It’s a huge, behind-the-scenes cost to universities: keeping their faculty and staff pension plans afloat. Historically low interest rates over the past decade have impacted investment returns. Meanwhile, Canadians are living longer than ever, and it’s very costly for pension plans to support retirees into their 80s and 90s – and university plans are no exception.
So, three Ontario universities – the University of Toronto, Queen’s University and the University of Guelph – have banded together to create a jointly sponsored pension plan, or JSPP, with the backing of their faculty associations and the United Steelworkers union. Once the new pension plan is set up, other Ontario universities will be invited to join in if they wish to.
“These [pension] funds are very large, and the larger the funds are, the more you have to invest, plus you have the flexibility to do different kinds of investments,” said Angela Hildyard, special adviser to the president and the provost at U of T. The three universities combined have net pension assets currently worth an estimated $8 billion.
In her current role, Dr. Hildyard devotes herself to this project full-time. “This is a very large undertaking,” she admitted. Queen’s and U of Guelph also have lead executives working on it, but they juggle this project with other responsibilities. (Due to her knowledge of the project, most of the parties involved in the plan preferred to have Dr. Hildyard act as a spokesperson on their behalf.)
To guide their work, the team is looking to other JSPP success stories such as the Ontario Teachers’ Pension Plan and the Ontario Municipal Employees Retirement System. These plans have record-setting returns because they invest their billions in an array of stocks, but also in real estate and other ventures such as shopping malls, airports and power plants.
In the 2012 provincial budget, the Ontario government encouraged public sector companies to consider moving to JSPPs. “They had concerns about the long-term solvency of public sector defined plans,” said Dr. Hildyard.
Under provincial rules, employers must be sure their members’ pensions will survive even if they themselves go out of business – something called pension solvency. While it’s unlikely U of T would ever fold, the university made a special payment of $78.7 million in the 2016-17 fiscal year to its pension fund to ensure it was solvent.
It’s a common annual issue for universities. Queen’s put $22.2 million into its plan in 2016-17. Dalhousie University got an exemption from similar rules in Nova Scotia in 2012 after it argued that paying down its $270-million solvency gap would force it to dramatically cut its budget and to lay off staff.
JSPPs are not only able to generate better returns, said Dr. Hildyard. While defined pensions are the responsibility of the employer (in this case, the university), JSPPs see employees and employers sharing decisions and the financial load. “You can jointly agree to increase the contributions going into the plan, or reduce benefits” if there’s a shortfall, she said.
While JSPPs sound like a magic bullet for university pension problems, setting one up is an enormous and complicated task. Early on, numerous Ontario universities – both small and large, with a range of pension plans – and their faculty associations signalled their interest in joining a JSPP. However, negotiations “became too difficult,” said Dr. Hildyard.
Some universities left the negotiations, leaving just six, but even that proved to be too complex. That left the three current universities, in early 2017, taking on the task and setting in motion a process to get their collective five pension plans united into one. “We found a way to work together well,” she said.
There are still numerous hurdles: whatever employees have earned so far under their current plan has to be honoured. The three schools are using a mediator to hash out the finances and other terms of the JSPP. Once that’s done, a certain percentage of current employees and retirees receiving pensions at all three universities must consent – a process that will take months. The provincial government also must approve the new pension plan.
By early 2021, the JSPP for the three universities should be up and running, said Dr. Hildyard. Others will be able to join after that, but they won’t be able to alter the terms of the existing arrangement. The end goal: healthy, stable pensions awaiting their employees at retirement.