Q & A: MORE ABOUT THE SOLVENCY EXEMPTION AND THE PENSION PLAN

December 4, 2008

BUFA Member: I've just read a memo from Scott Lamont "clarifying" some things around the pension solvency exemption that the Employer is trying to take. It's gotten me confused again.
Answer: That's understandable. What would you like to know?

BUFA Member: In bold type it says "the exemption will not affect current and future pension benefits."
Answer: What should be in bold is the next bit which says "as they currently stand." Assuming that the recently negotiated improvements are safe, (and that's not a done deal. What is the holdup??), pensioners will continue to get their cheques, but in the future, the plan will be much more likely to stay as it is now. With no solvency payments, there will be less money in the Plan, and as we explained before, until the recent negotiations, surpluses in the Plan were what funded improvements. Everybody knows that the Plan could use a lot more improvements. Raising of the maximum pension to the legal maximum and keeping it there, much better indexing of pensions, eliminating the CPP deduction for service after 1990, and perhaps bridging to assist in early retirement, or modification of the "rule of 85" are all improvements to think about.

BUFA Member: But can't BUFA just negotiate improvements to the Plan in the next round of bargaining?
Answer: Maybe. That ability may have nothing to do with BUFA if the exemption is taken. There is a provision in the University Pension Plans Exemption Regulation which states that if the Plan has a solvency ratio of under 0.9, then further improvements to the Plan cannot be made. BUFA would be unable to negotiate any changes to the Plan. You must also remember that the election for exemption is irrevocable.

BUFA Member: Wouldn't further improvements put the Plan in even worse shape?
Answer: The way the latest improvements were negotiated, the Employer has to put sufficient extra money into the Plan to fund the improvements. So it stands to reason that the improvements should be neutral as far as the amount of any deficiency goes. The Plan shouldn't be in any worse shape if new improvements were to be negotiated, but it still wouldn't be possible if the Employer takes the exemption and the ratio was below 0.9.

BUFA Member: But wasn't it the negotiated improvements which precipitated this whole thing?
Answer: No. As we just said, the recent improvements should have no effect on the solvency deficiency. What the improvements did was to trigger a valuation of the Plan. Valuations happen every three years anyway. The next one was scheduled for December 31, 2009, so the improvements just moved up the valuation by about a year. And that's probably a good thing. As we understand things, the valuation uses a four year rolling average, and if a valuation were to occur a year from now, it might well give rise to an even larger deficiency because a year of good investment returns for the Plan would "fall off the back end".

BUFA Member: So, BUFA is concerned making the Plan better in the future.
Answer: Of course. A pension isn't a gift given by the generosity of the Employer that you get when you retire. It's deferred salary. You've earned it. It's part of the overall compensation package. There is a reason why former teachers who join the Faculty of Education choose to stay with the Manitoba Teachers Pension Plan instead of joining the Brandon University Plan. It's because they can. The BU Plan is not as good. It needs improvement.

BUFA Member: If it's part of the overall compensation package, why didn't the Employer try to negotiate something in the last round of bargaining? Didn't they know that BUFA would oppose this solvency exemption election?
Answer: Of course they did. Mr. Lamont, Dr. Visentin, and the Chair of the Board of Governors were so informed in writing in October 2007, and this opposition is also recorded in the minutes of the Brandon University Pension Trustees in November 2007. Mr. Lamont was in attendance at this meeting in his capacity as a Trustee appointed by the Board of Governors.

BUFA Member: If they knew, why didn't they either put the cost of solvency deficiency payments into their budget estimates for COPSE, or try to negotiate something with BUFA?
Answer: Those are two very good questions. Unfortunately, they deal with the thought processes of administrators. Very murky territory. Seriously though, it would seem to make sense that if you know that a problem is going to arise, you either ask for the funds to deal with it, or you try to negotiate a way to deal with the problem, or both. The Employer did neither.
We just finished negotiations in October, and immediately thereafter, the Employer began the process of getting a solvency exemption. To the best recollection of the BUFA negotiators, none of the Employer's bargaining agents even uttered the word "solvency" during negotiations. Then, in spite of the Collective Agreement which states "No changes or amendments shall be made to the Brandon University Pension Plan or the Trust Agreement for that Plan without the prior approval of BUFA", the Employer is pushing ahead with this.
BUFA thinks that their doing so is analogous to BUFA not trying to negotiate (not even mentioning) full indexing of the Pension Plan during negotiations, and then after the Collective Agreement is signed, telling the Employer that we've decided we want full indexing and threatening an illegal strike to back our demands.

BUFA Member: Mr. Lamont says that the University may have to put in $2 million per year from the operating budget to pay for the solvency deficiencies. What about that?
Answer: The valuation has not been done yet. Nobody knows what the deficiency might be although you'd probably get agreement that there will be a deficiency. It's also not at all clear how long a deficiency would last. A valuation of the Plan can be made at any time that the Trustees care to have one.
Assuming that there is a solvency deficiency now, if the stock markets rebound or interest rates rise a bit, a solvency deficiency could quickly evaporate. As for the affordability of the payments, there's always the matter of the $2 million unallocated surplus from the last fiscal year. (Is it just a coincidence that's the same number quoted by Mr. Lamont as the size of possible payments?). The allocated surplus is also a place of "park" money.
This is probably not the forum to go into such things, but if the Employer is truly worried about the future of the University, shouldn't they have approached BUFA? After all, we do have Articles in the Collective Agreement which deal with retrenchment. It addresses the situation when "…rigorous economies in all other segments of the budget having been exercised and all other practical means of alleviating the difficulty having been undertaken, financial constraints require a reduction in the members' salary costs." Negotiations between the Employer and the Union are part of the subsequent procedures. It does not involve unilateral action on the part of the Employer.

BUFA Member: So what stage are we at now?
Answer: The thirty day "consultation" period has started. You've gotten the notice of the meetings.

BUFA Member: Is it really worthwhile going? Won't they just file for the exemption no matter what the Plan members say?
Answer: Very probably. Past experience with the Respectful Environment Policy would indicate so. But even if you don't think it's worth going, consider writing a short note to Todd Fugleberg (the Chair of the Pension Trustees) giving your opinion on the Employer's election to unilaterally take this irrevocable exemption. Only written opinions will be forwarded to the Board of Governors. (Please try to be as polite as possible. Filing for an exemption is a decision of the Employer and not the Pension Trustees and besides, Todd's a BUFA member.)

BUFA Member: Will that do any good?
Answer: It can't hurt. Apathy will probably be interpreted by the Employer as approval. BUFA has already filed a grievance, an arbitrator has been chosen, and an arbitration hearing is set for February 4-5, 2009. In the meantime, counsel for BUFA and the Employer are approaching the Superintendent of Pensions with a request that the solvency exemption application not be registered until after the conclusion of the legal battle. We have not yet received a ruling on whether that will be allowed. We'll try to keep you up to date.

BUFA Member: Thanks for this.
Answer: No problem. Obesa non cantavit.