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Pension plans — a poor use of tax dollars

The Yukon College pension plan doesn’t know if it’s coming or going.With a surplus of roughly $4 million, the plan was doing so well…

The Yukon College pension plan doesn’t know if it’s coming or going.

With a surplus of roughly $4 million, the plan was doing so well the college was forced to take a holiday from investing in the fund and also boosted its employee benefits.

But according to the federal government, the college pension plan is still about $6 million short.

“It’s kind of a strange situation,” said Gordon McDevitt, the deputy minister of Education.

“I don’t understand it either.”

Last week the territorial government announced it would provide the college with $1,251,600 a year for the next five years, to assist with its pension shortfall, which is pegged at $6,258,000.

But if the college has a surplus of $4 million and a deficiency of $6 million, couldn’t it simply use its surplus to resolve its deficit?

“This is what we thought, too,” said McDevitt.

“But there’s a (federal) rule that says, ‘If you have what’s called a solvency deficiency, you’re not allowed to use your surplus to pay it off.’”

Ottawa has a rule that a pension plan must have sufficient funds to cover an immediate shutdown, meaning if it shut down today, it could meet all future financial obligations to its members.

This is called pension plan solvency.

“So, they applied that rule to the college and the college didn’t have sufficient funds in its plan to meet that rule, because certainly nobody’s expecting the college to close tomorrow,” said McDevitt.

Although the college fell $6 million short in solvency requirements, on a going-concern basis it still has a $4 million pension surplus.

But federal regulations stopped the college from using the surplus to pay off its deficiency.

‘There are two rules that are in conflict here,” said McDevitt.

“One is that you’re allowed to have a surplus. And the other states that if you have a solvency deficiency, then you aren’t allowed to use the surplus.

“It really doesn’t make any sense.

“This is what’s taken so long to try and get it sorted out, because everybody’s been trying to work with these rules.”

There are many pension plans right across the country that have been affected by this; the college is just one of them, he added.

The Whitehorse General Hospital is also working with the territorial government to address its pension deficit.

Although the hospital is only short several hundred thousand dollars on a going-concern basis, it too runs into trouble when it comes to pension plan solvency.

“We’re in arrears $4.2 million in the remote event, as far as the hospital’s concerned, that it went out of business and the pension had to be fully funded to meet its obligations,” said hospital chief executive officer Ron Brown.

“Most public sector pension plans, including the federal pension plan, that Yukon government employees are part of, have exempted themselves from solvency funding requirements because the government is not going to go out of business and I would say they consider it not a good use of taxpayers’ dollars to be funding that.

“And we feel we’re in a similar position and should be exempted as well. And the same argument would apply to the college.”

Most universities and colleges in Canada are exempted from the solvency funding requirements, he added.

There is the federal pension benefits act that is really meant to cover national corporations likes the rails, the airlines and telephone companies.

“But for quirky reasons, I guess both the college and the hospital have ended up being covered by that pension legislation as well,” said Brown.

It’s because we’re a territory, he said.

The provinces have their own pension legislation and most provinces have exempted their public sector pension plans from solvency requirements.

“However there’s no similar pension benefits legislation in the Yukon — so we get tied into this federal requirement that is really intended for private-sector plans,” said Brown.

“And, as far as I know, Whitehorse General Hospital and Yukon College are the only public sector pensions supervised federally.”

The hospital board is currently in negotiations with the territorial government regarding its solvency deficiency.

They expect a resolution within the next few weeks.

“(Premier Dennis) Fentie gave a general commitment a year ago, saying the government would work with the college and the hospital to resolve the situation, and he recently demonstrated that with the funding provided to Yukon College,” said Brown.

The college funding, recently promised by the territorial government, is not in the budget.

It will be taken from existing funds, said McDevitt.

“And if a lapse in funds arises as a result, we’ll go back to management board.”

But there’s usually a surplus of funds, he added.

If both the college and the hospital receive total territorial support, taxpayers will have contributed roughly $10 million to these public-sector pension plans.

“This is not the best use of taxpayers’ dollars,” said Brown.

Both public-sector institutions should be exempt from solvency requirements, because the likelihood of them suddenly closing is almost nil, he said.

“So, all this money sits in the pension plan, whereas, if it hadn’t been put in the pension plan, if we’d been exempted, for example, then that money could have been used for other services to Yukoners, and not just in health care, but anywhere.”