Bill Salatka, WLUFA President & Associate Professor of Accounting
In my review of the financial statements of several Ontario universities, I noticed an accounting standard change that now gives us a lot more information about the status of our pension plan. In the past, the accounting standards allowed administrations across Ontario to hide actuarial gains and losses of university pension plans. Substantial actuarial gains were hidden in the past. Today, all actuarial gains and losses must be disclosed in the Statement of Operations. Massive actuarial losses are now disclosed. Why does this affect you?
My best guess is that administrations all across Ontario will use the massive actuarial losses to claim that: (1) pension plans are “broken” and need to be fixed; and (2) far greater contributions are needed from faculty and staff along with substantially reduced benefits in the future for pension plans to survive. Don’t believe this, it is not true. It’s baloney.
The Administration has largely created the deficits we now observe through pension contribution holidays and it is now responsible for those deficits. The economic design of the Laurier pension plan requires contributions each year from both eligible employees and the Administration. In addition, the legal structure is set up so that the Administration owns all actuarial gains and losses.
In the 1990s very large actuarial gains were generated by the Laurier pension plan. The Administration eagerly spent all of these gains by not contributing to the pension plan (the “pension contribution holidays”) and in the process borrowed against the pension plan creating the pension deficit we now observe. In all fairness, this is a legal right of the Administration which owns all the actuarial gains and losses.
In addition, the tax law prohibited contributions to the pension plan when huge actuarial gains overfund the pension plan. The tax law did not specify what happens to the pension contributions not made. The Administration had a number of options here. They decided to spend every last dime of the actuarial gains and suspend the economic design of the Laurier pension plan. This is its right. But, it also entails a responsibility.
The Administration now points to the deficit in the pension plan, a deficit they created, and insists that the pension plan is “broken,” in effect, claiming that they are not responsible for the deficit. This is not accurate. It’s baloney. During the last round of negotiating the Collective Agreement for Full-time Faculty and Professional Librarians, WLUFA provided the Administration with a report from our actuary that clearly showed the pension contribution holidays explaining virtually all of the deficit in the Laurier pension plan as of 2010.
The Administration largely ignored this report during negotiations and insisted that other external factors were the cause of the deficit in the pension plan, thereby “absolving” the Administration of responsibility for the deficit. The risk in our pension plan going forward is the risk that the Administration will not accept its rightful responsibilities for under the law of ownership of the deficit and are unwilling to properly fund the pension plan.
The next time the Administration proclaims that the pension plan is in ‘trouble’; think ‘baloney’ and ask them:
“Since this is your responsibility, why are you not fixing the problem?”