Pension Plan Surplus - Remaining Surplus Distribution

Treatment of existing surplus

Part of the University's proposal relating to the implementation of a Defined Contribution (DC) plan deals with the existing surplus.

a) The surplus at December 31, 1999 is about $13.1 million of which $6 million has already been earmarked - $3 million for the University's two year contribution holiday and $3 million for the benefit improvements described earlier.
b) In addition, there is an investment reserve of about $9.4 million which, given reasonable investment returns on the fund, will flow into surplus over the next three years.
c) It is proposed that the University's share of both the surplus and the investment reserve is 50% for a total of about $11.25 million. This will be used for
(i) the initial 2-year contribution holiday
(ii) the establishment of 50% of a contribution reserve under the continuing DB plan
(iii) a continuation of the contribution holiday after the initial 2 year period.

It will not be used to fund a further Early Retirement Opportunity. Any such new EROs will be funded from outside the pension plan.

d) This amount, less amounts needed for c) above, will continue to earn interest at 7%. Investment returns in excess of 7% on this amount will accrue to the benefit of the members.
e) The University will have no claim on any further surplus arising under the plan.

Discussion:

With the introduction of a DC plan, the Defined Benefit (DB) plan will be closed to new members so that the average age of the existing membership will gradually increase. The costs of a DB plan increase with the age of the membership so that the current levels of contribution will not be adequate to pay for future accruals. This can be fully accounted for at the date of valuation by setting aside some of the surplus to cover the shortfall. This amount can only be determined once it is known who is staying in the DB plan but it is estimated that the total reserve will be somewhere in the range of $2 million to $3 million.

Human Resources