In an effort to help answer some of those questions, we turned to Bob Weisnagel, the university’s Associate Director, Pension Benefits & Insurance. This is the second in a number of installments of this feature.

If you have more questions for Bob, send them to labour.relations@queensu.ca.

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In an effort to help answer some of those questions, we turned to Bob Weisnagel, the university’s Associate Director, Pension Benefits & Insurance. This is the first of what we hope will be a number of instalments of this feature. So, if the pension puzzle is getting the better of you, it might be time to “Ask Bob!”

Send your questions for Bob to labour.relations@queensu.ca.

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The university and employee groups have a shared goal: to ensure the long-term sustainability of the plan.

While being approved for stage two solvency relief is important and provides more time to reduce the plan’s deficit, this in itself won’t fix the plan’s underlying structural problems.

Changes to the plan are also required. This has been acknowledged by all employee groups and discussions about how to do this started in 2005.

On August 31, our mandated valuation date, the plan’s actuaries will take a financial snapshot of the plan. This valuation determines the size of the additional payments that are required by law to start closing the gap between what the plan has in it and what regulatory authorities say must be in it.

Should changes be made to the plan sometime after August 31, the university can file what’s called an “interim cost certificate” or “interim valuation report”. While this would reduce the university’s payment requirements on a go-forward basis, the reduction wouldn’t be retroactive, so any reductions that could have been achieved starting August 31 would be lost.

The longer it takes to address the plan’s underlying structural problems, the worse off the plan will be at the next valuation in 2014, and the larger the long-term impact on Queen’s operating budget, which is already in deficit.

In the pension world, the longer you delay solving a problem, the worse it will get.

Putting off decisions about changes doesn’t allow the university to limit the financial hit that is coming.

It’s important to note that meetings with all employee groups about the need for plan changes have been ongoing since 2005 with no agreement, despite the plan’s deteriorating financial position.

All employee groups have been aware of the August 31 valuation date and the university’s specific proposals for changes to the plan since a meeting last November.

The changes and the urgency were reviewed and reiterated by the university at a multi-employee group meeting in May.

These changes include increasing employee contributions, an approach which has  been implemented at other universities.

Employee groups have had months to study, discuss and respond to the proposed changes.

QUFA has publicly acknowledged that increased employee contributions are necessary and the university is ready to continue these discussions in conciliation later this month.

The university’s goal is to reach negotiated settlements with all employee groups.

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• Guelph’s CUPE 1334 local recently negotiated changes that will see contributions increase to 7.6%, up to the Year’s Maximum Pensionable Earnings (YMPE, currently $48,300), and 9.9% on salary in excess of the YMPE (Queen’s has recommended its target be 7% up to YMPE, 9% in excess);
• Trent’s faculty plan has increased contributions to 7% permanently and to 9% for a three-year period (2010-13);
• McMaster’s plan has increased to 6.5%, up to YMPE, and 8.75% above for all employee groups.

To compare with another public sector plan outside of the university sector:

• OMERS has announced increased member contribution rates for 2012, which will range from a low of 8.3% up to YMPE to as high as 13.9% above YMPE.

• The Ontario teacher’s plan rates are now 10.2% up to YMPE and 12% above — the plan, which is a jointly sponsored pension plan, requires the funding responsibility to be shared equally between the employer and pension plan members and, as such, contribution rates are set annually by the plan actuary.

Currently at Queen’s, the employer’s total contribution rate (employee money purchase account contributions, minimum guarantee current service cost, and additional special payments) is more than double the employee’s.

After consulting with all employee groups, the “savings” (funds from operations that would have been contributed to the QPP if not for the tax regulations) were allocated to employees in several ways – some received additional salary, while faculty created a dental plan. This period also saw a number of plan changes – recommended by the Pension Committee and agreed to by all employee groups – including improvements to the minimum guarantee formula, increases to the university money purchase contributions, and a reduction in the factors applied to the minimum guarantee on early retirement (6% per year was reduced to 2% for the five years prior to normal retirement). The net impact of these improvements reduced the surplus by several million dollars.

In addition, employee groups agreed to temporary employer contribution holidays on two occasions. During Ontario’s Social Contract years (1993 through 1996), employer contributions to the QPP were reduced by $2 million annually, and these funds were used to negate potential income and position losses resulting from the province’s wage freeze and unpaid holiday requirements.

Money from a second holiday (1997 through 2003) was used to pay for plan improvements proposed in part to mitigate Canada Pension Plan (CPP) changes, which led to higher contributions and lower pensions through the CPP.

The law requires the valuation of pension plans every three years.

The QPP is due for its next valuation at the end of next month – on August 31, 2011. The valuation is a “snapshot” of the financial state of the plan on that date. August 31 is, therefore, critical because the state of the plan on that date will determine what additional contributions the university will be required, by law, to make over the next three years. Those additional contributions are required to bridge the gap between what the plan has in it and what the provincial law says must be in it – and the larger the payments, the greater the impact on the university’s operating budget.

If nothing is done, and the government’s solvency conditions aren’t met, the university’s contributions would have to rise to over 30% of payroll to meet our funding obligations (right now, the university contributes about 10% of payroll while employees contribute 5% of their pay). That would mean an additional $70 million annually would be drawn away from the Queen’s operating budget. The current total operating budget is just under $400 million.