Pension Update

by Alastair Robertson

Laurier Pension Plan Funding

At its October 2019 meeting, the Pension Committee of the Board of Governors, meeting jointly with the Finance and Investments Committee, reviewed the April 30, 2019, actuarial valuation of the Laurier Pension Plan. The joint committee recommended that the Board of Governors approve that valuation, to be filed with the Ontario pension regulator by November 30, 2019. The University is legally required to file an actuarial valuation of the pension plan at least once every three years. The last valuation was filed at April 30, 2017, with the next valuation to be filed no later than April 30, 2020. The University can choose to file a valuation sooner than April 30, 2020, and there are advantages in doing so when, as in this case, there has been an improvement in the funded status of the plan that will result in a reduction in the special payments required to amortise a funding deficiency.

A going-concern actuarial valuation of a pension plan compares the value of the plan’s assets to its liabilities (the cost of pensions earned by members) on the assumption that the plan will continue to operate indefinitely into the future. A plan is considered “fully funded” on a going-concern basis when the assets of the plan are sufficient to provide for all pensions earned by members. A going-concern funding deficit occurs when the ratio of assets to pension liabilities is less than 100%. Currently, in Ontario, such a funding shortfall must be paid off over 10 years. At April 30, 2019, the Laurier Pension Plan had a going-concern funded ratio (assets divided by pension liabilities) of 98.7%, which is an increase from 95.1% at April 30, 2017. The dollar amount of the going-concern deficit decreased from $29.6 million in 2017 to $8.9 million in 2019. The improvement in the going-concern funded ratio is attributable to a number of factors including better-than-expected investment returns, as well as the special payments made by the University since the last valuation. The April 2019 valuation was performed under the new funding rules, which strengthen going-concern funding by requiring that actuarial valuations explicitly incorporate a funding cushion, referred to as the Provision for Adverse Deviation (PfAD).

The University Pension Plan Ontario (UPP): An Update

As discussed in this column in the Winter 2019 edition of the WLU Retirees’ News, three Ontario universities (Guelph, Queen’s, and Toronto) are in the process of creating a single, pooled pension plan for their faculty and staff under the title of the University Pension Plan Ontario (UPP). In July 2019, the consent process for the creation of the UPP was successfully completed. That process required that in each of the three universities at least two-thirds of active members of the existing single-employer pension plans consent to the proposed conversion to the new multi-employer pension plan and no more than one-third of retired members, former members, and other persons entitled to benefits under the existing plans object to that conversion. The required consent threshold was surpassed with respect to each of the five pension plans at the three universities.

The transfer of the existing pension plans into the newly created UPP still involves various technical steps and approvals. It is anticipated that these additional requirements will be completed by July 1, 2021, which is the target date for implementation of the new plan. How will conversion to the UPP affect current retirees and employees at the three universities? Retirees who are in receipt of a pension under an existing pension plan before conversion to the UPP will continue to be paid the same amount of pension after conversion. Current employees who retire under the UPP and have prior service in one of the existing plans will be paid a pension consisting of two parts: one based on the formula in their former plan and the service they accrued under that plan, and one based on the UPP formula and their service accrued under the UPP.

Pension Fund Rate of Return

This year pension funds have benefited from strong investment performance—an experience that stands in marked contrast to 2018 when, in a year that turned out to be the worst for stocks since 2008, the Laurier Pension Fund posted an annual return of only 0.31%. The latest figures for 2019 show that over the period from January 1 to October 31, 2019, the Laurier Pension Fund earned a year-to-date rate of return of 10.28%!

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