Ontario university pension plans in the aftermath of financial crisis

September 15, 2010

Kevin Skerrett

CUPE Research

1) Reflections on the recession/financial crisis

Major losses on stock/bond markets in 2008-09 Irrationality of financial and credit markets –

Lehman Bros., Goldman Sachs, hedge & derivatives markets have been exposed (though still need reining in properly)

All pre-funded pension plans affected, many lost 15%-25% of their assets: Canadian stock market lost 33% in 2008 Average pension funds (Canada) lost 18.4%

1) Reflections on crisis (cont’d)

Individual savings plans (RRSPs, DC plans) were exposed as very high risk – the costs of the crisis immediately “socialized”, both through bailouts and through real losses

Increased pressure on “defined benefit” type plans, new deficits lead gradually to increases in funding requirements (employer and sometimes employee)

Investment returns in Canada: 1983-2008

Source: V. Jog, December 2009

2) Effects of crisis on pensions and retirement incomes

RSP / RIF balances depleted, some retirees facing shrinking savings pools

Workers with insecure “defined contribution” type plans face immediately worsened pension options

Public pension system – Old Age Security and Canada Pension Plan – remain solid

Workers forced to pay the price: “defined benefit” type plans far more protected, but employers accelerate their attack on these plans in the private sector (Vale Inco)

Attacks on benefits in public sector also increase

3) Campaign for CPP expansion

OAS benefits: $6,000 per year, indexed CPP benefits (avg.): $6,000 per year, indexed CLC & CUPE 2009-2010 campaign for a doubling of

CPP benefits, at affordable premium rates CPP universal, portable, indexed, efficient June 2010 meeting of Finance Ministers announce: CPP

to be expanded Second track also proposed: Allow insurance companies

to provide multi-employer pension plans on a defined contribution basis

4) Impacts on University plans

Many Ontario university plans under-funded – but why? Contribution holidays (U of G example) High risk investment strategies (U of T) Convergence of “actuarial” factors: interest rates,

mortality rates Drop in asset values on stock & bond markets

4) Impacts on University plans (cont’d)

Emerging pattern of employers seeking to cut benefits, shift cost to their employees

Some universities even trying to convert their established DB or “hybrid” type pension plans to insecure defined contribution (DC) model

Where collective bargaining takes place, employee interests better protected (Queens)

Increasing effort from unions to bring pension discussions to collective bargaining tables

5) New Ontario Government attacks on University plans

August 5, 2010 announcement of new solvency “relief” measures for universities specifically – replaces successful measure based on *consent*

“Sustainability Plans” – MoF to ask: Are benefits to be cut? Are costs to be moved to a 50-50 cost share? Will future service be “defined contribution”?

A major attack on university-sector DB/hybrid plans, led by Ontario government

5) New attacks cont’d

Ontario government has now adopted Vale-Inco approach to pensions, but only for university sector

Minister Duncan claims this is intended to “help” the sector – but it is in fact an interference in collective bargaining, siding with the employers looking to cut costs

Sustainability measures of Ministry of Finance are not measuring sustainability but costs

Meanwhile - $4.5 billion in further corporate tax cuts are being promised to profitable corporations

6) Impacts at Carleton University?

Carleton has a hybrid plan, with a “minimum guarantee” level of 1.29%/2% $40,000 / year employee with 25 years service:

40,000 x 0.0129 = $516$516 x 25 years = $12,900 / year pension (32% wage

replacement) Indexation linked to investment performance, not

guaranteed

7) Impacts at Carleton (cont’d)

Retiree looking at: Carleton pension $12,900 Old Age Security 6,000 CPP 6,000 (?)

Total $24,900/per year Health care, LTC costs rising LICO-Poverty lines: $16,000 - $20,000 / year

Ontario university pensions -- Guaranteed (DB) and Minimum Guarantee Replacement Rates

What percentage of “final earnings” are “guaranteed” to be replaced after 25 years of service? *

•Excludes consideration of “final average” formula, indexation, early retirement provisions, etc. “H” denotes a hybrid type plan, with a minimum guarantee benefit formula (DB minimum).

Source: Council of Ontario Universities, 2010

7) Impacts at Carleton (cont’d)

Recent moves to reduce benefit levels, increase early retirement penalties

Member contribution increases (2% of payroll) to be introduced in 2011

Not clear whether Carleton will seek new solvency relief, with “sustainability plan”

8) Trade union responses & strategies

First option – Campaign to expand CPP (all workers to benefit) Second option – Defend and protect workplace pension plans Ontario government attacks are not aiming at sustainability but at

reducing pension costs – period. Unions need to bring pensions into the realm of collective bargaining

U of T/ U of G – language in contracts Queens – faculty union “veto”, union coalition Many other university plans use a bargaining approach

Employer-dominated committees keep pension issues away from bargaining, union voice and influence remains weak, benefits not ultimately protected

8) Union strategies cont’d

But, pension bargaining a challenge: Can unions cooperate? How to manage different expiries, schedules? Do different unions/groups have different

priorities? Public sector unions in NS, NL have shown

that coordinated pension bargaining can work (federal PS unions should follow suit!)

8) Union strategies cont’d

Vale-Inco needs to be our collective wake-up call Member education, information, critical to success Strong union responses needed – inform, mobilize,

utilize all of the tools available to us Challenge anti-public sector, anti-pension

propaganda! (Average retiree pensions at U of G: $9,000 per year)

Pension entitlements in this sector are hardly “gold plated” – they are decent, but need to be defended

Questions?

Kevin Skerrett

CUPE Research

(613) 237-1590 ext. 226