U of T’s pension plan controversy gained fresh momentum over the holidays with a strongly worded public correspondence between U of T President David Naylor and Faculty Association President George Luste.
The latest round in this ongoing dispute began when Luste made a presentation to the Governing Council’s business board on December 13 that was critical of the estimates adopted by the university for the pension plan deficit. Luste claimed that the real deficit was much higher than the university was stating and suggested that the situation was so dire that new faculty members might consider not joining the plan altogether.
Naylor then responded with a widely distributed public memo titled “George Luste’s Pension Tragedy: Titanic Misinformation,” in which he dismissed Luste’s analysis as “absurd” and “wildly hypothetical.”
“With regret, I observe that Prof. Luste’s commentary seems designed primarily to provoke unwarranted panic about the university’s pension plan,” wrote Naylor. “There is absolutely no rational basis for the picture that he paints.”
The heart of the controversy lies with the different estimates adopted by the university and UTFA for the real rate of return on future pension investments. Naylor and the university favoured a real rate of return on pension assets of 4 per cent over the long term, while Luste and UTFA argued for a more conservative lower real return of 2 per cent. The university’s figure implies a pension plan deficit of $1.1 billion while UTFA’s implies a deficit of $2 billion.
In his memo, Naylor also alleged that Luste was promoting projections based on his own views without obtaining independent financial advice. In fact, Luste had consulted with an independent actuary, Stephen A. Eadie, who agreed that U of T was using a very aggressive estimate for its rate of return, according to Luste.
Senior administration officials nevertheless insisted that their estimates were more appropriate. “The deficits quoted in President Naylor’s memo are not his estimates but rather those calculated in accordance with accepted actuarial practice by the Plan Actuary, and accepted by the pension regulator as being appropriate for purposes of funding the pension plan,” wrote U of T Chief Financial Officer Sheila Brown in an email.
Luste responded by saying the solvency test used by the province was defective. “The answer I want to get is how much money [we are] in a hole today for all the people that we’ve made promises to as of today. Forget tomorrow and the future but if we want to actually pay off all our debts today to the pensioners, where do we stand? My claim is that the answer to that is 2 billion dollars — we’re short.”
There is at least some evidence that Luste’s fears are being taken seriously by a number of faculty members. The president, provost, and other senior officials, for example, have been receiving calls and emails from faculty, staff, and retirees expressing concerns about their pensions, according to Angela Hildyard, vice-president human resources and equity. Hildyard said that it was in part to allay some of these concerns that Naylor chose to respond publicly to Luste.
“The thing with the pension plan is because every year the only money that goes out is money for the pension cheques for the pensioners. Other people don’t have access to their money,” said Luste. “You cannot have a run on the pension plan in the same way so it’s not held accountable. So if the money isn’t there you won’t find out until it goes down to the bottom of the barrel.”
In order to bring the plan back onto a sustainable footing, the university has, during the most recent round of negotiations with UTFA, argued for an increase in members’ pension contribution rates — but its arguments were rejected by the independent arbitrator. At the meeting of Governing Council last September, for example, Naylor criticized current pension contribution rates at U of T as unsustainable. Hildyard said that the university would definitely be bringing the issue back to the table during the next round of negotiations later this year.
Perhaps the most controversial element of Luste’s criticisms, however, has turned out be his suggestion that new faculty members ought to consider not joining the plan. Naylor took particular exception to this, calling it a “direct attack on recruitment and renewal in every department of the university.”
“They’re the ones who are at risk,” replied Luste, who was careful to add that members ought to take independent advice before doing anything prematurely. “And then you’re caught in this dilemma of where should your loyalty be. Should your loyalty be to the pension plan or should your loyalty be to the individual members of the pension plan, I feel that you have to try to be honest on both sides. You have to tell young faculty members that look, if the plan is in such dire straits, then who knows what the future will be and you should really worry about that and you should really take that into consideration.
“I cannot say whether it will be 10 years, 20 years, or 25 years but some time down the road I’m convinced it will be a rude awakening. I may well be dead by then but I think it’s my duty to try to warn people about it. Whether they listen or do anything about it in the end is up to them but I feel that it’s sort of my duty that if I know something, not to sort of keep it secret or cover it up.”
