Pension Update

by Alastair Robertson

Update on the University Pension Plan (upp)

As mentioned in a February message to members, Laurier has formed a Multi-Lateral Working Group to further explore joining the University Pension Plan (upp). The upp is a jointly sponsored pension plan for the Ontario university sector, which is scheduled to begin operations on July 1, 2021, with three founding institutions: Queen’s University, University of Guelph, and University of Toronto. Trent University recently announced plans for their faculty pension plan to be converted to the upp effective January 1, 2022.

The Multi-Lateral Working Group includes representatives of employee groups at Laurier as well as a retiree representative (Alastair Robertson). Its goal is to build knowledge about the upp plan design and governance structure, and the steps that would be required if Laurier joined the upp.

The Working Group held three meetings from January to March 2021. Each centred on presentations by two experts on the upp: Allan Shapira (Aon) and Elizabeth M. Brown (bmkp Law), who, respectively, served as actuarial advisor and legal advisor to Queen’s University, the University of Guelph, and the University of Toronto, as these three prepared to become the first members of the upp. A detailed comparison of the design of Laurier Pension Plan and the design of the upp was conducted in order to understand what would be gained and given up, if Laurier were to join the upp.

Current retirees who are members of the Laurier plan would see no change in their pension benefits. Current pension benefits would be preserved, transferred to upp, and paid by the upp, with annual indexation adjustments in accordance with the provisions of the Laurier plan.

While current retirees would see no changes to their pension benefits after a conversion to the upp, current Laurier employees who retire after that conversion would receive a pension consisting of two components: one based on their pensionable service under the terms of Laurier Pension Plan, and one earned by their service under the provisions of the upp. Thus, any decision to join the upp would require formal agreements between Laurier and its unions and employee groups. Such internal agreements would be one step in a lengthy and detailed approval process that would ultimately require the satisfaction of separate statutory consent thresholds for both active (employed) and inactive (retired) members of the Laurier plan.

Pension Plan Estimated Funded Status

At its March 2021 meeting, the Pension Committee of the Board of Governors received estimates of the funded status of the wlu Pension Plan at December 31, 2020, prepared for information purposes by the plan actuary. The value of the plan’s assets was compared to its pension liabilities on both a going-concern basis, which assumes that the pension plan will continue indefinitely into the future, and a solvency basis, which assumes that the plan terminates at the date of the valuation.

At December 31, 2020, the Laurier Pension Plan had a going-concern funded ratio (assets divided by pension liabilities) of 96.1 percent, a decrease from the corresponding ratio of 99.0 percent recorded at December 31, 2019. Investment gains over 2020 were offset by an increase in pension liabilities as the fall in interest rates over the year both lowered the discount rate applied in the calculation of future pension liabilities and increased the size of the fund’s Provision for Adverse Deviation (PfAD), or required contingency reserve.

When estimated on a solvency basis, the Laurier Pension Plan had a funded ratio of 92.0 percent at December 31, 2020, which was a decrease from the value of 93.7 percent at December 31, 2019. The fall in the solvency funding ratio is attributable primarily to the decrease in government bond yields used to set solvency interest rates, which offset the investment gains.

Pension Fund Rate of Return

The Laurier pension fund earned an annual rate of return of 7.46 percent in 2020. This strong, year-end result stands in marked contrast to the first quarter of 2020 in which the pension fund suffered a negative return of −8.46 percent as the onset of the covid-19 pandemic brought a steep drop in equity prices. The monetary and fiscal stimulus adopted in response to the pandemic then fuelled a sustained recovery in equity markets, leading to new market highs by year’s end. The pension fund’s 7.46 percent annual rate of return in 2020, while lower than the exceptional 13.50 percent return posted in 2019, was still slightly better than the 7.41 percent average annual rate of rate return earned over the four years from 2017 to 2020.