Canada’s University Pension Plan (UPP), a new jointly sponsored pension plan serving Queen’s University, the University of Guelph, and the University of Toronto, launched July 1. The plan unites more than 35,000 members and five pension plans into a single administration with total assets of approximately C$10.5 billion (US$8.4 billion).
The three universities said they decided to combine their pension plans in order to reduce costs and improve efficiencies and investment opportunities. According to UPP’s backers, years of low interest rates, volatile investment markets, and rising life expectancies have led to funding shortfalls and increased contribution rates for university plans. They say the current model for single-employer plans is unsustainable, and combining multiple plans will allow universities to focus on providing education for students rather than diverting resources to managing their pension plans.
“UPP was born from the extraordinary efforts of the employees, administrators, and governors of our founding universities, all committed to strengthening defined benefit [DB] pensions,” Gale Rubenstein, chair of the UPP’s board of trustees, said in a statement. “We’re starting from a strong foundation with an outstanding board and leadership team that are guided by our members’ values and needs.”
The UPP is a DB pension plan that is based on its members’ best average earnings and the number of years of credited service earned after joining the UPP. Pension benefits earned under existing university pension plans will be preserved.
At inception, the UPP pension for credited service earned after joining the UPP will be based on: 1.6% of average earnings below the average year’s maximum pensionable earnings (YMPE), multiplied by credited service, plus 2% of average earnings above the average YMPE, multiplied by credited service. Average earnings will be based on average earnings during the best 48 months of eligible employment, and average YMPE will be based on the average YMPE for the last 48 months of eligible employment. The YMPE for 2018 was C$55,900 (US$44,933).
For example if a participant has average earnings in the last 48 months of eligible employment of C$75,000, and 20 years of credited service earned after joining the UPP, the 48-month average YMPE is C$54,925. And, as is the case with all registered pension plans, the UPP pension benefit will be subject to the maximum pension limits under Canada’s Income Tax Act.
The new fund is being led by Barbara Zvan, president and CEO. She previously worked at the Ontario Teachers’ Pension Plan for 24 years.
Although the UPP will initially cover three universities, it will be open to other universities across the Canadian province of Ontario to join. The UPP follows the model of other multiemployer plans such as the Ontario Teachers’ Pension Plan and the Ontario Municipal Employees Retirement System (OMERS).