The New University Pension Plan Ontario?

Andrew Willis of the Globe and Mail reports on Ontario’s $25-billion pension play, a new plan that tries to combine universities’ wealth:

Lawyer Gale Rubenstein has spent her career helping adversaries find common ground during some of the country’s most contentious restructurings, at Stelco, Confederation Life and Chrysler.

Now the insolvency and pensions specialist is using her negotiating skills with workers, employers and governments to try to build Canada’s next major pension fund.

The newly minted University Pension Plan Ontario, or UPP, landed Ms. Rubenstein, a partner in Toronto law firm Goodmans LLP, as its first chair and first employee in mid-November. The fund will initially oversee $10-billion on behalf of current and retired employees at the University of Toronto, Queen’s University and the University of Guelph.

In her first media interview, Ms. Rubenstein revealed larger ambitions. UPP’s goal is to eventually bring together all willing Ontario universities, which collectively have $25-billion in pension assets, distributed among 32 plans at 21 schools. UPP is hoping that by scaling up smaller public-sector funds, it can improve investment performance, better manage risk and preserve the retirement security that comes with defined benefit pension plans.

UPP is a jointly sponsored fund, with contributions from faculty associations, unionized university employees represented by the United Steelworkers and Canadian Union of Public Employees, and the three universities. Angela Hildyard, a special adviser to the Provost and President at the University of Toronto, said Ms. Rubenstein got the job because “she understands how to execute organizational change with a respectful, consensus-building approach.”

Job one for Ms. Rubenstein is to recruit a 14-person board of trustees for UPP to be announced by the end of January. The board will find a chief executive and staff. UPP is expected to start managing money on July 1, 2021. Until then, the three schools will administer the funds. Ms. Rubenstein will also be pitching the rest of Ontario’s universities to sign up, and said “other schools are already showing strong support.”

“This is an exciting initiative," Ms. Rubenstein said. “I’ve always respected the importance of defined benefit plans, and I welcome the opportunity to help build a new structure that is sustainable.”

UPP was more than a decade in the making. Alex McKinnon, Canadian research director for the United Steelworkers, said unionized workers supported the concept from the start. He said: “The catalyst for us was watching defined benefit plans disappear in many private-sector companies.”

Defined benefit pension plans, which guarantee retirement income for their members, are in decline for reasons that include their cost and the increasing mobility of workers. Many plans are also dealing with significant deficits due to prolonged low interest rates, which make it harder to meet future payments.

All of Ontario’s universities were involved in negotiations on a pooled plan over the years, and Mr. McKinnon said that “with a lot of cooks in the kitchen,” negotiations reached a point this year when the three founding universities agreed they would set the terms of the plan and invite others to join.

While UPP is a creation of Ontario’s previous Liberal government, it is being embraced by Premier Doug Ford’s Progressive Conservative administration. In its 2019 economic update, the government highlighted UPP as an example of “the government improving pension sustainability by enabling conversions to the jointly sponsored pension plan model where governance, costs and risks are shared.”

UPP is a step toward what could be a move to consolidate up to 100 Ontario public-sector pension plans, to improve investment performance and cut costs. Before entering politics and becoming federal Finance Minister, Bill Morneau was chief executive officer of benefits consulting firm Morneau Shepell Ltd., and in 2012, he wrote a report for the provincial government that estimated Ontario’s public plans could save up to $100-million annually by pooling their funds.

Beyond lower costs, Mr. Morneau said a larger asset manager can build expertise in risk management, a key attribute of successful funds and a skill that some smaller plans are missing. In the report, Mr. Morneau said: “While risk management is an important consideration at Ontario’s public-sector institutions, some organizations have neither the time nor the understanding of how to embark on or sustain appropriate risk management efforts in respect of pension assets.”

The Alberta government is also working on combining smaller public-sector plans, potentially under the umbrella of the Alberta Investment Management Corp. Quebec pools the majority of its public sector funds at the $327-billion Caisse de dépôt et placement du Québec, which was created in 1965, and B.C. takes a similar approach with the $153-billion British Columbia Investment Management Corp.

Let me first thank Joy Williams of Mantle314 for bringing this article to my attention.

I asked Jim Leech, the former President & CEO of Ontario Teachers' Pension Plan and now Chancellor of Queen's University, to share his thoughts and he graciously sent me this:

First of all, this is an exciting initiative within the pension world. Hats off to the leadership of the three Faculty Associations and the Steelworkers as well as the universities. I particularly commend the foresight shown by the leaders of the employee groups - they have done a great service to their members in securing their financial futures.

The many advantages of a well governed JSPP with risk sharing (as compared to a traditional single employer DB pension plan or a DC plan) are well known; and yet it is hard to get from here to there. The inaugural group (U of T, Queen's, Guelph, Faculty Associations and USW) have shown it is possible and through their perseverance have created a sector plan for all Ontario universities.

Other situations that I know about have been closely following UPP's gestation.

In the small role that I played over the past couple of months helping with governance at UPP, it was gratifying to see the level of interest in Board positions - in fact the headhunter was a bit overwhelmed.

The jointly selected inaugural Chair, Gale Rubenstein, was a great choice and set the level of expertise. Members will be impressed when they see the balance of the Board members - relative to other JSPPs, the Board is more "professional" than "representative". And that is critical as there is a lot to be done over the next 18 months - hire CEO/management team and determine the go forward plans for member services and asset management. All this needs to be accomplished seamlessly.

The pension industry will be following UPP closely as it represents the best path forward for existing single employer DB plans to assure sustainability.

I thank Jim for sharing this and agree with him, this is a huge step forward for Ontario's universities in providing their faculty and staff with a well governed jointly sponsored pension plan.

I would direct my readers to UPP's website here to learn more about this new pension plan.

Gale Rubenstein, UPP's inaugural chair, has her work cut out for her but she has incredible credentials and experience.

Once she recruits a 14-person board of trustees for UPP by the end of the month, they then need to pick a CEO and move on from there to build a team to manage these assets internally in the best interests of its members.

The good thing is Ontario is full of talented individuals. Jim Leech, Ron Mock, Jim Keohane, Mark Wiseman and Hugh O'Reilly are a few of the names that can serve as CEO or on this board (if they're interested). Who else? Why not bring in a lady like Nicole Musicco, the former head of Private Markets at IMCO, to head up this entity?

[See my update at the end of this comment, Ron Mock will be part of UPP's Board.]

The point is Ontario is the pension capital of Canada and staffing UPP with qualified people isn't a challenge if they got the governance right, which it seems like they did. They can then determine a competitive compensation scheme to attract talented people to UPP.

This is an exciting new pension plan and if I was working at an Ontario university, I'd demand to be part of it.

In fact, I was looking at my alma mater's pension plan and read this:

For those employees who became eligible to join the McGill Pension Plan on or after January 1, 2009, the Pension Plan is a defined contribution plan (Part B). You and the University each contribute a certain amount to the plan every pay. You choose how you wish to invest these contributions from a range of investment options provided through the plan. When the time comes to settle, you use your pension account balances to provide a retirement income.

I cringed when I read defined contribution plan and no doubt my old professors would cringe too but they're all fine, still part of the defined benefit plan which McGill mismanaged prior to the 2008 crisis.

McGill now puts out an nice Powerpoint presentation on its pension plan which is informative and I'd recommend you all skim through it but the reality is university pensions are better off uniting and pooling their massive assets together.

In this regard, I wish it was called the UPPC, the 'C' standing for Canada.

Once again, Ontario has taken the lead when it comes to pension matters. You have CAAT's DB plus, OPTrust Select, and now UPP Ontario all providing real DB solutions to their members as well as IMCO which is vying for new clients (many of which will now join UPP but others think "it's more likely UPP will enlist IMCO for asset management").

The demand for DB plans is growing and all these organizations are offering real long-term solutions.

Anyway, if your university isn't part of UPP, make sure you fight hard to be part of this new pension plan.

You can watch a video on UPP on its website here. They should put it on YouTube and ditch Vimeo.

Below, Mary Hardy, Professor of Statistics and Actuarial Science at the University of Waterloo, describes and critiques the UPP in terms of affordability, risk, fairness, and adequacy, and reviews the case for and against membership of the UPP from the perspective of UW (and Laurier) pension plan members and retirees.

Take the time to watch this, it's not exciting stuff but she raises excellent points. I respectfully disagree with some of her criticism and don't think she fully appreciates all the benefits of this new plan over the long run (she's an actuary who admits not to be an investment expert, which she clearly isn't because if she was, she would understand the benefits of scale across public and private markets).

Update: Jim Leech was kind enough to send me this document introducing UPP's board of directors. I note that Ron Mock, OTPP's just retired CEO, will be part of this board (excellent selection).