Yukon pension plans in trouble

The pension crisis that has plagued plans across the country has hit two of the largest public-sector workplaces in the Yukon.

The pension crisis that has plagued plans across the country has hit two of the largest public-sector workplaces in the Yukon.

Retirement plans for both the Yukon College and the Yukon Hospital Corporation have failed the federally regulated solvency test, and administrators are scrambling to compensate for financial shortfalls.

But both are playing down any panic amongst their 400-plus employees. After all, both plans are, technically, in the black.

“It was a surprise, and it was a lot of money involved,” Marny Ryder, chair of the board of directors at the Yukon Hospital Corporation, said of the recent calculation that sounded the solvency alarm.

“But at no point was anybody’s pension ever in jeopardy.”

On one hand, Ryder is right.

The hospital’s pension boasts an ample surplus of $2.37 million.

That is the final tally when regulators do the math to determine the “going concern,” a calculation of how the pension plan will fare over the distant future.

But it failed the second part of the test.

Solvency, a figure accountants arrive by hypothesizing when the pension plan will terminate and all beneficiaries must be paid out immediately, fell far short of needs.

While pension police prefer to see a coffer similar to that of the going concern, the hospital corporation has only $342,000.

However, the calculation has little relevance, because the plan will not terminate any time soon, said Nick Leenders, director of finance for the Yukon Hospital Corporation.

“I doubt very much the hospital’s going to go out of business,” he said.

Yukon College is in similar straits.

It came up $700,000 short on solvency, which, until now, had been mitigated by the $3-million surplus in the going concern.

“We are quite concerned, because the rules are that as long as you have a solvency deficit, we are unable to access the going concern surplus, which we had been utilizing and managing over time to try and keep the contributions of members and the college affordable” said Wayne Coghill, director of administrative services for Yukon College.

The rules say a pension plan can never exceed 20 per cent surplus.

If it does, regulation requires contributors take a break from paying into a fund until the books balance again.

The 20 per cent maximum was put in place to prevent pension contributors, like multinational corporations, from dodging the taxes by hiding pockets of money in plans.

The same rules dictate the surplus from the going concern fund cannot be used to augment shortcomings in solvency coffers, because the plans must prove themselves to be self-sustaining.

Would-be retirees of the college and hospital are joining a growing number of prospective pensioners whose benefits are in question.

While homeowners and loan applicants have reveled in low interest, those rates have threatened the prognosis for the long-term survival of pension plans by providing puny returns on investments.

Any gains made by the eight to 10 per cent returns on investments in the past year were, largely, negated by poor bond yields, said Ed Reed, senior researcher with the Conference Board of Canada, one of the nation’s leading independent applied research organizations.

Although pension plans are slowly climbing out of their solvency troubles, it is mostly because contributors to the plans, both bosses and workers, have put in extra cash, a practice that cannot feasibly continue, said Reed.

A survey of Canadian financial officers found more than twice as many as last year believe the inadequacies will persist, and less of them than before were willing to characterize the problem as cyclical.

Most of them called for some sort of national pension standard to strengthen the system.

A new standard calculator was adopted in February, but it appears to hinder pension plans that are teetering toward collapse, not help them.

“The recent improvement in solvency levels will, however, be more than wiped out by some new pension actuarial standards that are being introduced this year,” said Reed.

The new standards make the calculations a whole lot more complex, and allow for the consideration of age and gender.

They are designed to build more accountability into pension programs, preventing just the situations in which the college and hospital employees now find themselves, but the rules are tighter.

Both the college and hospital plans are subject to the rules and regulations of the federally controlled Office of the Superintendent of Financial Institutions, a body that has heard the arguments of the college and hospital before.

Both say they are small, not publicly traded and unlikely to dissolve.

“They’re not the only plans in that position and we do hear that argument from other plan administrators and we understand,” said Linda Maher, manager of supervision of the office from Ottawa.

“But, unfortunately, we only have one set of funding rules and they’re applied across the board, and we don’t actually have any ability to provide any exemption. Our rules apply to all the plans.”

Maher’s people have no plans to attend a meeting set for April 29 to calculate a way out of the solvency problem.

Representatives of the territorial government will be there.

Late last month, the territory issued a vaguely worded promise to help.

“We want to assure employees that we will be working closely with both organizations to preserve the integrity of their respective pension plans,” said Premier Dennis Fentie.

“The government has agreed to sit down with both to help them find a solution to their problem.”

With no chance for a little bending of the rules, somebody is going to have to ante up or wind up the pension plans and start again at zero.

“The plan sponsor will be strongly encouraged by the regulator to make good the shortfall,” said Reed, by way of predicting how the meeting will go down.

“If there are persistent shortfalls, the federal regulator might very well be paying very close attention to their situation.”