Thursday, May 2, 2013

LTD and the UVic Faculty Association

Let me tell you a story.

At UVic, the members of the UVic Faculty Association fund their own LTD plan, jointly with UVic members of the Professional Employees Association: 100% of LTD funding comes from employees, and 0% from the employer. There's a Board of Trustees for the fund, three from the university executive, and one each from PEA and the UVic FA.

And you, dear colleague, should be upset by the LTD fund's governance structure and funding model. Well, unless you're comfortable with employer paternalism, zero contributions from the employer, and a very high tax rate on the plan's earnings.

Early in 2008, the trustees decided that they needed to eliminate the LTD plan's unfunded liability. Basically, an "unfunded liability" is the amount needed to pay the lifetime LTD benefits of everyone currently receiving LTD, if no money ever came into the fund ever again. It's an actuarial principle, representing a hypothetical obligation, and that's all it is. Please, please, don't make the mistake of assuming that the plan is running some kind of deficit, or that it's in debt, because the LTD plan's significant assets are growing rapidly! I'm tempted to use quotation marks to talk about the plan's "liability," but we're grown-ups, aren't we?

As of June 2008, the fund held about $3.4 million in assets, so it could only cover 36% of its total hypothetical liability. (This means that if no more money ever came into the plan, it could still cover 36% of future benefits if everyone receiving benefits remained on LTD until retirement.) In consequence, the trustees boosted the member contribution rate from 1.75% to 1.93%.

By June 2011, the fund had more than doubled its assets, to about $7M, and its funding ratio had risen to 60%. By March 2012 the numbers had increased to $8.1M and 63%, and by March 2013 the numbers had increased further to $9M and 69%.

In other words, the fund's assets are increasing by about a million dollars every year. In five years, the fund's assets have grown impressively from $3.4M to $9M, and its funding ratio has increased from 36% of its total hypothetical liability to 69%.

Doesn't this sound wise? It's just basic financial responsible that the trustees would want to cover the plan's total liabilities, right?

Three problems:
  1. the plan's income is taxed, and its current taxation rate is 43.7%. Since 2008, the plan's assets have grown by $5.6 million; the plan has paid almost $400,000 in taxes to the federal and provincial governments;
  2. the administrative structure is paternalistic at best. The employer contributes zero money to the plan, remember, but it charges a small administrative fee to manage the funds. Far more importantly, the employer has an absolute majority on the Board of Trustees. Genuine consultation with the PEA or with the UVic FA has been sadly, sadly lacking; and
  3. the "unfunded liability" and its 10-year "remedy" are purely accounting matters, without basis in reality. Back when there were zero representatives from PEA and the UVic FA, the Board of Trustees decided that it would be best to eliminate the liability in 10 years. It considered going with either 5 years or 19 years, each of which would have led to quite different contribution rates, so there was no essential reason for choosing the 10-year window.
You may be interested to know that UBC's contribution rate is roughly 1/3 the rate at UVic: 1.93% at UVic, and 0.65% at UBC. And at SFU, the LTD plan is 100% funded by the employer.

There are some differences in the three plans, so it's complicated to work through the details, but honestly, I'm having serious trouble seeing anything positive about UVic's LTD coverage for members of the UVic Faculty Association and for PEA members.

Things must change. Either someone needs to settle me down in the comments area below, or....

2 comments:

  1. Settle you down?!? Fuck no. Rile us all up instead.

    Every bit of news is incendiary and not because of how you present it.

    They contribute nothing but control it all. Motherfucker.

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    Replies
    1. People need to pay attention. I'm not saying we all need to dig through the financial statements on our own, because that's hard work: most of us are better off relying an assigned dredging crew. But there's all kinds of material out there suggesting that we need to pay closer attention to how our governance works, and how our governance has changed over the years.

      LTD governance is a good example. The current rate is unnecessarily high, and it has been justified through appeals to standard accounting practices with no transparency about the element of choice involved. Plus, as you highlighted, it's NOT THE ADMIN'S MONEY.

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