Pension recovery still depends on province

“We’re still facing large deficits in the plan,” Wilfrid Laurier University VP of finance Jim Butler said, addressing concerned pension plan members at one of two town hall meetings this week. “This has been on the radar screen for a while, well before the [financial] crash.”

The meetings highlighted the ongoing concerns about Laurier’s ailing pension plan and the university’s strategies to address the issue. Questions also arose during the meeting about what sustainable options there are and what position the government will have in terms of funding.

As of the 2008-9 fiscal year, the university projected a $60 million shortfall in the funds necessary for ongoing contributions to the plan, as well as $30 million in solvency deficit, an amount required to maintain the plan if the university were to
stop contributing to it.

Allan Shapira, the senior actuary and principal at AON Hewitt Associates, carefully explained the situation and the approach the university has taken to the attendees of one meeting Monday.

“We are certainly faced with a much more challenging environment in which you manage pension plans,” he said. “What we don’t want to do is keep kicking the can down the road, so that the next generation of participants has to fund that bigger and bigger deficit that keeps on growing.”

As of Sept. 2010, the university — through the solvency relief program offered by the provincial government — extended their funding period so they don’t have to file for evaluation until 2012. The deadline for universities to apply to the program is Mar. 23.

“That gives us the breathing room that we need to engage in a discussion with employee groups,” Butler later told The Cord about the relief program. He also said that if Laurier did not apply or receive support from the program, it would result in university-wide budget cuts and special payments to compensate for the higher deficit.

After the first three years of the solvency relief program the provincial government will assess Laurier’s pension plan and, if they feel it is sustainable enough, will offer solvency deficit funding for the next ten years.

Shapira noted that even though the markets have rebounded somewhat from the 2008 financial crisis, pension plans — including those in other public sector areas — continue to falter, “That means that every pension plan is falling behind, so it is not unusual to see most pension plans to be somewhere between 15 to 20 per cent under-funded.”

“A lot of public sector pension bashing is going on,” Shapira continued. “In the private sector, pension plans are becoming less of the norm.”

Some other issues discussed at the meeting were the demand of an effective and sustainable system, the need for balance between benefit security and contribution rates stability and, as Shapira stressed throughout his presentation, the increased longevity of pensioners.

“If you look at the size of the pension plan today, in relation to your operating budget and if you look at it 20 years ago relative to your operating budget, it is much bigger. Things happening in your pension plan create more of an impact on your operating budget,” he said.

As well, lower investment returns and decreasing interest rates were subjects of concern. All of these challenges to pension plans originated in the early 2000s.

When asked about how Laurier is doing compared to other universities in terms of funding issues, both Butler and Shapira agreed that this is a typical situation among universities, and that Laurier is in the “middle of the pack.”

While plans and proposals are being put forth to heal this situation, the presentation ended on a rather ambiguous note, “None of us really know what the future holds,” Shapira said.

“In my perspective, [the key] is designing a plan to react to whatever the changing circumstances are, and the plans today haven’t been designed with that in mind.”