An attempt to fix the $66-million deficit from the plan will result in budget cuts
Hamid Adem
Assistant News Editor
A $66-million increase in York’s pension plan deficit could mean less new hires, bigger class sizes, and a smaller class selection for students.
In a report discussed during the Board of Governors meeting on October 1, it was declared that York’s current pension plan is not sustainable.
The 2011 Annual Report on the York University Pension Plan written by Garry Brewer, vp finances and administration, found that from 2010 to 2011, the deficit for York’s pension plan grew from $217.2 million to $283 million.
Partly to deal with this growing deficit, Brewer says York is implementing a 3.5 per cent cut to the operating budget each year over the next three years.
The budget cuts may have far-reaching consequences, making it more difficult for certain units at York to hire faculty members, and affecting the selection of courses and class sizes at York, according to Brewer.
York will be spending $64 million on the current pension plan, which is about 6.7 per cent of the university’s $960-million expense total last year.
Out of this $64 million, $24 million is going directly to pay off the deficit, while the remaining $40 million will be put towards the pension plan.
The current pension plan, which was established in the 1960s, is what Brewer calls a “hybrid” system that covers all employees at York.
The hybrid system combines a defined contribution plan and a minimum guarantee plan, says Brewer. A defined contribution pension is one where the benefits fluctuate on the basis of investment earnings, and is heavily reliant on the financial markets. A minimum guarantee plan, on the other hand, has a minimum amount of benefits that the employee receives.
A major reason for the current deficit is that assets used to pay out pensions have been invested in the financial market, and the markets have not been stable since 2008, resulting in lower returns, says Brewer.
“I think the impact of the financial plan on the markets has been a really big factor,” he says. “Long-term interest bond rates are much lower than [what was] predicted 10 or 15 years ago, and the lower the interest rate assumption, the worse the pension plan deficit gets.”
Brewer has been in discussions with various employee groups and unions at York for over a year to inform them of the current situation regarding the pension plan. The ongoing discussions will determine what changes can be made to the plan to make it financially sustainable over the next year.
In the summer, the Ontario government appointed an advisor, William Morneau, to review and prepare a report on consolidating pension fund assets. Once this report is out, Brewer says, the government will take steps to pool the pension assets of all universities and other organizations across the public sector to find a way to improve the rates of return on pension funds.
