Provincial pension reprieve and bond-rating reports underline financial issues
The past three weeks have provided three more indications that universities, province-wide,
are labouring under significant financial strain.
Two reports from bond-rating agencies on Queen’s finances and a provincial strategy which will require universities to restructure their pension plans to make them sustainable all point to the urgent fiscal challenges facing the sector.
“In late 2008, we experienced the perfect storm in financial terms,” said V-P (Finance and Administration) Caroline Davis. “Now, in mid-2010, we are beginning to see in-depth analysis of the aftermath that emphasizes the urgent need for universities to make their pension plans sustainable.”
On August 5, the province unveiled its strategy to provide universities with temporary relief from impending pension plan liability issues. The urgency was created by looming regulatory deadlines. The provincial plan loosens those timeframes, providing universities with three years to implement adjustments to their pension plans.
The current regulations would have required universities to bear large and immediate increases in pension costs to put their pension plans on sustainable financial footing. This would have been difficult for most universities, including Queen’s, as they struggle with battered investments and increasing demand on their retirement programs.
“It is important to emphasize that this is only a reprieve, not permanent relief,” said Provost and V-P (Academic) Bob Silverman. “We are grateful that the province stepped in and provided some breathing room. But we don’t have much time. It is imperative that we continue bending our minds to the task of getting the pension fund back on a footing that will leave it in good shape for years to come.”
Provost Silverman’s view is reinforced by the two bond-rating reports. The latest report from Dominion Bond Rating Service goes so far as to marginally downgrade Queen’s credit rating, pointing to the steadily expanding gap between the university’s pension fund and its projected liabilities. The most recent report from Standard and Poors echoes those concerns but leaves Queen’s current credit rating intact. Together, these reports add emphasis to what was already a major point of concern for the University.
Dr. Silverman, along with Ms Davis and V-P (Human Resources) Rod Morrison have been tasked with evaluating the pension plan and establishing a process to restore the program to sound footing. The size of the gap the last time the plan was evaluated (in August 2008, prior to the market meltdown), was $45M. More recent projections prepared for the 2010-11 Budget Report estimated that in 2011 the unfunded liability would be $240 million.
“If the province had not given us more time to deal with this, we would have faced a sobering and immediate challenge,” says Ms Davis. “In any case, finding this kind of money in the existing budget will not be easy, so coming up with a viable plan for sustainability is essential.”