A solvency deficit means that, if the pension plan were closed up today, it would not be able to pay all of the benefits it owes to the plan’s members. As of August 31, 2014, the Queen’s Pension Plan (QPP) had a solvency deficit of $285 million.
Like many other pension plans across Canada, the QPP was severely impacted by the global financial crisis of 2008. The solvency deficit is, in part, a product of that crisis. Negative investment returns in 2008 and 2009, combined with the very low interest rates that continue today, have put us into a situation where the plan’s liabilities – what it owes to current and future retirees – exceed the value of its assets – the amount of money in the plan.
With a large solvency deficit, Queen’s is facing the need to make significant additional payments into its pension plan. Under Ontario’s existing rules, Queen’s is required to make special payments to cover any solvency shortfall beginning in 2015. At the current valuation of the pension plan, the university would have to make additional special payments of roughly $20 million annually for a period of 10 years. That represents roughly 6% of the university’s salary base and would bring total university pension contributions to about 20% of salary.
These payments would need to be absorbed into departmental budgets and would mean a significant impact on the university’s operations. All units across the university are being asked to plan for the impact of these payments as part of the 2015-16 budget planning process.
The only way Queen’s can avoid having to make special solvency payments completely would be to move to a jointly sponsored pension plan (JSPP) in which the requirement to make such payments is waived.
The colleges' pension plan (CAAT) has approached a number of universities (including Queen's) with an offer to merge with their existing JSPP, which if permitted by enabling legislation could lead to a permanent solvency funding exemption. Ultimately, the ability for Queen’s and other single employer pension plans to transfer to a JSPP will require legislative change by the government of Ontario.
The 2014 Ontario budget included enabling legislation directed at setting out the procedures and requirements for such a transfer, and draft regulations were released in early 2015 for feedback and discussion.
Ultimately, a transfer to a multi-employer pension plan to an existing JSPP like CAAT will create a more sustainable pension plan with stable contributions, shared employer-employee governance, and other benefits for plan members.
In addition, the Council of Ontario Universities and the Ontario Council of University Faculty Associations, along with the active participation of individual universities, faculty associations and employee unions, have been actively engaged in developing a new JSPP for the university sector. Now called the University Pension Project (UPP), the initiative has received funding from the provincial government and a final report to the Ministry of Finance is due by October.
It is important to note that if any of these options is eventually pursued, changes to the plan would not reduce benefits that active members have already earned, nor would there be any impact on pensions in payment.
For more information, or to ask questions related to your specific pension situation, please contact Bob Weisnagel, Director, Pension Services, by email or by phone at ext. 74184.