ROM, CAAT pension merger lowers costs and risks: Dobson
The benefits of merging two plans.
BY Derek Dobson | March 3, 2016
The idea was compelling. With the consent of its members, we looked to merge a single-employer pension plan with a stable, jointly-governed multi-employer plan to create predictable costs and more secure benefits with lower risk.
It was indeed compelling to the active members of the Royal Ontario Museum pension plan who overwhelmingly voted to join the post-secondary education plan and began accruing a Colleges of Applied Arts and Technology (CAAT) pension on Jan. 1, 2016.
Of the active ROM pension plan members, 97% voted to join the CAAT pension plan, while no retirees or deferred members voted against the merger. The CAAT plan’s focus on benefit security, stable and appropriate contribution rates, and equitable benefits across a diverse membership appealed to both members and the employer.
The merger allows the ROM to exit the pension-management business and focus on its core competency of research, education, community outreach and operating one of North America’s largest museums. It also removes the complexity of pensions from the collective-bargaining process, shifting it to the CAAT plan’s well-established joint governance structure.
Merger protects past pension promises
Under the conditions of the merger, the 640 active, retired and deferred pension members from the ROM plan will receive a pension based on the ROM plan provisions for their service accrued to Dec. 31, 2015, and a pension based on CAAT plan provisions for service accrued after that date.
In addition to the savings from the operational efficiencies of a merger through, for example, no longer incurring the costs of actuarial, legal and investment management fees, the ROM no longer pays premiums to the Pension Benefits Guarantee Fund and the solvency funding requirement is permanently eliminated.
The ROM pension plan has been operating under a temporary solvency funding exemption, which would have expired in 2017, increasing its pension contributions. Under the funding rules for single-employer pension plans, ROM pension costs would have increased significantly.
The CAAT plan is in the business of managing pension risk and is willing to bring its expertise to plans in the broader public sector to offer solutions to complex pension problems. For plans with similar risks and characteristics, it offers a ready-made, sustainable option with a permanent exemption from solvency funding requirements.
The main elements of the ROM merger process were completed within a relatively short six months. The merger demonstrates the CAAT plan’s ability to clearly explain the complexities of the merger to members of the ROM plan during the 45-day consent process. The next stage is approval by the Financial Services Commission of Ontario, which is expected within the coming months.
Taking advantage of new regulations
The merger is the first to use Ontario’s new regulations permitting the conversion and transfer of assets from a single-employer pension plan in the broader public sector to a jointly-governed, multi-employer pension plan. The regulations came into effect on Nov. 1, 2015.
The ROM plan is a good demographic fit for the CAAT plan. Today, it’s an independent entity but it was managed by the University of Toronto for about half of its 102-year history.
The CAAT plan has engaged in discussions with several interested universities and member groups about the benefits of merging their single-employer pension plans with the CAAT plan to create the Ontario Colleges and Universities Pension Plan.
The CAAT plan responded to the Ontario government’s call to encourage broader public sector pension plans to become jointly sponsored with cost and risk sharing. The CAAT Plan is the only multi-employer pension plan operating in the post-secondary education sector and has been jointly governed since 1995.
Profile of the CAAT pension plan
Defined benefit pension plan with cost- and risk-sharing
Governance shared equally by members and employers
$8.5 billion in assets
110.4% funded on a going-concern basis with a funding reserve of $1.2 billion (valuation as at Jan. 1, 2016)
Consistent top-quartile investment performance – universe source is the Bank of New York Mellon Corporation, which includes pension plans, endowments and foundations.
The CAAT plan’s investment returns for 2015 will be available in April 2016.
Derek Dobson is chief executive officer and plan manager of the CAAT pension plan.