Universities across the country are facing a $2.6 billion shortfall in pension funding but there could be an even bigger pension crisis on the horizon.
It’s no secret that Canada’s changing demographics will lead to a decline in university enrolment and with fewer students expect fewer professors.
The problem is that pension plans require people paying in in order to pay out. In fact, most pension plans require there to be a consistently increasing number of people paying in for them to maintain payouts.
Now, I don’t know the specifics of each plan, nor do we know how much university enrolment will decline, so it’s impossible to say how bad the situation will be. But a declining number of people paying in, coupled with a increasing number of people collecting benefits can only lead to massive problems.
And there’s another factor at play here, universities are increasingly employing more lecturers and part-time contract faculty, as opposed to full-time professors. These contractors aren’t paying in to pension plans and if they are, they’re probably not paying into the same fund that’s paying out to retired professors.
Since these plans draw a significant portion of their funding from investments, if the market rebounds significantly there could be something of a reprieve but it’s doubtful that a market rebound could bring the plans back to where they need to be now, let alone where they need to be in five or 10 years.
And who is this going to hurt? Well, the next generation of professors, who are going to be paying in to pension plans that have defined contributions rather than defined payouts. In other words, they’re going to pay for the retirement of their older colleagues but not have the same benefits when they retire.
But students are going to lose out even more. Universities are already talking about cuts to pay their pension debts and we can expect even more cuts to pay for this shortsightedness.