Want lower tuition? Ask your profs about $97,000 pensions.

Runaway compensation is hurting students

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Tania Liu/Flickr

Photo by Tania Liu on Flickr

When students across the country united for the Canadian Federation of Students’ National Day of Action to protest tuition fees on Feb. 1, tiny Brandon University’s student union did their part.

They gathered students, foisted placards and yelled into a megaphone. The message was clear.

Drop fees. Drop fees. Drop fees.

It seems strange then, that last fall when the Brandon University Faculty Association went on strike for the second time in three years, the student union wasn’t so bothered about being asked to pay more for their professors— who make up most of the university’s costs.

Nope. The student union supported the 45-day strike.

Brandon University’s faculty got their raises—8.5 per cent or more over four years. By my calculation, the average salary of tenured profs will rise from $89,000 to approximately $97,000.

All this at a time when Brandon is scrambling to pay for its previous promises. Its pension plan has an unfunded liability of at least $22 million—a gap that equates to $10,000 per Brandon student.

No wonder the university is planning a 10 per cent across-the-board cut over the next three years.

Of course, we shouldn’t be surprised that Brandon’s student union supports ever-increasing faculty compensation. “Solidarity” with labour unions is tradition, as this student reporter pointed out.

But students everywhere should take a closer look at compensation next time they look at their tuition bills or wonder why the roof is leaking in their 900-person Calculus class.

What they’ll find is that compensation at Canadian universities is out of control.

We all know tuition is rising. It grew from $4,960 in 2005 to $6,316 in 2010 in Ontario. That’s 27 per cent in five years. Contrary to popular belief, government funding per student has been steady.

Over that period, the 27 per cent increase didn’t buy students many new labs or teachers.

In fact, 70 per cent of new spending on campus went to salaries and pensions “largely for existing full-time academic faculty and administrators,” says the Ontario University Student Alliance.

That’s right students. Tuition is rising mainly because professors keep getting more expensive.

Meanwhile, buildings are falling down, lectures are becoming so big that they’re nearly pointless, and it’s now common to graduate into our shaky job market with $40,000 in debt.

But you ain’t seen nothing yet.

Brandon isn’t the only university that hasn’t kept its pension plan funded. A report out this week, shared with the Financial Post, shows that unfunded pension liabilities at the 13 universities tracked by DBRS have grown from $680-million in 2008-09 to $3.2-billion in 2011.

To break that down on a per-student basis, universities owe their pension plans $20,906 per student at the University of Toronto, $16,360 per student at Queen’s and $10,687 at the University of Guelph (which, by the way, had its DBRS credit-rating lowered because of the pension problem).

Bill Tufts, author of Pension Ponzi, says that 2012 will be the year when generally accepted accounting rules force them to catch up. But there are only a few ways to do so—all of them painful.

Universities already brushed off the problem once when they blamed the sudden drop in the stock market in 2008 and were allowed to under-fund plans for longer than usual. But since the market recovery in 2010, the amount they owe to the future has, if anything, increased.

It’s proof of the real culprit, says Tufts: “rapidly expanding compensation plans paid to professors.”

It’s easy to see how. Salaries average $106,000 for full-time professors in Canada—$139,000 for full-time tenured professors in Ontario. That’s more than what 95 per cent of Canadians make.

Professors tell you they deserve it—and if you don’t pay them six figures, they threaten to move to private sector jobs. But the idea that the grass is greener at private firms is wrong. OUSA reports that earnings are no better for science and engineering PhDs in the private sector. For humanities and social sciences professors, salaries are often worse—unemployment is usually higher.

Besides, professors are too smart to give up their student and taxpayer-funded pensions for the risky private sector, where such sweet deals are extremely rare.

Profs can often retire with 70 per cent of their final salaries after 35 years of work, says Tufts. That’s after contributing as little as four per cent of their pay to the plans (on average 5.5 per cent).

Let me illustrate the largesse. Though $139,000 is the average pay for a tenured prof in Ontario, rather than the final-year pay most pension plans are based on, let’s be conservative and use that in our calculation. A 60-year-old professor who started working when she was 25 could retire today (two years before the average Canadian) and collect $97,000 a year for the rest of her life.

The Occupy Movement should take note. If there was ever a symbol of the “one per cent” it’s professors. Ironic then, that so many took time off from research to hoist microphones last fall.

Of course, not all the people students call “professor” are rolling in dough. The runaway pensions and salaries have forced universities to stop hiring new staff. Where no more students can be stuffed in a room, sessionals and adjuncts are called in to toil away without job security. A new report suggests these tenure-less “serfs” now comprise 70 per cent of teachers in the U.S.

Adjuncts and sessionals deserve a better deal. But there’s not much left after negotiations with faculty associations. Profs generally get off easy. Management rarely drives a hard bargain.

“They’re dealing with employees and faculty who are their life-long friends,” explains Tufts.

More importantly, he says “administrators are very reluctant to change pension plans, because the people sitting on the management teams themselves are getting the same pension compensation.”

Or, even better compensation. Management would look hypocritical if they criticized professors’ compensation. The average salary of presidents and vice-presidents grew 4.5 per cent per year between 2005 and 2010 in Ontario to more than $260,000. Just imagine what kind of pensions they’ve got banked.

Politicians could step in, but won’t. They too are set to inherit lucrative taxpayer-funded pensions.

But clearly, something’s got to give.

It may soon in Halifax. After the recession, Dalhousie was given until 2013 to build their pension plan back up to the legally-required level. Since then, the unfunded liability has reached $270 million. Dal will be expected to find $50 million per year to fund their obligations starting in 2013.

That simply can’t happen. It would require a 15 per cent cut to non-pension budgets. “I’m almost at a loss for words as to how we’d address that,” said Ken Burt, Dal’s vice-president of finance and administration, in a recent update on pensions. “The consequences would be dramatic.”

So what now?

Tufts says universities expect taxpayers—most of whom could only dream of pensions half the size of what professors, administrators and politician are getting—to make up the difference.

But taxpayers can’t afford it. Ontario is unable to pay off its out-of-control debt and is facing painful cuts. Nova Scotia cut universities’ budgets by four per cent last year and three per cent in 2012.

The only hope is for universities—professors, management, janitors and student unions alike—to start living in the real world. University employees need to step up and start paying their shares.

That could be done by moving to defined contributions, where pensions are based on how much investments actually earn, rather than a guaranteed amount of money that may or may not exist. That’s the norm in the private sector. It’s also the norm at McGill and Western universities.

Another option is for university employees to contribute a heck of a lot more than the 5.5 per cent they typically pay while working. Sure, those who’ve already retired will get away with paying less than their shares, but the gap won’t need to be closed on the backs of students or taxpayers.

What’s most likely to happen is, well, more of the same.

Management, with their fat compensation, will continue negotiating fat compensation with faculty, while politicians hold their tongues so that taxpayers don’t go after their fat compensation next.

But if nothing changes, it’s students who will suffer. Tuition will continue to rise, student debt will continue to climb, and one day there will be no money left for things like lectures and labs.

Now that, to me, is something worth protesting about.

Next time, how about a National Day of Action on Pension Reform instead?

Don’t forget to follow @JoshDehaas, @maconcampus and @macleansmag on Twitter.