The Queen’s Pension Plan (QPP) continues to carry a significant funding deficit according to preliminary results from the new actuarial valuation of the plan. This will mean a further impact on the university’s operating budget beginning in the 2015-16 fiscal year.

An actuarial valuation examines the financial state of the pension plan on both a going concern basis, which assumes the plan continues to operate normally, and a solvency basis, which assumes the plan is closing today. As the plan sponsor, the university is required to make special payments into the plan if a deficit exists under either approach.

Caroline Davis, Vice-Principal (Finance and Administration), says that actuarial valuations must be filed with the provincial pensions regulator every three years, so the plan is due for one now.

“While the valuation as of Aug. 31, 2014 is not yet quite final, we expect the preliminary results will be very close to the final numbers. They show an increase in the going concern deficit and a decrease in the solvency deficit compared to the last valuation filed in 2011,” says Vice-Principal Davis. “This will result in increased special payments that will need to be made from the university’s operating budget.”

The 2014 valuation’s preliminary results set the QPP’s going concern deficit at $175 million (compared to $126 million in 2011) and its solvency deficit at $284 million (compared to $332 million in 2011).

The going concern special payments will rise from about $14 million to over $20 million each year.

Prior to filing the 2011 valuation, Queen’s successfully applied to the government’s temporary solvency relief program which exempted the university from having to make solvency payments for three years.  The university has since applied for the second stage of solvency relief, which would allow the university to pay down the solvency deficit over 10 years, rather than the normal five.

“Stage two relief is not automatic, it would be a result of the negotiated changes made to the pension plan since 2011, including increased contribution rates, that enhance the sustainability of the plan,” says Vice-Principal Davis.

Combined special payments on the going concern and solvency deficits, assuming stage two relief is granted, would start in 2015 at $33.3 million annually. The option does exist to defer solvency payments for a further three years, and then pay the balance over the remaining seven years, but the university would still need to make payments on the going concern deficit, and the payments for the solvency deficit when they eventually begin would be higher.

The university is currently planning for the impact of additional pension payments on its operating budget through the 2015-16 budget process. It must file the new actuarial valuation by Aug. 31, 2015, indicating whether it will begin solvency payments immediately or chose the option to defer that portion of the special deficit payments for a further three years.

The university continues to seek ways to make the plan financially sustainable into the future, but whatever happens, pensions already earned are guaranteed never to be reduced.

For more information, read the full stage two solvency relief application which includes a detailed breakdown of estimated special pension deficit payments, visit the Human Resources pension website, or contact Bob Weisnagel, Director, Pension Services, by email or at ext. 74184.