Finance Minister Blaine Higgs is ordering a review of public-sector pension plans in the province, pledging to address the volatility the plan has faced in previous years while also analyzing its fiscal sustainability going forward.
Higgs has turned to a three-person task force that was already studying private sector pensions for the provincial government in efforts to scrutinize the civil service plan.
Actuary and former Member of Parliament Paul McCrossan, lawyer Susan Rowland, and economics professor Pierre-Marcel Desjardins will ensure the pension plans “are affordable, sustainable and have secure benefits,” according to Higgs.
The finance minister said the government must ensure the plans are managed as efficiently and transparently as possible and that the group of three is best suited to conduct the review because they have already accumulated significant information on various plans and regulations.
“I assume we will look at finding cost savings,” said McCrossan, a Toronto-based actuary and former Member of Parliament who was named to the review’s task force yesterday. “The emphasis will be on the soundness of the pension plan and on the deliverability of the benefits promised.
“There is no end of pension plans in the private sector or the public sector that are having difficulty delivering the benefits that were promised, in part because they did not respond to the changes in economic circumstances.”
McCrossan said the longer life expectancy of pensioners coupled with falling interest rates need to be taken into account when considering the public pension structure’s future.
“Both those things have to be taken into account when structuring pension plans, but to my mind that doesn’t lead to the conclusion that we should eliminate defined benefit to go to defined contribution,” he said. “It does mean we have to rethink the cost structure in whatever we do.
“I will certainly look at (defined contribution plans), but I don’t think it is necessary required at all.”
New Brunswick’s public pension funds took a beating in 2008-09, with the value of the province’s investments dropping by nearly $1.7 billion amid turmoil in the financial markets. In its 2009 budget, the former Liberal government predicted that the pension shortfall would add $300 million annually to the provincial deficit until 2013.
But the pension plan that includes teachers, public servants and judges bounced back after the recent economic downturn. The provincial government ended up boosting the fund with an extra $150 million to make up for underfunding. Other public pensions still face large deficits.
In a letter to roughly 7,000 union members in August, the pension committee tasked with ensuring the viability of nurses and other unionized health-care employees in New Brunswick cited a $290-million deficit that remains as a result of declining market returns going back to 2008. The plan is one of nine provincial public-sector pensions in New Brunswick.
About 81 per cent of government workers have defined benefit plans – sometimes, derisively called ‘gold-plated’ pensions – while only 14 per cent of private industry workers have them. The Office of Human Resources says the size of New Brunswick’s public service is approximately 49,000 provincial employees, according to its most recent figures from 2009.
“Today there is no such thing as a gold-plated public service pension plan in New Brunswick,” said Gordon Black, Canadian Union of Public Employees Maritimes region director and chief negotiator, in reaction to the pension review announcement.
“The pension plans are modest and the issue is that government is convincing the public that if you work somewhere and don’t have a pension plan, nobody else should.
“Instead of trying to promote making it a government objective to have everybody covered by a workplace pension plan where they could retire with dignity and live retirement life with an income, it means the opposite is trying to be achieved by taking it away from people who have that.”
Black said CUPE will take the position with government that the plans need to be protected.
“The biggest problem with the pension plan is that there have been contribution holidays in the past where employers, and in the odd case workers, have not contributed to pension plans,” he said. “The province has taken contribution holidays that have significantly reduced the amount of money that is in the pension plan.
“The issue is that pension plans have suffered a blow that is approximately three years old and they haven’t fully recovered. The thing that must take place is that the pensions in the private sector and the public sector must be funded at 100 per cent.”
The provincial government has been adding special funding annually since the 1990s as required by legislation surrounding the pension plans. Each year, an additional lump sum is put into the plan on top of employee and employer contributions. The money is to ensure the health of the plan and the amount depends on both the economy and the expert assessments done by outside actuaries, according to the Department of Finance.
“You have got a pension fund now that is fairly mature in that the ratio of pensioners to contributors is getting close to one-to-one so that means you are more and more dependent on your investment returns,” said Rob Brown, a former professor of statistics and actuarial science at the University of Waterloo.
During last year’s election campaign, the provincial Tories pledged to undertake a full review of provincial public employee and retiree pension plans.
Among the issues to be considered during the review are:
The differences between provincial public service pension benefits and retirement provisions and those offered by private sector employers; The needs of the provincial public service to recruit and retain qualified employees with consideration given to competing employers; The need to ensure that future pension benefits are reasonable throughout the public service and how risk should be shared between the government and employees.
No timeline was set out yesterday for the task force’s work.
Charles Cirtwill, president and CEO of the Atlantic Institute for Market Studies, an economic and social policy think-tank, said the public pension review is urgent for two reasons.
“The first is that taxpayers have to foot the bill for this and so we need some certainty around what the costs are going forward,” he said. “The other reason … is because there are a lot of people who are either receiving these benefits now or are working with the expectation they’ll receive them later and there is a lot of uncertainty around New Brunswick’s capacity to meet the promises that it has made.”
Susan Rowland: A Toronto-based lawyer with expertise in pension and benefits law focused on the restructuring and funding of pension plans. Rowland has been appointed as representative counsel by the Superintendent of Financial institutions for Ontario, and has assisted in resolving the under-funding of several high-profile pension plans, including General Motors of Canada and Chrysler.
Paul McCrossan: A Toronto-based consultant and actuary who is the former president of the Canadian Institute of Actuaries. McCrossan is also a former Progressive Conservative Member of Parliament who represented the riding of York-Scarborough from 1978 to 1980. He was re-elected in the 1984 election, but was defeated four years later. He attempted to return to politics in the riding of Scarborough East in the 2000 federal election but was also defeated.
Pierre-Marcel Desjardins: An economics professor at the Université de Moncton since 1990. Desjardins is also researcher at that Canadian Institute for Research on Public Policy and Public Administration. He is the vice-president of the Fédération des caisses populaires acadiennes, and the executive director of the Canadian Regional Science Association. He is also one of the authors of the Tories’ energy report that recommended a three-year rate freeze at NB Power.