Jim Rule has some poignant questions to ask the Academic and Administrative Staff Joint Pension Board at The University of Western Ontario about the impact the economic crisis will have on his retirement plans.
Rule, of the Faculty of Education, was among the 200-250 employees who attended two member meetings in December to discuss Western’s response to the market turmoil.
Western academic and administrative employees contribute a percentage of their pay each month to a pension plan and the university also contributes towards the plan. Members can invest their contributions into 15 different investment options that cover three broad asset classes: money market, fixed income and equities.
The pension plan member meetings were scheduled to discuss the state of these investments, many of which have plunged in value.
“My main concern is how long does this depressed market continue and at what point do you cash it?” says Rule. “How long do you wait it out?”
Working at Western is a second career for Rule. “I have the luxury of not relying on it (pension) totally,” he says, adding he has worked at Western for 10 years.
Although it may be a few years before he retires, Rule is still concerned about how much will be left in his pension when the time comes.
“How do I redirect my funds so I don’t lose so much?” he says. “I think they (pension board) do a good job. It’s just a bad scene right now.”
The question of how to ease the blow of the fluctuating investment market was on everyone’s mind.
A Faculty of Science staff member, who asked not to be identified, says she is “worried” about her pension funds.
“I just want to get an update on the current economic situation. I’m worried,” she says, adding she hoped to gain some reassurance from the meeting.
Although the market situation looks troubling, Martin Belanger, Associate Director, Retirement Plans, says the challenges are not new and the market is expected to bounce back.
“Even though the current crisis is unprecedented, we have been here before … at the end of the day, the stock markets have rebounded,” he says.
Like everywhere else, Western’s pension plans have been impacted by the current market crisis, he says.
Most employees who attended the meeting expressed concerns about how to handle their investments in the wake of this reality, says Belanger.
“The main concern that members have at this point is they want to know what they should do considering the current crisis. Should I get out of equities? Should I buy more because they’re cheap?” he says.
But in spite of what he describes as “fear and irrationality” in the fixed income and equity markets at the moment, Belanger urges members to “not act emotionally but try to make educated and informed decisions.”
“The pension plans money is managed by high-quality external investment managers who have maintained their disciplined investment process through this crisis, which positions them to do well when the market turns around,” he says.
The current financial situation will impact investors differently depending on which options they have chosen, he says. Those who have a larger component of their pension account invested in equities will feel a greater impact than members with a smaller exposure to equities.
Western equity funds were down 13-29 per cent in September and October and fixed income funds also posted negative returns, says Belanger. Although the pension plans are exposed to these “depressed” and undervalued assets, they are positioned to do well when the market improves, he adds.
A Schulich School of Medicine and Dentistry employee, who asked not to be identified, is concerned about the market fluctuations and what this might mean for his retirement next summer. With only a few months to go, he plans to stay his investment course.
“I’m sitting tight for the next six months,” he says. “It’s so difficult when things are so fluid to know what they will settle on. Once they settle, I’ll have a better idea of what the picture is.”
But Belanger says those near retirement are no more at risk.
“The impact of the crisis on a member’s pension is not related to the number of years you have before retirement, but to your investment decisions,” he says.
In response to the market turmoil, the pension board performed an in-depth review of the money market fund; reviewed its securities lending program; rebalanced the portfolios to their target asset mix; increased communications with its external portfolio managers to better understand their decisions; and researched and designed communication material for pension plan members. These measures, among many other strategies already in place, were taken to minimize the impact on pension plan members.
Members with concerns about their pension plans are encouraged to contact Cara Dakin or Holly Scanlon (ext. 82194), both full-time pension consultants, to set up a one-on-one meeting to discuss their investments. Group orientation sessions for new members or those near retirement are also available.
Information about rates of returns, description of investment options and market updates is posted on the Human Resources website at www.uwo.ca/humanresources.
Online pension statements are normally updated on the 20th of the month to reflect the balance at the end of the preceding month.
ABCP restructuring near completion
The restructuring of asset-backed commercial paper (ABCP) investments is expected to close in January.
Martin Belanger, Associate Director, Retirement Plans for the Members of the Academic and Administrative Staff Pension Board, says the The Pan-Canadian Investors Committee announced on Dec. 12 the restructuring process, which involves exchanging the ABCP for floating-rate notes with a maturity similar to that of the ABCP underlying assets, began Dec. 19 and will close in January.
The investors committee has been working for more than a year to restructure these notes with many delays.
ABCP are short-term investments, typically less than 90 days, which stopped trading in August 2007 because investors were afraid of exposure to subprime mortgages in the United States.
Members of the pension plans who held units of the Balanced Income Fund, the Balanced Growth Fund, the Diversified Equity Fund, the U.S. Equity Hedged Fund and the U.S. Equity Unhedged Fund as of Aug. 31, 2007 are exposed to ABCP, says Belanger.
At that time, the amount exposed to ABCP was $26.3 million out of total assets of $1.2 billion, or about two per cent of the pension plan assets.
“Since the Diversified Equity Fund and the Balanced Funds are very popular options among our members, most of our members are exposed to ABCP to some extent,” he says. “The good news is that the ABCP exposure is spread among the members and no individual member holds most of his or her assets in ABCP.”
Belanger says there is partial redemption restrictions imposed on those funds exposed to ABCP. When a member makes a redemption from one of the five restricted funds, the portion exposed to ABCP is transferred to a special trust they will have access to when the restructuring is complete.