1. Ontario university pension plans in the aftermath of financial crisis September 15, 2010 Kevin Skerrett CUPE Research

2. 1) Reflections on the recession/financial crisis  Major losses on stock/bond markets in 2008-09  Irrationality of financial and credit markets – Lehman Bros., Goldman Sachs, hedge & derivatives markets have been exposed (though still need reining in properly)  All pre-funded pension plans affected, many lost 15%-25% of their assets: Canadian stock market lost 33% in 2008 Average pension funds (Canada) lost 18.4%

3. 1) Reflections on crisis (cont’d)  Individual savings plans (RRSPs, DC plans) were exposed as very high risk – the costs of the crisis immediately “socialized”, both through bailouts and through real losses  Increased pressure on “defined benefit” type plans, new deficits lead gradually to increases in funding requirements (employer and sometimes employee)

4. Investment returns in Canada: 1983-2008 Source: V. Jog, December 2009

5. 2) Effects of crisis on pensions and retirement incomes  RSP / RIF balances depleted, some retirees facing shrinking savings pools  Workers with insecure “defined contribution” type plans face immediately worsened pension options  Public pension system – Old Age Security and Canada Pension Plan – remain solid  Workers forced to pay the price: “defined benefit” type plans far more protected, but employers accelerate their attack on these plans in the private sector (Vale Inco)  Attacks on benefits in public sector also increase

6. 3) Campaign for CPP expansion  OAS benefits: $6,000 per year, indexed  CPP benefits (avg.): $6,000 per year, indexed  CLC & CUPE 2009-2010 campaign for a doubling of CPP benefits, at affordable premium rates  CPP universal, portable, indexed, efficient  June 2010 meeting of Finance Ministers announce: CPP to be expanded  Second track also proposed: Allow insurance companies to provide multi-employer pension plans on a defined contribution basis

7. 4) Impacts on University plans  Many Ontario university plans under-funded – but why? Contribution holidays (U of G example) High risk investment strategies (U of T) Convergence of “actuarial” factors: interest rates, mortality rates Drop in asset values on stock & bond markets

8. 4) Impacts on University plans (cont’d)  Emerging pattern of employers seeking to cut benefits, shift cost to their employees  Some universities even trying to convert their established DB or “hybrid” type pension plans to insecure defined contribution (DC) model  Where collective bargaining takes place, employee interests better protected (Queens)  Increasing effort from unions to bring pension discussions to collective bargaining tables

9. 5) New Ontario Government attacks on University plans  August 5, 2010 announcement of new solvency “relief” measures for universities specifically – replaces successful measure based on *consent*  “Sustainability Plans” – MoF to ask: Are benefits to be cut? Are costs to be moved to a 50-50 cost share? Will future service be “defined contribution”?  A major attack on university-sector DB/hybrid plans, led by Ontario government

10. 5) New attacks cont’d  Ontario government has now adopted Vale-Inco approach to pensions, but only for university sector  Minister Duncan claims this is intended to “help” the sector – but it is in fact an interference in collective bargaining, siding with the employers looking to cut costs  Sustainability measures of Ministry of Finance are not measuring sustainability but costs  Meanwhile - $4.5 billion in further corporate tax cuts are being promised to profitable corporations

11. 6) Impacts at Carleton University?  Carleton has a hybrid plan, with a “minimum guarantee” level of 1.29%/2% $40,000 / year employee with 25 years service: 40,000 x 0.0129 = $516 $516 x 25 years = $12,900 / year pension (32% wage replacement) Indexation linked to investment performance, not guaranteed

12. 7) Impacts at Carleton (cont’d)  Retiree looking at: Carleton pension$12,900 Old Age Security 6,000 CPP 6,000 (?) Total$24,900/per year Health care, LTC costs rising LICO-Poverty lines: $16,000 - $20,000 / year

13. Ontario university pensions -- Guaranteed (DB) and Minimum Guarantee Replacement Rates What percentage of “final earnings” are “guaranteed” to be replaced after 25 years of service? * Excludes consideration of “final average” formula, indexation, early retirement provisions, etc. “H” denotes a hybrid type plan, with a minimum guarantee benefit formula (DB minimum). Source: Council of Ontario Universities, 2010

14. 7) Impacts at Carleton (cont’d)  Recent moves to reduce benefit levels, increase early retirement penalties  Member contribution increases (2% of payroll) to be introduced in 2011  Not clear whether Carleton will seek new solvency relief, with “sustainability plan”

15. 8) Trade union responses & strategies  First option – Campaign to expand CPP (all workers to benefit)  Second option – Defend and protect workplace pension plans  Ontario government attacks are not aiming at sustainability but at reducing pension costs – period.  Unions need to bring pensions into the realm of collective bargaining U of T/ U of G – language in contracts Queens – faculty union “veto”, union coalition Many other university plans use a bargaining approach  Employer-dominated committees keep pension issues away from bargaining, union voice and influence remains weak, benefits not ultimately protected

16. 8) Union strategies cont’d  But, pension bargaining a challenge: Can unions cooperate? How to manage different expiries, schedules? Do different unions/groups have different priorities?  Public sector unions in NS, NL have shown that coordinated pension bargaining can work (federal PS unions should follow suit!)

17. 8) Union strategies cont’d  Vale-Inco needs to be our collective wake-up call  Member education, information, critical to success  Strong union responses needed – inform, mobilize, utilize all of the tools available to us  Challenge anti-public sector, anti-pension propaganda! (Average retiree pensions at U of G: $9,000 per year)  Pension entitlements in this sector are hardly “gold plated” – they are decent, but need to be defended

18. Questions?  Kevin Skerrett CUPE Research (613) 237-1590 ext. 226