With a number of Ontario universities facing large pension deficits, the province recently gave universities and other public sector employers a three-year extension to put sustainable pension plans in place.
Prior to the extension, several universities were running pension deficits in the hundreds of millions and had applied for solvency relief from the government, with terms expiring in January 2014. The three-year extension would allow universities to defer their solvency payments, or make interest-only payments, until 2018.
“[The extension] gives universities and their employees breathing room to address their pension plans,” said Graeme Stewart, communications director for Ontario Confederation of University Faculty Associations (OCUFA). The OCUFA lobbied for short-term relief from pension pressures.
Currently, all but three universities in Ontario face pension solvency deficits, according to OCUFA.
Queen’s University, for instance, faces a pension deficit of $459 million. To pay that off in 10 years, the university would have to draw heavily from its operating budget — extra funds it does not have — to allot $35 million annually to its pension fund.
Caroline Davis, vice-principal of finance and administration at Queen’s, recently called the university’s deficit issue “one of the most pressing financial issues facing Queen’s” in a Q and A on the school’s website.
Davis also said that the three-year short-term relief “would not eliminate [the university’s] solvency problem and it would come at a cost.”
“It’s a little like making only the minimum payments on your credit card,” she said.
McMaster University’s 2013-14 consolidated budget similarly cited the university’s pension deficit as “the most significant financial pressure McMaster faces.”
The University of Ottawa has a pension deficit of $289 million and was approved for solvency relief this past June. Prior to the approval, the U of O faced the option of diverting $62 million, about 9 per cent of its operating budget, to paying off the deficit over five years.
Unfunded pension liabilities in universities have been an issue in Ontario for a number of years, exacerbated by the 2008 financial crisis.
“There were contribution holidays taken a decade ago when the plans had surpluses – the universities asked to not make contributions and were given that,” said Stewart. “The market crashed in 2008 and still hasn’t recovered. We also have historically low interest rates.”
“This is a short term stop gap,” Stewart said of the extension granted by the province. “OCUFA has received a grant from the government to do research on [sustainable pension options] – and so has the Council of Ontario Universities.
“It gives us time to do research and gives us time to propose some solutions.”