WLUFA Advocate, Vol. 2, Issue 1, Jan. 15, 2014
Wilfrid Laurier University’s Clarifications & Corrections webpage is an opportunity for the university to provide comments and corrections regarding information written and published about it by other sources.
The January 2014 newsletter of the Wilfrid Laurier University Faculty Association includes numerous misleading and inaccurate statements about the University’s finances, pensions, IPRM process and other topics. In response, the University provides the following statement to clarify and correct the misinformation.
Why have pension plans been underfunded in the past few years?
Plan assets are derived from three sources: member contributions, employer contributions and investment returns. Typically, pension funds are invested in a combination of equity and fixed-income assets. Over time, market cycles occur that create periods of favorable returns leading to funding excesses and unfavorable returns leading to funding shortfalls. In 2008, a market meltdown occurred that created unprecedented negative rates of returns for pension plans and has resulted in significant funding shortfalls. Future expected investment returns are not at the same level we have experienced in the past, so pension plans will need to rely more heavily on contributions to meet benefit obligations.
Plan liabilities are impacted by a number of economic and member variables such as interest rates, future salary increases and member longevity. Low interest rates and lower-than-expected future investment returns combined with significant improvements in mortality rates for Canadians have substantially increased the cost to fund pension benefits in the future. This is a problem faced by defined-benefit and hybrid pension plans across Canada and around the world. The Canadian Institute of Actuaries conducted a recent study on mortality and has created the first-ever Canadian mortality tables. The results show longer life expectancy for Canadians, which will increase benefit obligations and costs for defined-benefit pensions and other post-retirement benefits. It is anticipated that improvements in mortality alone will add between five percent and eight percent to pension plan liabilities in Canada.
Additional information about the Laurier the pension plan is available at this link.
Pension contribution holidays
During the 1990s many pension plans found themselves in a surplus situation, with the value of the assets exceeding the cost of the benefits promised to members. The Income Tax Act, however, limits the amount of surplus that can be held in defined-benefit and hybrid pension plans, and therefore many plans were required to take a contribution holiday to reduce the surplus.
In each year from 1995 to 1998 the WLU Pension Plan experienced double-digit investment returns. The surplus in the Plan was above the threshold permissible for defined-benefit plans under the Income Tax Act. Based on the recommendation of the Plan's actuary, the University took a contribution holiday to reduce the level of surplus in the Plan, and the surplus funds were redirected to make the required employer contributions and partial employee contributions from July 1, 1999 to June 30, 2001. A full contribution holiday was taken by the University from July 1, 1994 to June 30, 2002, and a partial contribution holiday was taken by the University from July 1, 1993 to June 30, 1994, and from July 1, 2002 to June 30, 2003. From 1999 to 2001 a partial contribution holiday was taken by plan members as agreed to by WLUFA. During this time, the actuarial valuations reflected a significant surplus level in the plan. Note, the funds were redirected from the plan surplus to make the required regular contributions to the member's money purchase accounts, therefore maintaining the required money purchase contribution formula as defined in the Plan text.
The notion that the University should have set aside or invested the funds normally contributed to the pension plan in anticipation that, at some time in the future, the plan may become underfunded is not reasonable for three key reasons. First, the funds that had accumulated during the 1990s were greater than what was then expected to be required to fund the benefit promise (current and future), and greater than the Income Tax Act limits on the amount of funds a plan sponsor could shelter in a registered pension plan. Also, at that time in the 1990s, there were expectations by the Ontario government that universities should be using the surplus in their pension funds to address shortfalls in university operating funding from the province. Finally, as a publicly funded institution committed to delivering high-quality post-secondary education, it was incumbent upon Laurier to direct operating funds to support the mission of the institution.
Pension accounting standards
First, it is important to stress that nearly all pension plans — including the Laurier Pension Plan — are facing very real and very serious challenges, as described above. To dismiss these challenges as “baloney” is simplistic and irresponsible. Changes to the Laurier plan, and to many university plans in Ontario, are needed to ensure sustainability. OCUFA itself recognizes this reality and is working with university administrators to develop a joint response to the Ontario government.
Second, Laurier has always followed generally accepted accounting standards regarding its financial statements and the Laurier Pension Plan. On May 1, 2012, the University adopted “Canadian Institute of Chartered Accountants Handbook Part III - Canadian accounting standards for not-for-profit organizations.” Laurier first employed these new standards for the year ended April 30, 2013. In accordance with the transitional provisions in these standards, the University adopted the changes retrospectively, subject to certain exemptions allowed under these standards. The transition date is May 1, 2011 and all comparative information provided has been presented by applying Canadian accounting standards for not-for-profit organizations.
The accounting standards that the University is now using were developed by Canadian Institute of Chartered Accountants in part to respond to the economic downturn that occurred in 2008-09. The previous accounting treatment was the "deferral and amortization approach", under which any actuarial experienced gains and losses, plan amendments and assumption changes were amortized on a straight-line basis over the estimated average remaining service life of the employee group. The new accounting treatment is the "immediate recognition approach.” Under this approach, the University "accrues its obligations under the defined benefit plans as the employees render the services necessary to earn the pension benefits. The actuarial determination of the accrued benefit obligations for pensions and other retirement benefits uses the funding valuation method. This cost reflects management’s best estimates of the member’s salary escalations, mortality of members, terminations, and the ages at which members will retire. The measurement date of the plan assets and accrued benefit obligation coincides with the University’s fiscal year."
It should be noted that regardless of the previous accounting treatment, informed users of Laurier’s financial statements, such as banks and credit-rating agencies, would have accounted for these liabilities. The new accounting treatment reflects the economic reality of the pension and other post-employment liabilities in the balance sheet for all universities and other not-for-profit organizations.
Strategic Mandate Agreement and projected enrolment
At the Jan. 13 meeting of Senate, University President Max Blouw stated that the SMA documents recently submitted by Ontario universities are just the starting point for individual negotiations with the provincial government, and that he has requested direction as to whether these initial SMA submissions will be released publicly prior to the completion of the final negotiated versions.
Laurier's submission to the Strategic Mandate Agreement process included enrolment projections for the Waterloo campus, the Brantford campus, and for a planned Milton campus. As a starting point for negotiation with government Laurier projected modest growth at Waterloo, focused primarily on graduate and international students, more robust growth at Brantford with particular emphasis on the partnership with Conestoga College, and the establishment at Milton of a small cohort of primarily undergraduate students (5% or less of total enrolment) ramping up over time as physical capacity and demographic demand increase.
CAS teaching numbers
It is important to note that the number of courses taught by CAS members is governed by the WLUFA contract for full-time professors. According to that contract, which WLUFA agreed to on behalf of full-time professors, the total number of courses taught by CAS members cannot exceed 35% of the courses offered in an academic year. Using the language and course definitions agreed to by WLUFA in the full-time contract, the university believes that about 45% of Laurier students are enrolled in a class taught by a CAS member.
IPRM - governance issues
In the current economic climate it is critical for post-secondary institutions to examine their institutional priorities and their resource-management practices. Laurier’s Integrated Planning and Resource Management (IPRM) process is intended to answer a central question: “How will we continue to make Laurier a better institution?”
Unlike many other universities that have engaged in this kind of process, Laurier has committed itself to a bottom-up approach involving four committees comprised of faculty, staff and managers. The IPRM proposal was subject to a number of public meetings and debated extensively by Senate. Key questions and concerns were thoroughly examined in light of the Wilfrid Laurier University Act, and it was confirmed that the implementation of all IPRM recommendations would be in accordance with the Act . On Nov. 26, 2012, Senate endorsed the mandate of the IPRM committees and the process with the following motion:
“MOTION (Ma. Kelly/S. Isotupa) that Senate endorse the mandate of the Integrated Planning and Resource Management task force (the "Planning Task Force"), and that Senate acknowledges that the implementation of approved recommendations of the Planning Task Force will be in accordance with the powers of Senate, the Board of Governors, and the President, as enumerated in the WLU Act.” CARRIED (47 in favour, 13 opposed, 3 abstentions).
It is important to note that the IPRM process will produce a set of recommendations that will be presented to Senate for review and comment. The recommendations, along with Senate comments, will then be go to the Board of Governors for comment and approval. The implementation of any recommendations that come out of IPRM would follow existing governance procedures as outlined in the Wilfrid Laurier University Act.
IPRM - response to WLUFA FAQ regarding Program Prioritization
The program prioritization element of Laurier’s IPRM process is intended to address the question, “How will we continue to make Laurier a better institution?” To answer this, Laurier needs a prioritization process to identify key principles and priorities that are critically important to the future of the university. We then need to put resources toward those priorities. In this way, prioritization places the university in the best position possible to meet challenges and opportunities.
Allegation 1: “It undermines the authority of academic senates, and gives academic decision-making power to central administrators.”
Response: Laurier’s prioritization process in no way undermines the authority of Senate. IPRM does nothing more than make recommendations.
A report from the Planning Task Force will be given directly to the Senate. When Senate receives the report from the PTF, it may choose to comment on the report, and will make a recommendation to the Board of Governors. Senate response’s could range from rejecting the report, to accepting the report with changes, to approving some recommendations of the PTF but not all, or to approve all recommendations.
The implementation of any recommendations of the IPRM process that are approved by the Board of Governors will follow the regular Senate and Board processes already in place at the University for academic and non-academic areas as outlined in the Wilfrid Laurier University Act.
Allegation 2: “It is based on flawed and complicated methodology.”
Allegation 2a: “The working groups are asked to rank programs according to hundreds of data points, which creates the possibility of serious errors and promotes subjective judgments.”
Response: Those who are evaluating the programs have gone through detailed training. They are using the same software program that is used for proposal evaluations by Laurier’s procurement office. Evaluators are using a method designed to avoid errors and subjective judgments and they have clearly defined decision protocols in place. All programs are evaluated against the same criteria within their group, i.e., all academic programs are evaluated against the same criteria; and all administrative programs are evaluated against the same criteria. Only the data provided is evaluated.
Allegation 2b: “Rankers are asked to evaluate programs they may know nothing about.”
Response: The templates are very detailed in order to give the evaluators the information they need to make informed evaluations. If necessary, evaluators can ask programs for clarification.
Allegation 2c. “It is based on flawed and complicated methodology. The comparisons are absurd. The logic of program prioritization leads to comparisons between bookstores and Physics programs, English departments with postage and mail services. This is apples & oranges at its very worst.”
Response: Each program is evaluated individually on its own merits. The administrative priorities team evaluates administrative programs and places them in categories and the academic priorities team evaluates academic programs and places them in categories. Programs are not evaluated directly against each other.
Allegation 3: “Program prioritization often leads to cutbacks and program eliminations, which in turn may lead to layoffs and loss of permanent faculty positions.”
Response: The IPRM prioritization process makes recommendations; it does not make decisions. Any decisions about academic or administrative programs would go through the regular Senate and/or Board of Governor processes as appropriate.
If the university is faced with budget reductions imposed by the provincial government, prioritization gives the university the tools it needs to make strategic budget-reduction decisions based on identified priorities, rather than the across-the-board cuts it might make without those priorities in place. This allows the university to support its areas of strength.
Allegation 4: “In extreme cases, program prioritization can be used to completely change the mission and purpose of an institution.”
Response: Quite the opposite. The prioritization recommendations being made as part of Laurier’s IPRM process are based on established guiding principles and core institutional documents, including Laurier’s statement of Values, Vision, Mission and Guiding Principles.
Number of managers at Laurier
The number of management positions at Laurier has, like the number of faculty and staff positions, grown over the years in order to support an increasing number of students, programs and locations. The Brantford campus in particular has grown rapidly, requiring the addition of management positions to support that growth. Growth can also be attributed to enhanced structures and services in key operational and strategic areas such as International Student Recruitment & Support and Research Services.
The number of Laurier managers is about one-third the number of full-time faculty, and about one-fifth the number of full-time staff. These ratios are in line with the average at other Ontario universities. It should be noted that faculty salaries comprise the largest portion of the University’s total salary budget (about 60 per cent, excluding pension and benefits) compared to all Laurier’s employee groups.