Keeping watch for solvency exemption news

If you've read the article on our efforts to stabilize our funding, you'll know that one of our major challenges is coping with the requirement that we meet the standard of a solvency valuation.

When our Plan files an actuarial valuation with the government regulators, as we are required to do at least once every three years, we must measure both the going concern funding position (which assumes the Plan will continue until all benefits are paid to current members), and a solvency funding position (which assumes the Plan ends on the date the valuation is conducted).

The solvency measure is unrealistic for our type of pension plan. The going concern measure is a much better fit for jointly sponsored, well managed plans such as ours. Solvency valuations are more appropriate for single employer plans, or other plans that are not jointly sponsored (plan management has input from both employer and employee groups). Such plans are more likely to face the prospect of a company going out of business, or a plan being so underfunded that it cannot recover, at some point in the foreseeable future. It is these types of plans that have been in the news in recent times as a result of their troubles.

A discussion of the strict and unrealistic requirements of solvency valuation funding has been on the agenda for jointly sponsored plans for many years now. There has been a growing view that an exemption from the solvency valuation requirement would be appropriate for our kind of plan. This suggestion was a prominent recommendation in the government's 2008 report of the Ontario Expert Commission on Pensions.

Our efforts

Since the release of the report, the CAAT Plan has been part of a coalition of large, jointly sponsored Ontario pension plans to make the case for a solvency valuation exemption to the provincial government. The coalition, whose members are responsible for assets of over $170 billion and the pensions of more than one million Ontarians, held several meetings with provincial government representatives. In addition, our CEO has discussed the issue with government officials, college officials, sponsors' representatives, and other interested parties. Letters have been written on the issue to government ministries and Members of Provincial Parliament by your college president. Response has been increasingly positive, with the pension reform issue receiving a specific mention in the provincial budget of March 25, 2010.

How we measure up

The Plan's last filed valuation - as of January 1, 2008 - showed us with a going concern surplus of $320 million, and a solvency deficit of $226 million. With future contributions counted in, this deficit could be covered, so there were no additional payments or other actions required at that time. However, the draft valuations done since then have shown an increasingly large chasm between our going concern liabilities, on which we focus our management, and the inappropriate solvency measures. If our next government filing requires us to account for these liabilities, we will be faced with unrealistically high contribution rate increases in the short term.

Why should our Plan be exempt?

Here are some reasons an exemption would be appropriate for our type of plan.

Joint sponsorship means both employers and employees have a stake in keeping the plan healthy.
Plan management and funding strategies receive a high degree of scrutiny. Any deficits must be made up by both parties.

Almost no risk of a plan windup.
Pension plans for workers in colleges can expect a high degree of long-term sustainability.

Solvency valuation rules predate us.
Our risksharing agreement began in the mid 1990s. The solvency valuation legislation predates us, and does not take our type of agreement into account.

A change would be consistent with the rules in other provinces.
No province other than Ontario requires this kind of solvency funding for our kind of plan.

We will stay vigilant.
All pension plans have a long term focus, and are looking for stable contribution rates to work with diversified investments in a reliable balance. This is where we are focusing our efforts, and the going concern valuation does a good job of measuring the progress we are making. We will continue to prepare annual going concern valuations, and share the results with members.

The need for speed

We are hoping for a speedy resolution of this issue. We need an exemption from solvency funding tests to be in place by next year, to avoid artificial and unnecessary contribution increases that are solely the result of the solvency measure.

These increases would promote generational inequity in the Plan - current members would be paying an unfairly large portion of the funding deficiency. Less money in the pockets of our active members will mean increased wage pressures on colleges. A stable contribution rate that is tied to our going concern liabilities is one of the main goals of our long-term funding management and our efforts to support sound financial management at the colleges.

A solvency valuation exemption would eliminate artificial financial pressure on the Plan and allow us to focus on long-term sustainability - predictable contribution rates that are known in advance, investment strategies that match up with our liabilities, and a Funding Policy that takes a reasoned, realistic approach to maintaining a stable, reliable Plan.

Keeping up with the news

Appropriate funding strategies supported by meaningful regulation are essential for the health of pension plans across the province. These are issues for all plans, not just large, jointly sponsored ones like ours.

We will be continuing our communications with government officials in the coming months, and we will keep you informed of any progress we make. Please make an effort to familiarize yourself with the issue and with the challenges our Plan faces. We may need your assistance at some point to convince the government to act, and we may be in touch. Stay tuned!