The valuation on AV俱乐部鈥檚 pension plan is in, and the takeaway is that pension sustainability is still a concern.
Actuarial valuation is the process of estimating the overall financial health of a pension plan, done by an independent actuarial consulting firm. The province requires all plans to undergo valuation every three years; however, as the university鈥檚 solvency ratio (as measured as assets to liabilities) has fallen below 85 per cent, Dal is required to undergo an annual valuation.
The University recently completed a valuation based on the state of the plan as of March 31, 2013.
鈥淲hile the good news is there is substantial improvement in the rates of return on the plan鈥檚 assets, the overall plan deficit grew from the last valuation,鈥� says Ken Burt, vice-president finance and administration.
How is it that the plan is doing well on the asset and growth side, but the deficit is still increasing? Because liabilities are growing at an even greater rate. While the assets of the plan have risen by around $144 million (approximately 20 per cent) since 2010, the plan鈥檚 liabilities have risen by $156 million. The deficit now stands at 84 million as of March 31, 2013, an increase of approximately $11 million from where it was on March 31, 2010.
The bottom line: the assets are strong, have shown some strong returns and have performed well, but there are ongoing challenges.
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The increase in the plan's overall deficit is due in part to the increased rate of life expectancy of our plan members For example, a 60-year-old male in 2013 is on average likely to live 29 per cent longer than a 60 year old on 1990 鈥斕� meaning new costs that need to be covered by the plan. The overall effect for AV俱乐部 is that the university will be required to contribute an additional 1.09 per cent of pensionable payroll, approximately $2.5 million per year, effective March 31, 2013. 鈥�
Working towards strengthening the plan
Many will remember that last year AV俱乐部, as plan sponsor of the AV俱乐部 Staff Pension Plan, was granted "full solvency relief鈥� by the provincial government, which no longer requires Dal to fund the plan to the previous regulatory standard. While this was very welcome news 鈥� the university admin had been lobbying for years for an exemption, as is the case in other provinces 鈥� the University is still required to fund the plan based on a "going concern basis," which has resulted in the aforementioned continued deficit.
This situation is not entirely unique to AV俱乐部: all defined benefits plans face challenges related to declining interest rates, increased longevity and an aging population of plan beneficiaries. That said, Dal鈥檚 defined benefits pension plan also has a number of unique features, some of which complicate the big picture and compromise sustainability (for example, the two fund system and interest crediting rates). These features were outlined with the university鈥檚 employee groups and are on the table for discussion by the Joint Committee between the University and its employee groups, set up following the last round of contract negotiations.
These unique features and any imbalance they bring to the plan all have to be considered when looking at the greater pension plan picture. The University takes the challenge seriously and will continue to work towards strengthening the pension plan.
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As Katherine Frank, Dal鈥檚 assistant vice-president, Human Resources, notes, 鈥淭he University and employees value the pension plan as part of our total compensation package. However, given the mix of employees in our workforce, it is important for us to remember that from an intergenerational equity perspective we want to ensure we have a plan that is going to be around for the long term.鈥�
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The university administration will continue to keep the conversation around pensions going and says it will keep the AV俱乐部 community looped in on the process of ensuring the pension plan is sustainable, 鈥渄e-risked,鈥� and one its users will be able to continue to count on. 听
The full March 31, 2013 actuarial valuation will be posted on the along with other prior period valuations.