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The Province Should Obey the Law

- by Paul Blanchet, lawyer, retired from the Office of the Attorney General,  member of the Pension Coalition

We see from the newspapers that Mr. Higgs continues to say that his proposed “conversion” of the pension plan of retired former civil service employees to what he euphemistically calls a “shared risk” plan is “legal”. Interestingly, the meaning of the word “conversion” in a dictionary of legal terms is “theft”.

He wants to get the pension plan “off the books”, ie he wants to rid the Province of its present legal obligations under the plan, particularly the requirement to make annual payments to “top up” the plan, which has now been found to be “in deficit”.

It should first be observed that the expression “shared risk” is misleading. It seems that in only very limited (and hitherto unexplained) circumstances will the Province share any risk whatsoever. For all practical purposes, all investment risk will be taken by the employees/retirees. The Province will make its annual contributions, and little if anything more.

Next, the alleged deficit seems contrived. A year or so ago, the pension plan under the Public Service Superannuation Act was in surplus. The present alleged deficit is, we are told, the result of an actuarial report (which has not been produced). An actuarial report is merely an estimate. The latest report is apparently based on, among other things, present day investment returns. You do not require an actuary to realize that if you could previously put money out at 4%, and can now only get 2%, it would require twice as much capital to produce the same return. Interest rates are now at nearly an all time low, and will not remain at present levels for the next 70 years. An estimate for the long term based on present interest rates is not realistic. It seems doubtful that our pension plan is in any realistic danger. This is just an opportunity for the Province to shed its present obligations under the plan.

Pension money is of necessity invested for the long term, as have been the contributions of present retirees, over their decades of service. The Province made no contribution from 1932, when the plan was originated, to fiscal year 1975-1976. Since that time, the Province has been required by the Act to make contributions, although we understand that the formula devised by the Province for doing so allowed it to reduce or eliminate its payment into the pension fund when the plan was in surplus. If the Province had made regular payments into the plan during those times, when investment returns were good, the present alleged deficit probably would not exist. The Province took advantage of good times, and now finds itself having to make “top ups”, in order to fulfill its obligations, when investment returns on prudent long term investments are not as profitable as they were during the good times, which makes the problem worse.  If there is a deficit, it appears to be due to mismanagement by the Province.

Because of present low interest rates, many pension plans are in trouble, and many employers are switching from defined benefit plans to defined contribution plans. They are doing so, however, as of a present effective date, without affecting the pensions of those who have already retired.

The Province has been to Court on this issue. According to the Court of Queen’s Bench of New Brunswick, in Quinn et al v. New Brunswick, paragraphs 66 to 70, pension rights become “vested” when one retires, ie they become the property of the retiree, to which the retiree has a legal right that can be enforced by an action in the Courts. The Province, on receipt of this Decision, passed an amendment to the Pension Benefits Act to the effect that, in connection with a “conversion” to a “shared risk” plan, the Province cannot be sued for a breach of contract, a breach of trust, or a breach of any legal duty or obligation arising from such conversion (see section 100.81). This would seem to be a clear indication that such conversion is a breach of contract, a breach of trust, and a breach of its duties and obligations, and that the Province is well aware of this. This does not make such a unilaterally imposed conversion legal. It simply means that the Province cannot be sued for doing this. There is a difference.

It has been suggested that retirees should “do their part” to help the Province with its financial difficulties. Present retirees have been doing their part for decades, paying income taxes, real property taxes, sales taxes, licence and permit fees of all kinds, and many other similar payments. By going after pensions, the Province would be imposing an additional levy against income for which retirees have paid in full, and to which they have vested rights, much like confiscating money from their bank accounts. This would put New Brunswick on a par with Cyprus.

Pensions have been used for years by the Province as a means of attracting and retaining valued employees. If it now wishes to get out of the pension business, this can be done in a proper manner. If those providing Government services, teachers and doctors are to learn that the Province cannot be trusted to keep its promises, this will have an adverse impact on all New Brunswickers, as these services, education and health care will be adversely affected. Talented people providing these services are very mobile, and can easily find other places to live and work, which would be to the detriment of New Brunswick residents. Trust, once broken, is hard to restore.

If the Province develops a reputation for reneging on its debts, this could affect the cost of hiring contractors, and of borrowing money. It could become the custom to add to such costs a “New Brunswick premium”, to allow for the risk of doing business here, if contractors and lenders wish to do business here at all.

The Province should obey the law, as it expects the rest of us to do. It is very much in the best interests of all New Brunswick residents and taxpayers that it do so.