Like the peace of mind employees at many public sector organizations enjoy, defined benefit pension plans at universities provide faculty and staff with stable retirement security. However, administering defined benefit single-employer pension plans (SEPP) presents governance complexities for university boards, ranging from long-term financial sustainability, risk management obligations, and regulatory compliance to geopolitical and stakeholder considerations. This article, which focuses on recent developments in Ontario, examines governance issues and explores how transitioning to a multi-employer, jointly sponsored pension plan (JSPP) could alleviate them.

Intricacies of Pension Plan Administration on University Governance

Sound governance oversight of university pension plans is critical to safeguarding the rights of beneficiaries and fulfilling regulatory requirements. The Canadian Association of Pension Supervisory Authorities (CAPSA) guidelines outline governance best practices that set expectations regarding fiduciary duty, standard of care, enhanced risk management and legislative compliance. Furthermore, pension regulators across the country impose obligations on universities to prudently manage investment, funding, and legal risks and to exercise decision-making in the best interest of plan beneficiaries. Effective risk management is crucial for the financial sustainability of a university pension plan. To balance long-term liabilities with investment strategies that generate sufficient returns to meet future obligations, university boards must consider key financial risks such as market volatility, interest rate fluctuations, and inflation. Longer life expectancies also place additional pressure on universities as they must ensure the SEPP is funded.

In Ontario, the Pension Benefits Act prescribes fiduciary duties and minimum standards that pension plan administrators are subject to. Therefore, university boards must demonstrate an ability to exercise the duty of care and to manage conflicts of interest. This can be particularly delicate for university boards as they include representatives from constituency groups who are plan members. While a representative board, which comprises independent members, faculty, staff, alumni and students, offers a diversity of perspectives relating to university operations, the lack of awareness of the pension landscape could pose a governance risk. While some institutions have attempted to fill this gap by co-opting community members with investment expertise to serve on pension committees, boards remain accountable as they cannot abdicate their fiduciary duty. University boards should include members with the right skills to ensure prudent decision-making and adequate oversight of pension assets.

Long-Term Impact of Pension Costs on University Budgets

One significant concern facing universities with SEPP is the potential financial impact on their budgets. For Ontario universities, the combined accrued benefit obligations for SEPPs exceed $13 billion. When pension costs rise, boards may need to divert funds from academic programs, student services, research operations, infrastructure projects, and other institutional priorities. Further, the requirement to make special payments to fund pension shortfalls due to market volatility and interest rate fluctuation could affect credit ratings, making it more expensive to borrow funds for much-needed capital projects to address aging infrastructure. A conflict arises when a board is unable to navigate its parallel fiduciary obligations to act in the university's interest and the best interests of plan beneficiaries. Universities already face near-term financial challenges which could have long-lasting implications. The Council of Ontario Universities predicts universities across the province are projecting financial losses of more than $1 billion over the next two years due to the changes to international student permits while ten universities anticipate an additional $300 million in deficits due to higher inflationary pressures.

Political Pressures and the Case for Independent Governance

Universities increasingly face social and political pressures from students, faculty, and other stakeholders to divest from industries such as fossil fuels or arms manufacturing. While these calls reflect important viewpoints, they can conflict with the fiduciary duty of pension plan administrators, who are legally obligated to act in the best financial interests of plan members. When university boards are urged to influence pension investment decisions based on external pressures, it can expose the institution to regulatory non-compliance and legal risk. These situations also divert attention from the board’s broader strategic responsibilities. By contrast, a Jointly Sponsored Pension Plan (JSPP) offers a governance structure that is independent and purpose-built, allowing pension decisions to be made by a fiduciary board focused solely on long-term sustainability, shielded from institutional or political influence.

The Case for JSPPs

Public sector employers such as universities and colleges that participate in JSPPs benefit from shared governance, dedicated pension management, and economies of scale. Universities administering SEPPs face growing administrative burdens related to complex pension regulations and reporting requirements, often requiring additional resources and expertise. For universities that struggle with the increasing complexity of managing SEPPs, transitioning to a JSPP presents an alternative. A college system JSPP, the Colleges of Applied Arts and Technology Pension Plan (CAAT) has existed in Ontario since 1967. In 2021, the University Pension Plan Ontario (UPP) was created and as of December 31, 2023 manages over $11 billion in pension assets for five universities in addition to 14 sector organizations. Victoria University was the latest to join the UPP, becoming a participating employer in January 2025.

Common considerations for institutions choosing to join UPP include: 

• Risk pooling as combining pension assets can enable higher investment returns and mitigate against market volatility,
• Long-term financial sustainability by reducing pressure on university budgets, and
• Operational efficiencies by freeing up resources for other priorities and cutting administrative costs.

Considerations in Transitioning to a JSPP

Transitioning to a JSPP requires due diligence, careful planning, robust stakeholder engagement and regulatory approval. Key steps include:

• Working with faculty and staff unions to seek the support of their members,
• Engaging with retirees and non-unionized employees,
• Determining transition costs such as onboarding fees, initial investments, and higher employee contribution offsets,
• Negotiating participation and transfer agreements with the joint sponsors and plan administrator, and
• Obtaining the approval of the regulator under provincial pension regulations.

While these steps may seem onerous, many university administrators view JSPPs as a viable long-term alternative to addressing governance and financial risks associated with administering a defined benefit SEPP.

Looking Ahead

The governance of defined benefit SEPPs has become increasingly complex given enhanced regulatory requirements designed to safeguard the rights of beneficiaries. Given emerging risks relating to financial sustainability, geopolitical and economic challenges and the pressures to identify administrative efficiencies, maintaining a defined benefit SEPP may be untenable for many universities. By transitioning to a JSPP, boards could achieve long-term financial health for their institution and ensure the retirement security of faculty, staff and retirees are safeguarded. Moreover, boards would be relieving universities from the risks and burdens of pension plan administration.

For universities staying the course, here are several tips on sound governance and effective board oversight of a SEPP:

• Provide board members with clarity on their fiduciary obligations and duty of care to plan beneficiaries,
• Understand the dual role of plan sponsor and plan administrator,
• Include pension and investment expertise in the board skills matrix,
• Develop clear terms of reference on the purpose of the pensions committee in providing risk and investment oversight, and
• Offer regular training sessions on the pension landscape, strategic risk considerations and regulatory compliance requirements.

To deliver on the pension promise to faculty and staff, university boards and administrators must navigate the complex governance challenges, regulatory requirements, and key risks. As the bar for pension oversight continues to rise, universities should critically evaluate whether maintaining a defined benefit SEPP is viable or if transitioning to a JSPP offers a more stable, efficient and sustainable path for the institution.

Dr. Ken Chan, Partner at Optimus SBR and former Chief Administrative Officer at Victoria University and Vice President of Administration at Brock University

Dr. Ken Chan is a Partner at Optimus SBR, where he leads the health, government and public sector consulting practice. He previously served as Chief Administrative Officer at Victoria University and Vice President, Administration at Brock University, where his portfolio included administration of the institutions’ pension plans. He also worked on the transfer of the Victoria University General Pension Plan to the University Pension Plan Ontario. He is a former Assistant Deputy Minister in the Ontario Government. Dr. Chan has an Executive PhD from ESCP Business School and a Master of Forensic Accounting from the University of Toronto. He holds the ICD.D designation and serves on the boards of Alterna Savings, Alterna Bank and the Canadian Air Transport Security Authority.