lobbying the provincial government to provide temporary pension solvency relief. The Minister’s 5 August 2010 memorandum indicated that the government will offer such relief if universities submit acceptable plans for restructuring their pension plans to make them sustainable. The Minister stressed that such plans must be developed in consultation with unions and associations representing employee groups. The Queen’s administration Web announcement makes no mention of this requirement, noting only that “[Provost and VP (Academic) Bob] Silverman, along with [VP (Finance and Administration) Caroline] Davis and VP (Human Resources) Rod Morrison have been tasked with evaluating the pension plan and establishing a process to restore the program to sound footing.” No mention of the employee groups, no mention of the University Pension Committee.
So why is the solvency relief announcement important? At least once every three years, pension plans in Ontario are required to file an actuarial valuation of the plan with provincial regulators. Two types of valuation are required: a so-called “going concern valuation,” which assumes that the plan will continue to operate well into the future; and a “solvency valuation,” which is a valuation of the liabilities under the plan should the sponsor (usually a company or institution—in the case of the QPP, the sponsor is the University) go out of “business” and the plan be wound up. If the valuation reveals an unfunded liability, the plan sponsor must make additional payments in to the plan. Under current rules, the sponsor must pay down a going concern unfunded liability over 15 years and a solvency unfunded liability over 5 years. As a result of the unfunded liabilities revealed by the most recent valuation of the QPP (31 August 2008), Queen’s currently is required to make additional annual payments into the Plan of approximately $6 million. These payments are taken from the operating budget.
Until recently, solvency has not been an issue for the QPP. It first emerged in the August 2008 valuation, and it is anticipated that the solvency unfunded liability will be significantly higher at the date of the next filing with the regulators (which must be no later than 31 August 2011). This issue is not unique to the QPP: several universities, including those at Toronto, York, McMaster, Guelph, Carleton, Ottawa, and Trent, face a similar challenge of being required to make significantly increased extra payments into their pension plans following their next official valuation. At Queen’s, department heads in the Faculty of Arts and Science have been instructed to budget for a 2.5% cut in their 2011- 2012 budgets, but also to think about how they would address a further 2.5% cut if Queen’s is required to make additional payments to address the pension solvency issue.
A sustainable QPP is precisely what Queen’s employee groups (QUFA, CUPE, and QUSA) have been seeking to achieve in our negotiations with the Queen’s administration (led by VP Morrison and assisted by Bob Weisnagel and Bill Forbes from the Pensions Office) over the last several years. The process for negotiating changes to the pension plan had been working well. Earlier this year, the parties were close to agreement on a set of changes to the QPP, changes that both Mercer (the actuarial firm retained by the administration) and our actuarial advisors believed would put the QPP on a sound financial footing for the future. The changes we were close to agreeing on are very similar to the kinds of changes the government is now signalling it wants to see before granting solvency relief. However, following the May 2010 Board of Trustees meeting, Principal Daniel Woolf unilaterally suspended pension negotiations with the employee groups, declared that “all deals are off,” and set up a new working group composed only of people drawn from the Board of Trustees and senior administration (Provost Silverman, VP Davis and VP Morrison). Neither Silverman nor Davis had been involved previously in discussions of changes to the Plan (see here). Since that time, we have heard nothing from the Principal or his delegates.
We assume that the Principal and the Board would like to seek solvency relief for the QPP from the government. The employee groups remain ready to resume pension negotiations. The ball is in the administration’s court.
This is a joint statement from the QUFA, CUPE, and QUSA pension negotiating team.
John Holmes Chair, QUFA Pension Working Group
John Holmes can be reached at email@example.com.