The University of Manitoba ( the University) has recently sent
an information letter to you indicating that they are applying for
funding relief on a solvency basis under the Pension Benefits Act
Special Regulation 141/2007. Solvency (see Note 1)  is one of two
tests required by pension legislation when conducting a valuation of a
pension plan. As part of their obligation when filing for solvency
relief they must notify the plan members of the election. Given the
complexity of the information and the fact that AESES was not consulted
regarding the communication, we felt it necessary to provide additional
information to ensure the members of AESES are informed on the issues
presented by the University. The solvency relief will exempt the
University from funding millions of additional dollars into the pension
plan at this time. The University will be reducing its current solvency
contribution requirements while simultaneously proposing that the
employee contributions be increased and/or pension benefits be reduced.
In essence, the University is seeking to transfer a greater portion of
the cost of the pension plan from the employer to its employees.

Separately, discussions have occurred on the second measurement of the
financial health of the pension plan known as the going concern (see
Note 2) basis. Since the fall of 2008 the Staff Benefits Committee has
met on a monthly basis to discuss many issues but primarily items
relating to the pension plan. As part of these discussions the
University has had its actuary provide the committee with a mortality
study, some details on the changes to the pension plan assumptions, and
currently has provided a series of options to reduce or eliminate the
ongoing funding concerns raised by the University. These options
include reducing future benefits, increasing future contribution rates
by both employee and employer, or a combination of both have been
proposed. As noted above, the University is seeking to reduce its costs
by transferring a greater portion of the cost of the pension plan from
the University to the employees. Although the University is eliminating
its solvency costs using the argument that it is an unnecessary and
artificial funding requirement, it is taking the opposite approach on a
going concern basis by asking the employees to contribute more and/or
reduce their pension benefits. The two approaches are in conflict.

Currently, we have not seen the final funding details for the pension
plan (only estimates). We expect to have more precise information after
the discussion between the University’s actuary and AESES and UMFA’s
actuaries in May. This will provide us a more accurate understanding of
the pension plan’s current funding situation.

The following additional points should serve to clarify some of the communication provided by the University;

1. The actuary used by the University is not independent but is hired by and works for the University.

2. Although the University has suggested that the pension plan is
extremely generous and expensive, they have not provided any evidence
to suggest that the cost of this pension plan is substantially
different than other public sector pension plans. In addition, the
suggestion that the retiree provisions are generous in the absence of
guaranteed COLA provisions for retirees or access to full defined
benefit pension prior to the normal retirement age of 65 is not an
accurate assessment of the plan’s competitiveness with other pension
plans.

3.   In prior years the plan surplus has been used to fund
current service shortfalls (see Note 3) when the pension plan was fully
funded. In essence the University has been taking contribution holidays
(see Note 4) for years.  The resulting effect is a reduction in
funds available for both the solvency and going concern valuations of
the plan. In fact the plan was fully funded as of December 31, 2007 on
a going concern basis and had a small deficit on a solvency basis.

4. The recent changes to the pension plan assumptions for mortality
(improved life expectancy) have created nearly $30 million in
additional funding requirements. We have consulted our actuary
regarding these mortality assumptions and are of the opinion that they
are overly conservative for our members and should be
re-evaluated.  Perhaps of greater concern is the fact that the new
mortality assumptions and interest rates to convert the accumulated
contributions into possible retirement pensions have effectively
eliminated the hybrid nature of the plan so that the defined benefit
floor pension calculation dominates. As a result, pensions have fallen
significantly in the last two years by as much as 30% for some
individuals.

5. The University indicates that the pension regulation filing will
assist them in meeting their financial obligations and will prevent the
need for deep benefit cuts. It is important for you to understand that
accrued pension benefits (see Note 5) are protected by legislation and
that any proposed changes to the pension plan would be on a go forward
basis. In addition to the legislation, the current pension plan text
requires any funding shortfall to be paid by the University.

In the short term AESES continues to work with our advisors and the
other unions through the Staff Benefits Committee on the pension issues
and will continue to provide the membership with information and if
necessary we will hold information meetings in the future with the
membership.

Sincerely

Tom Moyle

President

______________________________________________________________________________

    Note 1:    Solvency is one of the two
forms of funding tests required to meet pension regulations. The
Solvency test measures the cost of pension liabilities based on the
assumption that the plan was wound up on the date of the valuation.
  

    Note 2:    Going Concern test
estimates the present and future cost of benefits for all existing
members of the pension plan projected forward in time.  Some of
the key factors considered are life expectancy (mortality), age of
retirement, investment returns and projected salary increases.

    Note 3:    Current Service Shortfall
exists when the cost of pensions is greater than the amount of
contributions being paid into the pension plan measured on an annual
basis. 

    Note 4:    Contribution Holidays are
when the employer uses pension plan surplus to fund ongoing pension
obligations created by a current service shortfall or in cases where
the pension fund has reached the maximum surplus levels permitted by
legislation (10 % currently).

    Note 5:    Accrued Pension Benefit is
the amount of pension earned by a member within the pension plan based
on a calculation using their years of service and some measure of their
earnings (eg. Best five years wages).