UniSuper’s defined benefit dilemma

The liabilities of the $11.3 billion defined benefit division of UniSuper are significantly greater than its assets if all 81,000 members of the scheme sought to withdraw all their money at the same time.

But UniSuper says it is unrealistic to assume all members of its defined benefit division would withdraw all their money on the same day.

On a more realistic measure the fund’s assets almost cover its liabilities, says UniSuper, whose members work in higher education and research.

UniSuper says as of December 12, 2011, using the vested benefits index estimate, the defined benefit division’s assets covered 86.9 per cent of its liabilities. The vested benefits index is the measure UniSuper must report to the Australian Prudential Regulation Authority.

APRA declined to comment on UniSuper. A defined benefit plan is generally defined as one that an employer promises a specified monthly benefit on retirement.

Under the accrued benefits index, as of December 12, the defined benefit division’s assets covered 98.1 per cent of its liabilities.

This measurement is what the trustees of UniSuper believe is “most relevant”.

It “reflects the expected pattern of members actually joining, contributing to and leaving the fund, against the assets required to ensure that all members’ benefits are available when they fall due,” says UniSuper in an email to I&T News.

UniSuper’s defined benefit division’s assets have suffered as global asset prices have swooned. The MSCI World Index dropped 9.4 per cent between January 1 and December 13 this year.

UniSuper’s board in 2009 invoked Clause 34 of the Trust Deed and is monitoring the defined benefit division. In 2013 if the assets of the defined benefit division don’t cover its liabilities, UniSuper’s board may decide to reduce benefits to members.

“I imagine there will be a lot of angry members if there are to be cuts to benefits,” says Mike Rafferty, academic staff representative, UniSuper consultative committee.

Questions about UniSuper’s defined benefit division’s ability to cover its liabilities were first raised by the Australian Broadcasting Corp.

About 17 per cent of a person’s salary goes into UniSuper’s defined benefit scheme, according to Rafferty.

“There are plenty of options apart from reducing benefits but it will require people to put their thinking hats on,” he says.

If the government wished to fix UniSuper’s unfunded liabilities the Future Fund, or a Future Fund-like fund, could assume some of the liabilities, says Rafferty.

UniSuper has about 450,000 members and manages about $30 billion.