Notes from the presentation to the 2012 AGM
by Leslie Robb, Salaried Pension Trust Committee Representative
After representing MURA on the Pension Trust Committee for the last eight years, Les felt that it has generally worked quite well. In this his last report to MURA members, he decided to talk generally about the state of the Salaried Pension Plan and how he views the current deficits.
Before addressing the deficit issue, he pointed out that due to poor market performance, there were no increases in pensions in the current year and unlikely to be any in the upcoming year either. Les emphasized, however, that in the current economic climate, we are fortunate to have defined benefit pension plans.
Since the financial crisis began five years ago, the plan has been doing badly and those still working have been asked to increase their contributions to help make up the shortfall. The University as ‘contributor of last resort’ has made major increases in its contributions and will continue to do so. However, the plan is still not in good shape and it will be some years until deficits are eliminated.
Les listed a number of reasons why the large deficit came about. The stock market crash in 2007/8 is one of the reasons. Also of major importance is that, in recent years, liabilities have grown substantially. This arose because the expected interest rates on investments needed to fund the liabilities (such as pensions) have been much lower than anticipated from historical performance. The lower the interest rate, the more money that must be set aside to cover the pensions. In Les’ words ‘defined benefit plans have been hit by the double whammy of low market returns and low bond interest rates’. He elaborated on the nature of the problem in more technical terms and noted that for those interested the discussion can be followed up on by reading the Actuarial Valuation reports on the ‘Working at McMaster’ website. He concluded that the liabilities of the Plan are a big part of the problem and that it will not be until interest rates rise again that the deficits can be escaped.
Under rules established by the provincial government, employers are required to make up deficits fairly quickly to avoid long-term risk to the employees. Universities have argued that these rules are designed out of a concern for the bankruptcy of private companies and are inappropriate for quasipublic employers. The lobbying worked and the rules were relaxed early last year to allow such organizations to make up their deficits more slowly. McMaster chose to switch to this new regime in the fall of 2012. Under the new legislation McMaster University will put less into the plan to restore financial health than they otherwise would have for at least the next three years.
Les concluded by saying that, in the extremely unlikely event that McMaster should declare bankruptcy, its assets are very large and he expects would be more than sufficient to pay off the debts to pensioners and others.