About half of all pension plans at post-secondary institutions in Canada are defined benefit plans in which income on retirement is based on salary and years of service. In these, employees contribute a fixed amount while the employer pays the balance required to ensure its obligation to retirement income can be met. Another third of pension plans are in the form of defined contribution plans. In these, the employer and the employee each contribute a fixed amount to be invested for the employee. The benefit is a function of the return on the investment made. Other retirement systems generally combine features from defined benefit and defined contribution plans.
Increasingly our employers maintain our pension plans are in serious trouble — nothing short of a crisis — being saddled with significant deficits in funding. They see them as huge liabilities, especially the defined benefit plans or those with defined benefit elements. Consequently, covering this funding gap is often claimed to be one of the fastest growing costs on our campuses. A cost, needless to say, our employers urgently want to control.
Employers argue that everyone needs to act in the best interest and long-term sustainability of our pensions. This usually means they want members to contribute more to the plan, compelling them to shoulder more of the liability. They might also seek to move away from defined benefit plans to defined contribution plans, which while reducing the employer’s liability and cost uncertainty, comes at a loss of pen sion security for plan members.
While it is true that many of our pension plans appear to be underfunded, it is absolutely essential that academic staff associations secure their own analyses of the situation. Our employers rely on actuarial valuations to support claims of pension crisis. However, the appropriateness of the assumptions on which these assessments are built needs to be carefully scrutinized, and the contributory factors to underfunding need to be understood. So, while there may be some underfunding, the crisis should not be conceded too quickly.
Plan deficits are products of a number of factors, some within our control and others not. The most obvious is the performance of equity markets and rates of return. Markets have not done so well over the last several years and investors need higher returns to cover lost ground. Notwithstanding this, investment management is under the control of pension plans. Accordingly, employee groups must insist on better assurance that prudent investment strategies are developed and followed.
One factor that has had a major impact on the current levels of plan deficits, though, is the contribution holiday. Pension plans have not always been in deficit situations. There have been surpluses in the past when our plans were overfunded. During those times on many campuses, employers temporarily suspended their contributions. The surplus funds were used instead to pay the required contributions until the surplus dropped to a more appropriate level. In the meantime, employers were able to divert to other priorities the funds which they otherwise would have been required to pay into the plan.
At Wilfrid Laurier University, for example, the employer took a full contribution holiday from 1994 to 2002. Employees were relieved only partially from their contributions during 2000 and 2001. The funding shortfall in the pension plan at Wilfrid Laurier that resulted from these holidays was $64.2 million by 2010, of which $59.3 million was the employer’s share.
So, while plan deficits can result from a number of factors, the contribution holidays taken in the past, primarily by our employers, have significantly affected the current levels of underfunding. These same employers now want us to pay through increased contributions for their earlier decisions. What this should confirm, however, is that employee groups must seek more control over surplus utilization. Instead of taking contribution holidays, for instance, plan benefits could be improved.
It’s important to remember that plan assets — and I mean the contributions paid by both employers and the employees — belong to employees. It is deferred compensation, plain and simple. We must think in terms of a comprehensive total compensation package, including salary, benefits, pension, and other programs and services, which we negotiate in return for our employment. We agree to a pension benefit in lieu of higher salary earnings and should resist when employers want to claw this back.
On most campuses, employers have long asserted that pension plans are the domain of management rights and somehow outside the scope of bargaining. They know bargaining means surrendering control to the outcome of contract talks. If our employers want us to contribute more money to our pension plans then we must demand more of a say in decision making and control of the plan. The only effective way to do this, while representing our members’ interests, is through collective bargaining in the context of a workplace compensation package that includes pensions.
At the end of the day, a big gap exists between how academic staff associations and employers see the pension issue. Associations often want improvements to plan benefits, which result in added costs, while employers want increased employee contributions to cover deficits. Collective bargaining at least provides assurance that off-loading deficit problems onto academic staff through increased contributions won’t be implemented unilaterally to fix a perceived crisis that was never of our making in the first place.