WLUFA Advocate, Vol. 2, Issues 3-4, July 2014
Wilfrid Laurier University’s Clarifications & Corrections webpage is an opportunity for the university to provide comments and corrections regarding information written and published about it by other sources.
The July 2014 newsletter of the Wilfrid Laurier University Faculty Association includes numerous misleading and inaccurate statements regarding the University’s pension plan. In response, the University provides the following statement to clarify and correct the misinformation.
Issues for corrections and clarification:
1. Newsletter statement: The University is moving towards a trend of hiring contract, part-time and casual employees who do not contribute towards, and therefore not helping to fund the pension plan.
Correction/Clarification: As previously clarified in response to the WLUFA Advocate, Vol. 2, Issue 1 (January 2014), the number of courses taught by CAS members is governed by the WLUFA collective agreement for full-time faculty, with the total number of courses taught by CAS members not to exceed 35% of the courses offered in an academic year. Using the metrics and definitions agreed upon by WLUFA and the University, and outlined in the WLUFA Full-time Faculty agreement, 33% of courses (undergraduate and graduate) were taught by CAS in 2013. This is actually a slight decrease from previous years, with 34% in 2012 and 35% in 2011.
Part-time employees, including CAS are eligible to participate in the Laurier pension plan, and many of them are enrolled and contributing towards the pension plan. As of Dec 2013, there were 141 active part-time members, including 101 CAS members.
2. Newsletter statement: The general perception that faculty salaries make up most of the University’s costs is incorrect.
Correction/Clarification: It is a fact, not perception, that salaries and benefits comprise a significant part of the University’s costs. Currently, the total cost of faculty salaries and benefits represents 42% of the University’s total operating budget, with salary and benefit costs for all employees representing 78% of operating costs.
3. Newsletter statement: The pension deficit would not exist if it were not for the contribution holidays that were taken by the University from 1994 to 2002.
Correction/Clarification: As previously clarified in response to the WLUFA Bargaining Advisory note originally published in November 2011:
The current funding difficulties affecting most pensions are the result of a combination of broad economic and demographic forces, not simply the result of contribution holidays taken nearly a decade ago. In the 1990s investment returns had been so favourable that many pension plans found themselves in a surplus situation – meaning the funds that had accumulated in the plan were much greater than the funds required to pay for current and future retirees’ benefits. The Income Tax Act, however, limits the amount of surplus a plan sponsor can hold in a registered pension plan. Since it was not legally possible to continue to accumulate surpluses in the pension plan, most plan sponsors used their surpluses to pay their annual contributions. Utilizing surpluses in this way is what is known as a “pension contribution holiday.”
This approach to dealing with plan surpluses was not only widely accepted as an appropriate practice, it was also encouraged by government. In the 1990s there were expectations from the Ontario government that universities should be using the surplus in their pension funds to address shortfalls in university operating funding from the province and as a publicly funded institution committed to delivering high quality post-secondary education, it is incumbent upon us to direct available operating funds to support the mission of the institution.
Based on the recommendation of the WLU Plan’s actuary, the University took a contribution holiday from 1993 to 2003 to reduce the level of surplus in the Plan. WLUFA members also agreed to take a partial contribution holiday from July 1, 1999 to June 30, 2001. During this time, the surplus funds in the plan were redirected to make the full required money purchase account contributions as defined by the Plan text, thus maintaining the intended actuarial design of the plan.
It should also be noted that legislative changes have since been introduced to prescribe more stringent conditions in which employer and member contribution holidays are permitted.
4. Newsletter statement: The University’s actuaries are paid for by the pension plan, and therefore should not be giving advice to the employer for the sole use of collective bargaining.
Correction/Clarification: Laurier’s Pension Plan Expenses policy outlines eligible expenses that can be charged to the pension plan, which includes actuarial services related to the administration of the plan. The policy expressly prohibits the use of pension funds towards payment of fees associated with analysis and preparation for union negotiations. Laurier pays for these types of actuarial expenses outside of the pension plan. It should also be noted that during recent rounds of collective bargaining, WLUFA (and WLUSA) retained their own actuaries to provide independent advice to ensure the interests of their members are reflected.
5. Newsletter statement: There is no evidence that retirees removing more than they “deserve” from the pension plan has contributed to the pension deficit.
Correction/Clarification: It is not the University’s position that retirees are receiving “more from the pension plan than they deserve.” Pension benefits follow a prescribed formula as prescribed by the plan to ensure that benefits received are the benefits promised. The issue is not that retirees are receiving more benefits than was promised, but rather the intent of the promised benefit was to provide regular post-retirement income in the form of a monthly pension. When members choose to transfer their money out of the pension plan, the current low interest rates that are prescribed by actuarial standards result in the lump sum transfers often exceeding the expected value of the lifetime pension. The 2012 Actuarial Valuation of the Laurier plan indicates a $19.5 million liability associated with transfers out of the pension plan.
6. Newsletter statement: Laurier’s pension deficit cannot be attributed to low or negative investment returns.
Correction/Clarification: As previously clarified, pension plan assets are derived from three sources – member contributions, employer contributions and investment returns. Typically pension funds are invested in a combination of equity and fixed-income assets. Over time, market cycles occur that create periods of favorable returns leading to funding excesses and unfavorable returns leading to funding shortfalls. The market meltdown in 2008 created unprecedented negative rates of returns for pension plans and has resulted in significant funding shortfalls. This has had a widespread impact on pension plans, including Laurier’s plan.
The following chart shows the historical fund return, and reflects the significant drop experienced in the plan from 2008 to 2010. As WLUFA has indicated in their article, returns since 2010 although have been positive, have been lower than expected, further contributing to the deficit. If a lower than expected positive rate of return impacts the plan deficit, it would stand to reason that a negative rate of return would have an even more significant impact on the plan.
7. Newsletter statement: How can Laurier pension plan members have started to live longer just recently?
Correction/Clarification: Increasing life expectancy is not unique to Wilfrid Laurier, nor is it only a very recent phenomenon. Canadian mortality in general has been improving at a much faster rate than was previously estimated. Up until recently Canadian pension plan liabilities have most commonly been determined using mortality tables that are based on U.S. pensioner experience because, with the exception of some very large pension plans which performed their own studies, no specific Canadian pensioner mortality study existed. Over the years, standard assumptions were built into the estimated pension plan liabilities to reflect the belief that life expectancy for pensioners was increasing. What very recent studies across the globe have shown is that mortality improved (i.e. life expectancy increased) over the past few decades more rapidly than had been estimated.
The Canadian Institute of Actuaries conducted a recent study on pensioner mortality and has created the first-ever Canadian mortality tables based solely on Canadian pensioner data. The study demonstrates longer life expectancy for Canadian pensioners than was previously assumed by the actuaries and also demonstrates that Canadian mortality, like elsewhere in the world, has been improving at a faster rate than was previously estimated. An outcome of this study is that new mortality tables came into effect in February 2014 and must be recognized in Laurier's next actuarial valuation (required at December 31, 2015). Our actuary estimates that adopting the new mortality tables will increase our Pension Plan liabilities by approximately 7%-8%. Similarly there will be an increase in the cost that we must recognize with respect to other post-retirement benefits. This increase in liabilities is not unique to our Pension Plan. Other pension plans will likely experience increases in liabilities once they adopt the new tables at their next valuation date.
8. Newsletter statement: The employer, as the sponsor of the pension plan, has full decision-making authority and control over the pension plan.
Correction/Clarification: The WLU Board of Governors is the legal administrator and sponsor of the University pension plan. The Board includes faculty members, support staff, students, alumni and community representatives. The Board has established a committee structure to address the administration and management of the pension plan. The Pension Committee consists of stakeholder representatives including the Chair of the Board, the University President, external members of the Board, faculty, staff and retirees. The Audit & Compliance Committee and the Investment Oversight Sub-Committee also advise the Board and participate in pension plan governance. All significant decisions about the pension plan, including plan design revisions, investment strategies, and actuarial assumptions are considered at these committees but then come to the Board for final review and decision. Audited financial statements of the pension fund and valuation reports prepared by the actuary are annually reviewed and approved by the Pension Committee and the Board. Any changes to plan design features, including benefit levels, require approval through the collective bargaining process, and then final approval for the resulting amendments through the Pension Committee and Board of Governors. The University, as employer, actually has very little authority to make unilateral changes related to the governance and design of the pension plan. Laurier’s pension plan governance follows the guidelines outlined by the Canadian Association of Pension Supervisory Authorities.