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Dal Budget Primer: Revenue: *includes pension contributions |
Emerging from a recession, Dalhousie finds itself at a fork inthe road. One road leads to deep, across-the-board budget cuts withdire consequences for all university activities. The other patharrives at stable funding for academic programs and administrativeunits, but takes a small bite out of pay cheques along the way.
The choice comes into focus in the latest report of the BudgetAdvisory Committee (BAC) which held consultations across campus andis about to make recommendations to President Tom Traves. He, inturn, will take the budget to the Board of Governors forapproval.
“This is the strangest set of budget options I’veever seen,” said Dr. Traves. “The budget options are soextreme—a real good news/bad news joke—but at least wehave the luxury of making choices that will shape our future,something that other North American universities don’thave.”
The financial collapse that led to the 2008-09 recessiondidn’t spare Dalhousie’s pension funds. Even afterrecent market gains, Dal’s pension plan is more than $100million in the hole.
If a solution can’t be worked among the plan’smembers, the provincial government and the university, it will fallto the plan’s sponsor—Dalhousie—to find themoney, and, according to the BAC report, that means cuts equivalentto five per cent for every program and service this year, followedby a deeper, 7.6 per cent cut next year.
But Dal’s president remains confident it won’t cometo that, despite news that other universities and colleges acrossthe country are resorting to program cuts, layoffs and employeefurloughs to cure their recession hangovers.
Dr. Traves said he will “wait and see” the outcomeof a multifaceted process aimed at solving the pension solvencycrisis before finalizing a budget. He still expects a solution thatwill allow him to go to the board with “no substantialprogram cuts, and certainly nothing as draconian as five or sevenper cent.”
The process he talked about is spearheaded by a group calledACOPS, for Adhoc Committee on Pension Sustainability, and includesrepresentatives from all employee groups at Dal, as well as senioradministration and external pension experts.
Any solution that spares programs from budget cuts will requireincreased pension contributions from employees as well as from theuniversity.
Dr. Traves said if all contributors to the plan—employerand employees—are part of the solution, the university willhave a very strong case for relief from the province’scurrent pension regulations. Relief from the solvency test wouldfurther reduce the pressure on the university’s budget andmoderate the increase pension contributions required from Dalemployees.
The BAC is in the final stages of work on the 2010-11 budget forthe fiscal year that began April 1. The current budget model showsa $10 million deficit but that red ink will have to be erasedbefore Dr. Traves can take a proposal to the board, which requiresa balanced budget. The BAC model currently assumes an $11.8 millioncost to the university for increased pensioncontributions—the bill that will come due this year if theACOPS process isn’t successful. The pension problem is at theroot of the university’s potential financial crisis.
This is the final year of a three-year agreement between theprovince and Nova Scotia’s universities, which saw fundingfrom government increase in return for a freeze on tuition fees.The province also provided additional funding by way of a bursaryto actually reduce real tuition costs. This fall, the bursary willreduce tuition for a full-time Nova Scotian student by $1,283 and,for other full-time Canadian students by $261.
With the provincial government embarking on a period ofausterity, the future of post secondary education funding levelsand tuition relief are anybody’s guess.
Pension tensionsAs the deadline looms, a committee that includes representativesfrom all employee groups at Dalhousie, former employees, theadministration and outside experts, is working long hours to comeup with solutions to the university’s massive pension fundshortfall. Dalhousie’s pension fund will be evaluated in June and itwill be under-funded, likely by more than $100 million. Thecommittee’s key goals include developing a plan that willspare the university community a massive financial trauma broughton by that shortfall, while ensuring Dalhousie’s pension planis sound and sustainable for all employees. Collectively they are called ACOPS, for Adhoc Committee onPension Sustainability, and by all reports they are a model of whatis possible when a diverse group of individuals, representingsometimes competing interests, come together in commoncause. In this case, that cause is solving a pension shortfallthat matters to everyone who works at Dal without financiallycrippling our university. Dal employees have what’s called a “definedbenefits” plan, and one of the first principles ACOPSaffirmed was that it will remain such. In a DB plan, pensionbenefits are determined by a set formula rather than depending oninvestment returns. Many other plans are “definedcontributions” whereby the employee’s contributions areinvested and benefits are determined by the rate of return on thoseinvestments (good or bad). Among the remedies ACOPS is working toward is relief from theprovincial government’s current “solvency”rules. One of those solvency tests determines whether there isenough money in the pension fund to pay out all its obligationsimmediately. Dal is arguing it should be exempt from that moststringent test because, unlike some businesses, this 200-year oldinstitution is not likely to permanently padlock the doors in thedead of night. Without changes to those rules, and remedies ACOPS willrecommend to the university and employee groups, Dalhousie will beforced to start making up the pension deficit as early asJuly. The university’s Budget Advisory Committeeestimates that cost will force program cuts equivalent to five percent across the board (see accompanying story). Dalhousie employees earn pension benefits at the rate of two percent per year. Benefits are based on an average of theemployees three highest earning years. |
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