Trinity has for more than a decade declined to act on warnings that it could be on the hook for millions in employee pension payments, insisting the state is liable for the retirement packages.
For more than 10 years, KPMG, the company that audits the College’s accounts, has been advising Trinity that the state has no legislative obligation to pay the pensions of employees hired between February 2005 and December 2012.
If true, the warning could have major financial consequences for Trinity – well into the hundreds of millions, according to estimates by KPMG, which has been auditing the accounts for at least a decade.
Trinity, for its part, argues that the government is effectively liable for the pension costs, pointing to years of discussions between stakeholders in the higher education sector as evidence that the government will cover the cost.
In an email statement to The University Times, Trinity Media Relations Officer Catherine O’Mahony, said the state had a “de-facto obligation” based on “discussions held between the sector, the HEA and the Government” which “would guarantee all retirement benefit liabilities of the University”.
The disparity between the two positions arises from a legislative curiosity that means the state has not technically been liable for certain pension payments since 2005, when a new system of retirement payments came into effect.
Staff hired before 2005 were covered by a retirement system called the master pension scheme, which the government was obliged to fund under the Financial Measures Act, 2009.
But staff hired between 2005 and 2012 fall under a different pension structure, known as the model pension scheme. The Financial Measures Act does not apply to this system, meaning it’s unclear who’s technically obliged to pay the pensions of employees who got their jobs in that period.
Since at least 2010, KPMG has been warning College not to operate on the assumption that the government will cover the pension costs.
In the audit section of Trinity’s 2019/20 financial statement, the firm said that “no formal obligation, underpinned by legislation, in relation to the Model Pension Scheme and Pension Supplementation was accepted by the State as of 30 September 2020”.
Under both the model and master scheme, retirees are entitled to pension and lump sum upon retirement. These payments are based on a person’s “pensionable service” which is capped at 40 years of employment as well as pensionable pay at the time of retirement.
In every financial statement since 2009/10, Trinity has included a “receivable asset”, which means College considers itself indebted by the government, therefore not declaring a loss for the funds not paid into the master scheme.
In the 2019/20 statement, KPMG outlined its view that this receivable asset, net assets, income and financial reserves “should be reduced by €675,611,000” for the year 2020 and should be “restated to a loss of €3,867,000”.
For the 2018/19 financial year, KPMG said the same accounts “should be reduced by €702,640,000” and “should be restated to a loss of €78,672,000”.
These figures, which are only for two years, do not include all the years since 2012 when the pension scheme closed for new employees. Therefore, the funds required to maintain the scheme are likely significantly larger.
According to minutes of a College Board meeting on March 24th of this year, Deputy Chief Financial Officer Louise Ryan said that funding for the master pension scheme, which is legally covered by the government, had fallen “below required levels to meet annual payments”.
On the model pension scheme, an unnamed Board member said that the “primary obligation to meet the liability could rest with the University”.
KPMG also audits University College Dublin’s financial statements and believes the same is true for its model and pension supplementation schemes.
KPMG partner Cliona Mullen, who is directly involved in the financial audits of Trinity’s accounts, declined to speak to The University Times.
In an email statement to this newspaper, O’Mahony called KPMG’s classification a “threshold of virtual certainty”, which “in their view can only be provided by written guarantee through legislation”.
Key College stakeholders, including the European Investment Bank, are satisfied with Trinity’s assumption that the state will pay for the pensions, despite the lack of a legal guarantee.
O’Mahony said that currently “model scheme contributions significantly exceed payment obligations and there are no short-term funding concerns”. She concluded that “employees’ pensions are not at risk”.
In the 2019/20 financial year, Trinity reported a deficit of €25.6 million after running surpluses for the previous two years.
In last year’s financial statement, College largely attributed the losses to the coronavirus pandemic, which it said has “had a significant impact on the University’s non-exchequer revenue streams during the year, particularly in relation to commercial income”.
While income from academic fees increased by €10.6 million and research income decreased by €2.1 million, “other” income decreased by €22.9 million “driven mainly by the impact of COVID-19 on Trinity’s commercial revenues”.
In the previous two years, the College reported surpluses of €5.7 and €0.9 million respectively.
The report added: “We have been able to partially mitigate these losses through prudent management of the University finances and with a strong focus on control of operating costs.”
Additionally, Trinity did not see a significant decrease in registrations, which some initially predicted might take place for the university sector as a result of students choosing to delay further education until after the pandemic.
The College’s annual earnings before interest, tax, depreciation, and amortisation amounted to €8.6 million, a 38 per cent decrease year on year from €13.8 million in 2018/19.
The report called for increased government investment in Trinity in order to fully recover from the pandemic as well as to make up for historical underfunding.
“While Government supports for COVID impacts in 2020 were greatly welcomed, significant additional funding will be required to address the shortfall in public funding per student and to meet anticipated growth in demographic and participation rates.”
In an email statement to The University Times in May of this year, O’Mahony, said: “The COVID-19 pandemic had an impact on College revenues in the 2019/20 year. Non-exchequer income streams, particularly commercial revenues, fell.”
“‘Other income’ which includes commercial revenue fell by €23 million.”
“However we have been able to partially mitigate these losses through cost control and other measures and we are confident that Trinity is well positioned to emerge strongly from this crisis”, she added.
