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City of Regina sets out potential changes to fix pension deficit

Reported by Patrick Book  News Talk 980

First Posted: Jul 3, 2013 12:16pm | Last Updated: Jul 3, 2013 5:01pm

http://www.newstalk980.com/story/update-city-regina-sets-out-potential-changes-fix-pension-deficit/118566

The city may have a solution to a $250 million dollar pension deficit that has been dogging Regina for years.

In a news release issued Wednesday morning, the city revealed that it and the civic employee pension plan's board have hammered out a list of potential changes that could fix the funding shortfall in the long term. It includes making special payments to reduce the deficit over the next 20 years and limiting benefit increases during that time.

"We can contribute a larger amount but over a longer time frame," explained city Chief Financial Officer Brent Sjoberg after a committee meeting at City Hall Wednesday afternoon, "so it won't mean quite as much of an impact form a taxpayer standpoint."

The plan has been in trouble for years. The market crash in 2008 exacerbated the already-existing imbalance in the number of workers paying into the plan versus those drawing benefits. Increased retirements and the plan's defined benefit structure has kept the number growing, although the latest valuation showed a slight improvement in 2012 to reduce the deficit from $293 million to $251 million.

Last year, City Council chose to break the pension bylaw by not following through with a mandatory increase in contribution rates, arguing they were already too high and another increase wouldn't be enough to provide a fix. Councillor Wade Murray, who continues to sit on the pension board, and then-mayor Pat Fiacco insisted that a solution was expected by the start of 2013.

There had been an expectation on the part of some analysts that the city would be forced to change the plan to a defined contribution structure instead of the current defined benefit plan. Sjoberg indicated that it was one of the options that was discussed in the negotiations, which took nearly two years to reach this solution.

"Last year we had talked about a target benefit plan, which is a bit of a hybrid combining a defined benefit and a defined contribution plan. All those things were on the table for the discussion but clearly we understood that employee groups like the aspects of a defined benefit plan," Sjoberg conceded.

Defined benefit plans, where contribution rates fluctuate for employees paying into the program to match the cost of providing specific benefits to those who have retired, are generally more lucrative than defined contribution plans, which set out a specific payment amount.

While the defined benefit nature of the plan will remain in place, there will be a rolling back of benefits for employees who join the plan after Jaunary 1, 2014. Other actions proposed in the LOI include:

  • changing how earnings are calculated by averaging five consecutive years instead of the previous three years
  • eliminating overtime pay from the calculation of an employee's pension moving forward
  • the "rule of 80" that dictates when a worker is eligible to receive their pension (combining their age plus years of service) increased to 85
  • cost of living adjustment will be conditional instead of guaranteed for "future pensionable service"
  • adopting a new funding policy to "provide a framework of management policies to avoid future deficit problems"

The changes being put forth in a Letter Of Intent (LOI) would not come into effect right away. The pension board and the city will have to ask the provincial government to allow the plan to pay off the deficit over 20 years instead of the 15 it currently requires. That would require changes to the existing laws to come into effect. The city's pension bylaw would also have to be changed by City Council to enact other measures.

The release stresses that existing plan members won't see the benefits they've already accrued cut. 

One significant area of concern remains unaddressed, however. City officials, councillors, and the former mayor have expressed concern numerous times that the structure of the plan is inherently flawed and needs to be substantively changed to prevent future issues. Altering the structure of the plan in the past has proved extremely difficult because the framework of the pension dictates unanimous consent among all five employer and 21 separate employee groups. The release stresses discussions are continuing to try and update the governance structure.

"One of the things as the City of Regina, the administration, and this Council, is that we provide a fair balance between a pension that's attractive to an employee but also will be sustainable in a competitive marketplace. We have a pension that's not sustainable...so I want to applaud the unions and the employers who have come together to do a compromise that will begin to address the issues of a sustainable pension plan that's fair to everyone," commented Mayor Michael Fougere.

The city hopes the benefit changes can be brought in before 2014.