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Retirees and the proposed changes to the PSSA Plan

(note: translations will be posted as they become available)

To be accurate, what will be taking place is a repeal of the PSSA and the introduction of a Shared Risk Pension Plan (SRPP) covering employees and pensioners outside of New Brunswick Legislation.

Our ad hoc committee has worked to understand this (possible) transition, and have determined:

-          This will, in effect, remove the Province as the guarantor and as the Governor. 

-          The new governor will be an arm’s length Board of Governors, a sole Governor or a non-profit corporation. 

-          The promised benefits will no longer have a “guarantee.”

Other changes will have to be made as well, such as contributions may marginally increase and promised benefit levels will be reduced for future retirees.

For example, the new plan will contain conditional indexing.  When the annual actuarial valuation determines indexing can be paid it will be paid – this for both active and retiree benefits.

Similarly, if there is another significant financial downturn (say 2008 or worse) benefits accrued/accumulated to date may be reduced, thereby decreasing the pensioners' “base benefit.”  This base benefit is the monthly amount of pension being paid to a pensioner on the conversion to a SRPP.

There will be significant changes to benefits accruing to active employees, one example of which is there will be no guaranteed indexation on the pension when it enters into course of payment.  Additionally the age of entitlement for reduced and unreduced benefits will likely increase, actuarial penalties on early retirement will increase and the actual pension calculation will be based on career earnings as opposed to final earnings.

If the plan can afford it, escalation will happen each year and pensioners will receive escalation and the active employees “base benefit” will be escalated and each year’s accrued benefit will be escalated.

Our review has generated these thoughts and/or concerns:

We realize there will be a myriad of procedures laid out in a policy document (investment and/or funding policy) and adopted by the governor as to how reductions/increases will take place. As well, how and when will the plan be able to afford benefits be reinstated. 

(Here is one example: CUPE expects the benefit rate to be increased to 1.4% from 1.3% for salary below YMPE and for more casuals/part timers to be admitted to the SRPP as happened with the hospital plans.  Perhaps the unions will also receive protection of their retirement allowance and sick leave provisions as well, which occurred in the hospital sector.)

The new governance structure will add greatly to the administrative expense of the plan, what with the lawyers, annual as opposed to tri-annual valuations and costs associated with the new governors.  Presumably all to be charged to the pension fund.  There is a great unknown as to what will transpire with respect to investment of the pension fund, currently a role mandated to the New Brunswick Investment Management Corporation  - will the new governors change this?  There has been a lack of discussion with respect to investment approach, publically at least, but then a lot is missing from any public disclosure.

For instance, the question has been asked of the actuary, publically, what the costing showed if the current retiree benefits were left unchanged.  He declined to answer stating that, that question, would have to be answered by a member of the Task Force.   Did the Solicitor General produce a legal opinion on changing retirees’ benefits under the PSSA or in accordance with numerous Early Retirement Programs, where employees were encouraged and enticed to retire?

In general, our understanding of the proposed SRPP effectively creates a defined contribution plan for government where they pay their contribution and are done.  As for the shared risk, the government has none, which we can see, except to share the required contribution to a point, and then benefits will be reduced – risk to the employee, none to the employer.

We question the actuarial wizardry which forecasts 97.5 times out of 100 base benefits will be unaffected and escalation to the level of 75% of CPI will be granted. While we are missing “the numbers and assumptions”, this does not prevent the Minister of Finance, the actuary and the Chair of the Task Force from advancing differing numbers and mentioning going concern valuations, accounting valuations and solvency valuations.

It may be worth remembering it is these same actuaries that got us into this situation. The drive to change the PSSA to an SRPP is attributed to the provincial government deficit and debt, and the fact that people are living longer.  The UK and Europe were aware of these developments over a decade ago when they began increasing the retirement age under state retirement programs.

However they implemented strategy without clawing back benefits from existing pensioners.

Although we recognize the province must take action to address fiscal problems we believe it is definitely not in their best interest of the Province to renege on bona fide arrangements with their former employees.

From our perspective we demand the respect we are entitled to  our current pensions that are:

  • Guaranteed by the Province (no reduction in base benefit);
  • Governed by the Minister of Finance or the New Brunswick Legislature; and
  • Escalated annually to the current provisions of the PSSA (maximum of 5% or 6% as applicable)