Pension plan annual meeting highlights
The McGill University Pension Plan annual meeting held in May drew a larger turnout than in previous years. Those in attendance took advantage of this meeting to provide comments and ask questions of the Pension Administration Committee (PAC), the body that administers the plan. The majority of questions and comments focused on pension plan Amendment 24, the appointment of the chair of the PAC and voting procedures.
Prior to the meeting, a vote was held on whether members are for or against continuance which includes the use of proportional voting versus the one-person-one-vote method. Voting results showed that the total number of votes against continuance remains far lower than the percentage of voters in favour of the voting procedures. Members voted 71% in favour, 29% against. Of a total of 9,658 voting members, 19% of members voted.
One academic staff representative position held by Prof. Reuven Brenner was up for election in 2012. As the sole candidate, Prof. Brenner was voted by acclamation to a new 3-year term.
Other highlights included a report on the performance of the pension plan in the past year and within a ten-year history. Of particular interest is the Balanced Account in which roughly 90% of plan members have their money invested. It shows an annualized rate of return of 6.1% over a ten-year period, higher than the benchmark to which this asset class is compared. In fact, McGill’s Balanced Account performance ranks in the top 25 percentile relative to pension plans of similar size over a ten-year period.
The University also benchmarks its costs against similar sized pension funds. The results show that the costs associated with managing the plan are reasonable, despite the fact that McGill’s plan is a complex hybrid arrangement which includes defined benefit and defined contribution components.
The chair of the Pension Investment Committee commented that 2011 was a tough year for markets and highlighted the fact that the rates of return relative to their benchmarks were positive for the year, due in large part to the hard work and efforts of the committees and staff responsible for administering the pension plan.
An overview was also given of the solvency of the pension plan as of December 31, 2009. The University has taken measures to address the solvency deficit which now stands at $114,841,000. This means the plan would have lacked that amount to meet its immediate obligations toward members if the University ceased operations on that date.
The latest three-year valuation for the same period ending December 31, 2009 showed a going-concern funding deficit of $46,313,000 based on long-term assumptions that the plan will remain in existence indefinitely.
Rather than pay out the funds available to retiring members in the defined benefit (DB) portion of the plan, which stood at only 84%, the University chose to make additional contributions, giving retiring members the full value of their pension holdings, a $2 million cost to the University. McGill’s funding of the DB minimum and special contributions to maintain a 100% payout ratio has jumped in recent years.
In 2011, the total University’s contribution to the defined contribution (DC) segment of the plan amounted to $28 million while member contributions stood at close to $16 million. The University also contributed an additional $2.5 million to fund the DB minimum and pensioner fund deficit. It is anticipated its contribution will more than double to $6.2 million in 2012.
What follows is a summary of attendees’ comments and questions:
On Amendment 24
There should be more direct consultation with the unions before recommendations are brought to the Board of Governors.
The relationship between the PAC and the unions and associations of the University must be a dynamic one with continuous dialogue between the parties.
The need to increase member contributions to the pension plan was understood whereas discontinuing University contributions after age 65 – effective January 1st this year – was of great concern, and the need for the sharing of deficits starting in 2014 is not yet clear.
Mention was made of the soon-to-be introduced notional arrangement negotiated through the Committee on Academic Staff Compensation (CASC). One member noted that the mechanics of such a program are outstanding. In describing the arrangement, the following elements were mentioned: notional account, 5% of eligible earnings, eligible members from age 65 to 69.
One plan member, who is part of the McGill Association of University Teachers’ non-discrimination committee, expressed the opinion that stopping University contributions at age 65 was a form of age discrimination – recognizing that the courts did not support this position – and raised the question of ethics in these types of decisions.
A question was raised about the $2 million savings generated by ceasing contributions beyond the normal retirement date. The chair of the PAC explained that this money was in fact being directed back into the pension plan to meet deficit funding requirements. Prior to recommending Amendment 24 to the Board of Governors, it was emphasized that the PAC has a fiduciary responsibility toward plan members and that many lengthy discussions had been held regarding ways to maintain the financial health of the pension plan and create a more sustainable plan.
On the appointment of the chair of the PAC
A question was raised about the appropriateness of having the PAC members elect a University representative as the chair. The PAC members present at the meeting did not consider this to be an issue. One PAC member noted that all representatives on the Committee come from a constituency; however, once on the committee, they have a fiduciary role and must act in the best interest of all plan members.
On the question of proportional voting versus the one-person-one-vote method
One member voiced dissatisfaction with the voting procedures under the pension plan. Voting results showed 71% of voters in favour of the voting procedures. Only 19% of members voted on this motion.
One PAC member commented that the pension plan represents members’ private savings and members with higher account balances should have a greater say in who represents them on a committee, similar to shareholder meetings. Another PAC member commented that when the voting procedures were initially discussed in the 1990s, MAUT insisted on proportional voting and MUNASA (McGill University Non-Academic Staff Association) at the time preferred that voting be based on years of service.
On the work of the PAC
Some members expressed their appreciation to the PAC for their dedication and hard work, noting that it is a tough job and an extremely busy committee.
To view the full presentation given at the annual meeting, go to the McGill website by clicking on the following link: http://www.mcgill.ca/hr/bp/pensions/annualmeeting/slides