Pension Update

by Alastair Robertson

The University Pension Plan (UPP)

Laurier continues to explore joining the University Pension Plan (UPP), a multi-employer, jointly sponsored pension plan (JSPP) offering a defined benefit pension. At present, four Ontario universities are participating: Guelph, Queen’s, Toronto, and Trent. WLU has now formally invited the Wilfrid Laurier University Faculty Association (WLUFA) to consider converting its members’ pensions from the WLU Pension Plan to the UPP. WLUFA responded with information sessions for its members, and will enter into negotiations with the University to resolve any outstanding issues of concern before holding a membership vote to determine support for joining the UPP. Our other union groups will receive similar invitations.

If Laurier joined the UPP, plan members who retired prior to conversion would not have any change in their pension benefits. At conversion, all pension benefits earned under the WLU Pension Plan would be preserved, transferred to UPP, and paid by the UPP. Current retirees would continue to receive annual indexation adjustments to their Money Purchase Pension (MPP) and Minimum Guarantee Pension (MGP) in accordance with the provisions of the Laurier plan at the time of their retirement. Under provincial pension legislation, conversion of the WLU Pension Plan to the UPP can proceed only if at least two-thirds of active (currently contributing) members of the Laurier plan consent, and no more than one-third of the plan’s inactive members (retirees and former employees entitled to deferred pension benefits under the Laurier plan) object. The University is required to provide all plan members with prescribed information that permits a well-informed and well-considered decision.

In the view of pension experts, jointly sponsored pension plans (JSPPs), like the UPP, offer a sound framework to support secure and sustainable defined benefit pensions. This is confirmed by the history of other Ontario JSPPs, including those for teachers (OTPP), municipal employees (OMERS), and healthcare workers (HOOPP). Multi-employer plans are not dependent on the financial health of a single employer and thus have a reduced risk of plan wind-up or termination. Moreover, in a JSPP, employers and plan members share equally in the funding, administration, and governance of the plan, and have a joint obligation to ensure that the plan remains financially sound. As of December 31, 2021, the UPP was fully funded with a going-concern funded ratio of 111%. Should a future funding shortfall arise, the UPP’s Joint Sponsors can address that shortfall by approving an increase in pension contributions (from employer and employee) or a reduction in pension benefits (for future service).

The UPP is a large plan with over 37,000 members and $11.8 billion of assets under management. By comparison, the WLU Pension Plan has about 3,000 members and some $0.9 billion in assets. The larger size of the UPP offers definite advantages, including greater opportunities for asset diversification through investment in alternative assets (such as infrastructure, real estate, and private equity), in-house investment management and the ability to attract top management talent, and greater scope for operational economies of scale and administrative efficiencies.

Laurier Pension Plan Rate of Return and Funded Status

This year most pension funds have suffered negative rates of return as worries about accelerating inflation, rising interest rates, and a possible economic slowdown precipitated a global market meltdown. For the period January 1 to August 31, 2022, the Laurier pension fund earned a year-to-date rate of return of –3.11%. This sharply contrasts with our experience in 2021 when buoyant markets contributed to strong investment gains.

The latest actuarial valuation of the WLU Pension Plan, which compares the plan’s assets to its pension liabilities, shows that at December 31, 2021, the plan was fully funded with assets slightly in excess of liabilities. When valued on a going-concern basis, which assumes the plan continues indefinitely, the plan’s funded ratio (assets divided by pension liabilities) was 102%, an increase from the corresponding ratio of 99% recorded at April 30, 2019, the date of the last filed actuarial valuation. When calculated on a solvency basis, which assumes that the plan is terminated at the date of valuation, the plan’s funded ratio was 104%, an increase from the corresponding figure of 95% at April 30, 2019. These improvements in funded status were principally attributable to stronger-than-expected investment returns whose effects on the value of assets more than offset the impact of lower discount rates on the value of pension liabilities.