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Pension plan approved for stage two solvency relief

Key pension terms:

  • Going concern deficit: total value of the plan’s assets is less than the value of the pension benefits owed to members, assuming the plan continues to operate normally
  • Solvency deficit: total value of the plan’s assets is less than the value of the pension benefits owed to members, assuming the plan is closed up immediately
  • Actuarial valuation: determines the financial state of the pension plan and the size of any special deficit payments. Must be filed with the government every three years

The Government of Ontario has approved the application for stage two solvency relief for the Queen’s Pension Plan (QPP). This relief allows the university to pay down the plan’s $285-million solvency deficit over a 10-year period, or to defer solvency deficit payments for three years and pay it down over the following seven.

Without this relief, the university would have been required to pay the entire solvency deficit over five years. The university will still be required to make increased special payments of $20.7 million annually, beginning in September, to fund the pension plan’s deficit on a going concern basis, which is $175 million.

“The university anticipated approval for stage two solvency relief and has been planning for the impact of additional pension deficit payments through the 2015-16 budget process,” says Caroline Davis, Vice-Principal (Finance and Administration). “The decision on whether or not to defer the solvency portion of the deficit payments must be made before the university files its new actuarial valuation, which must happen before the end of August.”

If the university begins solvency deficit payments in September, the total special deficit payments would be $33.4 million annually, for both the going concern and solvency portions.  Provost Alan Harrison notes that if the university does take the solvency deferral, the university’s operating budget will still be impacted by additional pension payments.

“All units were instructed to plan and budget for an additional pension charge of 4.5 per cent of salary, commencing September 1, 2015,” says Provost Harrison. “This would cover the increased going concern payments, with the balance used to create a reserve for the solvency payments that would commence at the end of the three-year deferral period, in 2018.”

The Government of Ontario introduced two-stage solvency relief measures for some public sector pension plans in the wake of the global financial crisis. The QPP has been operating under stage one solvency relief since 2011, which means the university has been temporarily exempt from making special solvency deficit payments. That temporary exemption expires when the university files its new actuarial valuation.

“The best scenario for pension plan members and the university is to find a solution that gives us a permanent exemption from funding the plan on solvency basis, while providing secure retirement benefits.”

- Caroline Davis, Vice-Principal (Finance and Administration)

“The best scenario for pension plan members and the university is to find a solution that gives us a permanent exemption from funding the plan on solvency basis, while providing secure retirement benefits,” says Vice-Principal Davis. “The university is committed to examining all options that might lead to a permanent solvency exemption, including the University Pension Project that is currently examining the feasibility of a university sector pension plan.”

More information about the Queen’s Pension Plan and the solvency issue can be found on the Human Resources website, or by contacting Bob Weisnagel, Director, Pension Services, by email or at ext. 74184. Further information about the University Pension Project is available here.