November 25, 2008

BUFA Member: I've just read a memo from the Pension Trustees saying that the Administration is trying to elect to be exempt from making solvency deficiency payments into the Pension Plan. What's BUFA's position on this?

Answer: For a number of reasons, BUFA is vehemently opposed to the Employer unilaterally attempting to take this exemption. First, if payments are not made into the Plan, any thinking person should be able to realize that there will be less money in the Plan. Less money in the Plan means that, in the future, surpluses will not be as large, or may not materialize at all. Except for the recently negotiated changes in the spousal benefits and the maximum pension, surpluses are what have been traditionally used to fund improvements in the Plan.

BUFA Member: So future improvements in the Plan, like increasing the maximum Pension up to the limit of the Income Tax Act would have to be left to negotiations again?

Answer: That's right. Instead of using a possible surplus, BUFA members would be looking at the same struggle we just went through. It doesn't make sense to dig the hole any deeper by not putting in deficiency payments. Plus there's an added wrinkle.

BUFA Member: What's that?

Answer: The University Pension Plans Exemption Regulation states that if the Plan's solvency assets fall to less than 90% of the Plan's solvency liabilities (i.e. a ratio of less than 0.9), no improvements to the Plan are possible. Therefore, it is possible that if the Employer is allowed to take the solvency exemption, that during the next negotiations, BUFA could not even try to get any improvements in the Pension Plan. Plus, we know that the longer we wait to increase the maximum pension cap, the more expensive it becomes.

BUFA Member: What's the ratio right now?

Answer: Nobody knows. A valuation must be done to find out. We understand that the actuary for the Plan made a guess that it would be above 0.9, but that's just a guess. A valuation has to be done to find out for sure.

BUFA Member: So the Employer doesn't even know what deficiency is? They're just opposed to making any payments, period?

Answer: It appears so.

BUFA Member: So, future improvements could be in jeopardy, but the changes we just negotiated are safe, right? The memo said that "Current and future benefits, as they now stand.....are not affected by the election."

Answer: The spousal and maximum pension improvements haven't gone to the Pension Commission yet, and the Employer is trying to get this solvency exemption as soon as possible. If the solvency exemption is taken before the negotiated improvements become official, then the 0.9 ratio rule would be in effect, and then if the valuation came in under 0.9, there could be trouble. Big trouble.

BUFA Member: It's been over a month since the strike ended, what's the holdup?

Answer: We're not sure. The Pension Trustees met on November 19, 2008 and instructed the actuary to send the changes ASAP. We understand it should happen in about two weeks. We're not pleased about the delays either.

BUFA Member: Let me get this straight. We were on strike for 17 days to get improvements to the Pension Plan. The Board of Governors ratified the agreement at their last meeting and even agreed to extend the pension improvements to all other groups on campus and now they want to quickly take this solvency exemption which could put our negotiated and agreed-to changes in jeopardy.

Answer: That's one scenario.

BUFA Member: And future improvements to the Plan would be more unlikely.

Answer: Definitely. Let's assume that the valuation comes in above 0.9 and the two negotiated improvements are safe. Even so, future improvements would still be subject to the 0.9 rule. The ratio is calculated using a four-year rolling average. That's in our favour now and could make the ratio come in above 0.9 this time, but two years from now, for example, two good years of returns for the plan's investments would "fall off the back end". Unless the investment returns make an abrupt turn-around, the ratio would be less in the near future than it is now.

BUFA Member: The memo said that Brandon University has made this decision for two primary reasons:

1. The election will not jeopardize the ongoing health of the Plan or the benefits to which Plan members are entitled, and

2. The potential effect on the operating budget of the University could be dire if large solvency deficiency payments are required and the relief available in the Regulation is not utilized.

Any comments?

Answer: Yes.

It depends what one means when one says "ongoing health. " It's true that pensioners will still get their cheques, but BUFA would argue that the "ongoing health" of the Plan would be compromised. I.e. The Plan would definitely be healthier (it would have more money in it) if solvency deficiency payments were made. Active BUFA members are entitled to the "joint and 2/3" and the maximum pension improvements. It is not yet 100% sure that these will not be delayed, at best.

The Administration does not know how large the solvency deficiency payments might be. They have not even chosen to wait for the valuation. It seems that any amount is too much according to them. It is also very important to remember that once the election to be exempt is made, it is irrevocable. Forever. There doesn't even have to be a deficit in order to take the election in the first place. Another thing to consider, as far as finances are concerned...Don't forget about the $2 Million dollar unallocated surplus in the University budget from last year. The exact nature of the allocated surplus needs scrutiny too. It's a great potential hiding place for money.

BUFA Member: Are there any other reasons why BUFA opposes this election?

Answer: Yes. The Pension Plan was operating under a set of rules. BUFA had negotiated into the Collective Agreement that these rules could not be changed without BUFA's consent. Article F.7.4(a) states that "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 chose not to try to change this during negotiations. They did not mention the solvency exemption during negotiations, but once negotiations were over, they quickly moved to take the election. BUFA must defend the Collective Agreement.

BUFA Member: The Administration must have known that BUFA was opposed to their taking this solvency exemption.

Answer: Yes, of course they were aware of this. Before the regulation was even enacted, in the fall of 2007, the President of BUFA, in addition to raising concerns with the Deputy Minister of Labour and Immigration, and the Superintendant of Pensions, wrote to Mr. Lamont, with copies to (among others), President Visentin, the Chair of the Board of Governors and the Brandon University Pension Trustees. Mr Lamont and the Pension Trustees were also informed verbally at a meeting of the Trustees. BUFA's opposition is recorded in the minutes of that meeting.

BUFA Member: Did any of that seem to influence the Administration?

Answer: No.

BUFA Member: Why does that not surprise me?

Answer: I guess you'll have to answer that one.

BUFA Member: Anything else that you'd like to add?

Answer: One other thing comes to mind. I think you might find the situation at the University of Toronto to be enlightening. It's not quite the same thing, but it does point out the follies of not putting money into the pension plan as scheduled. By taking some "pension holidays" at U of T, their plan now has a deficit of well over half a billion dollars. That's billion, with a b. You can read about it on the website of the U of T Faculty Association. Follow the links on the front page of www.utfa.org to "Inconvenient Truths About the U of T Pension Plan. Parts I and II."

BUFA Member: What's BUFA doing about all this?

Answer: BUFA has already filed a grievance and will be using all means possible to get an interim judgment that the Employer cannot take this election until the grievance is heard and settled. If necessary, BUFA is prepared to get a court injunction.

BUFA Member: What should I do now?

Answer: Make your feelings known to the Pension Trustees. Even though it is the Employer that is trying to take the exemption, under the Regulation, the Trustees are the ones who have to be notified. (The Regulation also required the Trustees to send out the memo in the first place.) Also, it probably wouldn't hurt to copy your response to the Administration and the Board of Governors. According to the memo there will be information sessions held, as well. It might be a good idea to go and be heard there too. All of this might not make a difference in the Employer's actions, but at least it may make things a little less comfortable for them.

BUFA Member: You've mentioned the new regulation a number of times. Where can I get a copy of that?

Answer: Good point. It's available at www.gov.mb.ca/labour/pension/legislation/index.html

BUFA Member: Thanks for this.

Answer: No problem. We'll be sending updates as things develop.