Queen’s University has reported a surplus of $61.9 million for last year, according to the 2014-15 consolidated financial statements. 

The surplus likely comes as a pleasant surprise, since the 2014-15 budget predicted a $7 million deficit. The same financial report, however, also identified potential financial threats, including pension plan unsustainability, static and declining government grants and a $253-million deferred maintenance backlog.

In particular, the University’s financial statements declared that the Queen’s Pension Plan (QPP) is not financially sustainable. The University is committed to exploring other options, according to the document.

The QPP has been an ongoing financial issue for the University. The actuarial valuation of the QPP — an analysis done to estimate future financial conditions — completed on Aug. 31, 2014, reported a solvency deficit of $285 million. A solvency deficit occurs when the value of the pension plan’s assets is less than the value of pension benefits owed to its members.

In short, the QPP is worth less than it owes. 

In April this year, the University applied for and received Stage II solvency relief from the Government of Ontario. Stage II solvency relief allows the University to defer the solvency deficits payments to September 2018 and pay the remainder of the deficit over the following seven years until 2025. 

The financial statements also confirmed that Queen’s University and its faculty and staff unions are committed to participating in the University Pensions Project (UPP). The commitment by the University and the unions was confirmed after collective bargaining was completed this summer.

The UPP is a jointly sponsored project by The Council of Ontario Universities and the Ontario Confederation of University Faculty Associations (OCFUA). Together, the member universities have committed to design and create a jointly sponsored pension plan (JSPP). 

A JSPP allows for the risks associated with the plan to be split between the employer and employees. Pension plans are exposed to such risks related to financial markets, interest rates and assumption about mortality. The QPP, meanwhile, is a single employer pension plan (SEPP), where all the accountability of the pension plan falls on Queen’s as the employer.

According to the recently released financial statements, a criteria for a successful JSPP would be a permanent solvency exemption. If Queen’s wins such an exemption, it will no longer be obligated to pay $285-million in its solvency deficit.

The financial statement went on to say that if the UPP isn’t successful, Queen’s and its unions have committed to looking for another JSPP to join. If they fail to find a JSPP with a suitable solvency exemption, Queen’s says “further discussion and changes” to the financial sustainability of the QPP would be needed.

Caroline Davis, vice principal (finance and administration), says she’s feeling cautiously optimistic about the joint sponsorship. Davis said both the Council of Ontario Universities and OCUFA have a strong team — each has a lawyer and an actuary — to represent the interests of employers and employees. 

“They are the experts and they’re making a very, very good case that this pension plan makes sense, that we have a good design and that it’s going to work,” she said.

In terms of a timeline for the JSPP, Davis told The Journal that the current goal is get the unions to agree to a basic outline and design of the JSPP by the holiday season. The next stage of the project willbe solidifying a contractual agreement with the unions regarding the specifics of the JSPP project.

Davis said she predicts that the actual transition of the QPP to the JSPP will take some time before its implementation.

“I think it’ll be two or three years before we make the transition and move the Queen’s Pension Plan into the new one,” Davis said.

Aside from securing a permanent solvency exemption and ensuring that the plan makes sense financially, Davis says it’s important to be certain that the pension plan’s benefits are reasonable.

“We’re trying to draw down all the possibilities into something that makes sense. It has to makes sense to Queen’s unions and Queen’s University as an employer.”

Understanding pension plans

Pension plan: A method in which an employee transfers a part of his or her present income stream toward retirement income.

Single employer pension plan (SEPP): A type of pension plan available to employees from one employer, who is liable for the pension plan itself.

Jointly sponsored pension plan (JSPP): Employer and employees become jointly liable for the pension. It can be a single employer or multi-employer arrangement (Queen’s is aiming to transition to a multi-employer JSPP).

Solvency: The requirement that if a pension plan is terminated, the employer must be able to provide all members their benefits.

Solvency deficit: When the value of the pension plan is less than the value of benefits owed to all members if the entire pension plan were to be terminated.

Actuarial valuation: A mathematical estimation that evaluates future liabilities and value of a pension plan by making demographic and economic assumptions.