Judy Robinson, director of the Anglican Church of Canada’s Pension Office Corporation. Photo: Marites N. Sison
The Trustees of the General Synod Pension Plan is asking plan members to vote on a proposal that will enable the Ontario government to consider granting them three years to improve the plan’s funding level and avoid immediate pension reductions in the range of 20 to 30 per cent.
“The government will consider granting us temporary funding relief only if 2/3 (about 67 per cent) of the members in each of our active, inactive and retired member groups vote ‘Yes,’ ” said a recent letter and voter card sent by the pension office to its members. The plan has 2,356 non-retired active and inactive members and 2,683 pensioners. The pension office must receive the voter cards no later than Sept. 6, 2013, said the letter.
Under current pension law, the health of a pension plan is measured in two ways: going-concern valuation and solvency valuation, explained Judy Robinson, director of pensions.
When measured on the basis of going-concern valuation, the church’s pension plan is “fully funded” and there are “enough dollars to pay every pension dollar that we owe every plan member,” said Robinson in an interview with the Anglican Journal. “So, there’s no issue there at all.”
Going-concern valuation, which assumes that the pension plan will continue in the long term, is “the measure we believe [to be] the realistic measure of the financial health of the pension plan,” said Robinson. “Our going-concern interest rate is 6 per cent, but this pension fund has earned 7.5 per cent on average for the last ten years. So, we’re beating even the going-concern rate.”
While the plan had a going-concern shortfall of $28.7 million as of Aug. 31, 2012, the date of its last valuation, “investment returns since then have reversed that result,” said a recent letter sent by the pension office to members. “Our actuary estimates that there was a going-concern surplus of about $15 million as of May 31, 2013.”
The plan, however, has a deficit on its solvency valuation.
“…[Under the law] we are required to measure what will happen if our plan suddenly ended-which it won’t-and the pension owed to members had to be settled in a single day. This is where our plan shows a shortfall,” said a video message by Bishop Philip Poole, chair of the pension committee. “This measurement might suit corporate pension plans that carry a high risk of ending. But it doesn’t reflect the long-term nature of our plan.”
The last solvency calculations done as of Aug. 31 showed that the plan has a $171 million shortfall and is 70.5 per cent funded.
What accounts for the shortfall? “The low interest rate assumption, that’s the biggest thing,” said Robinson. The interest rates used for return on assets are stipulated and based on current market levels, which are “very, very low,” she said. “When interest rates are low, the value of the liability of the pension plan is high.”
Robinson addressed concerns expressed by some members that the solvency funding deficit may have been a result of mismanagement. “The idea that the plan has been mismanaged is just plain wrong. The plan has been exceptionally managed,” she said. “We are so fortunate to have the level of expertise on the board of trustees that we have that the investment returns have been first quartile for over ten years.”
Normally, there are two ways to get rid of the solvency deficit, said Robinson. “You can either put more money into the pension plan or you can reduce the liabilities by reducing the obligation of the plan, which is to reduce the pensions owed to members.”
However, the church’s pension plan does not have the option to put more money into the pension plan “because there’s a conflict in the Ontario pension law and the federal tax law that we fall under,” she explained. “We are already contributing at a maximum rate that the federal tax law allows.”
Since the Trustees do not want to have to reduce pensions immediately to address the deficit, obtaining funding relief would mean having a “three-year window whereby we are given relief for that obligation to fund the solvency deficit” and three years to find “different ways of fixing the problem,” said Robinson.
“A number of things can happen. We can have spectacular investment returns and the assets can go way up. Interest rates can go up, which would mean the liabilities would be lower. Or, there are things we could try to remove from the pension plan that are creating some of the larger liabilities,” she added.
Robinson stressed that the funding relief – which is still subject to approval by the Ontario government – “doesn’t’ get rid of the problem automatically, it just gives us another three years to find a solution to the problem.”
By voting yes to the funding relief proposal “the members are saying ‘we’re allowing you three more years to sort this out without a benefit reduction,'” said Robinson. The likelihood of a benefit reduction later is still possible, but Robinson said, “I think we have enough creative solutions that we’re thinking about that if we have three years to put them in place, I’m confident that we’ll be okay.”