Information provided by the BU Administration about the intent of Brandon University to elect to be exempt from making special payments into the Pension Plan.

December 3, 2008

Pension Plan Exemption

You were sent a notice from the Pension Trustees about the intent of Brandon University to elect to be exempt from making special payments into the Pension Plan in the event of a solvency deficiency. A number of rumours and questions have been circulating about this exemption. Information sessions are scheduled for December 10th. In the meantime, the following information is provided to help to clarify the situation.

The effect of the exemption on pensions

The exemption will not affect current and future pension benefits, as they currently exist. Current pensioners will continue to receive their pensions. People retiring will get their pensions. People leaving the University will get their accrued pension benefits.

BUFA's opposition

BUFA opposes the exemption on the grounds that it will reduce the chances of a future surplus and not on the grounds that current pensions are at risk. However, the two greatest influences on future surpluses are strong performance of the Plan investments (increasing the value of the Plan assets) and rising interest rates (reducing the cost of annuities or Plan Liabilities), and not extra Plan contributions. This does not change with the exemption.

Impact of the exemption on future Plan amendments

The Province created this Pension legislation to assist universities and to protect pension plans. Normally, any pension plan amendments consider solvency and funding requirements of the Plan. This does not change with the exemption except to be even more strict about ensuring that the Plan is not financially jeopardized.

Special payments to the Plan - First type: Solvency

Solvency tests are for the situation when the Employer ceases to exist and the Plan is wound up and each Plan member is given their accrued benefits. If this were to occur, the employer would immediately have to make the required special payment to cover any solvency deficiency. This does not change with the exemption. What does change is when the Plan is not being wound up, these special payments are not required.

Special payments to the Plan - Second type: Going-concern

The going-concern test determines whether funds will be available when employees require their pension benefits, whether due to retirement or leaving the employment of the University. Any shortfall in this test must be paid by the employer over a period of fifteen years. This does not change with the exemption.

The importance of the exemption

Special payments to the pension plan come out of the operating budget. Special payments for going-concern shortfalls are both necessary and more manageable, because they are paid over fifteen years. Special payments for solvency deficiencies when the Plan is not being wound up simply depletes the operating budget taking funding that would otherwise be used for salaries, consumables, travel, etc.

The Plan actuary has made a rough calculation that there will be a funding deficiency when the Plan is next valued, due to a reduction in the value of Plan investments. This could require special payments in the range of $2 million per year from the operating budget for solvency deficiencies or $667,000 for going concern shortfalls. The operating budget is $34.5 million.