Posts tagged with relief.
Ontario universities get temporary pension relief
The Ontario government is giving universities time to balance their pension plans.
Ontario's Minister of Training, Colleges, and Universities John Milloy announced today the government will be amending the Pension Benefits Act to grant universities a special exemption to pension solvency requirements, giving them up to ten years to tackle their pension deficits.
Without this exemption, many universities were facing large pension payments that would have come out of operating funds, causing cutbacks in other budget areas.
Ontario universities, especially the larger ones, are facing gigantic pension deficits, which have been placing significant pressure on their operating budgets. This pressure has manifested itself on university balance sheets and been a major factor in a few recent bond rating downgrades.
Recent pension deficit figures are startling. A recent DBRS report of universities that issue bonds provided the following figures:
University of Toronto: $748-million
McMaster University: $373-million
University of Guelph: $165-million
York University: $95-million
Laurier: $27-million
Windsor: $23-million
Brock: $4-million
Queen's: $3-million
Interestingly, the University of Ottawa is reported to have a pension surplus of $112-million. The University of Ontario Institute of Technology has no pension deficit, but was only established in 2002 and does not have the legacy burdens of older institutions.
But the large numbers do not paint the full picture. A per-student calculation is a better way to look at the institution's ability to tackle deficits. For instance, McMaster University and the University of Toronto are nearly equal (according to their 2009 Common University Data Ontario filings, McMaster University has 21,971 full-time and 3,215 part-time students. The University of Toronto has 60,848 full-time and 6,281 part-time students).
As briefly noted in March, this is significant for university credit ratings - pension deficits are one of the primary pressures dragging down balance sheets and causing credit rating downgrades. McMaster University's rating was downgraded in March in large part because of pension liabilities.
By granting universities solvency relief, the Ontario government is alleviating this pressure and helping universities weather the effects of the recession.
In return, the government is asking universities to submit a plan to the Ministry of Finance on how they plan to make their pension plans sustainable. Once they do, they will get a three-year reprieve.
I predict the result will be universities declaring plans to switch from defined benefit pension to defined contribution plans - a contentious issue that will have to be negotiated with labour unions.
If a university (and its labour unions) can reform its pension plan, the government will allow it to amortize its solvency deficits over a period of up to 10 years.
In the short term, the government has relieved a major budget pressure for many institutions. The question is: Is this merely postponing inevitable financial pressures for three years - conveniently beyond the fall 2011 provincial election - or will this give universities and labour groups the necessary time to implement changes to stave off solvency crises and recover from the major hits the recession brought upon pension plans?
Stay tuned, we'll quickly find out.
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JOEY COLEMAN