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'We weren't looking for just a Band-Aid solution'

By SHAWN BERRY Daily Gleaner Legislature Bureau August 8 2013

It was a court decision two years ago that had members of a pension plan for hospital employees facing down their greatest fears about its viability.

Already stung by the market losses of 2008, the province's biggest plan for nurses and specialized health-care workers showed a $279-million liability and had dipped to a point where it was considered only 70 per cent funded. So they approached the court for advice.

Then came the decision of William T. Grant in the Court of Queen's Bench of New Brunswick.

'He directed very clearly - and the thing we were most afraid of - to start cutting benefits,' said Marilyn Quinn, the president of the New Brunswick Nurses Union who also chairs the Certain Bargaining Employees of New Brunswick Hospitals pension plan, with more than 8,200 plan members actively contributing and 2,100 pensioners.

'As trustees, we knew that that would only be the first of cuts, that it wasn't going to fix the plan; that would have been a solution in the short term but not the long term.' Quinn, and others, worried that stripping away benefits was a slippery slope that might leave the working members with only a fraction of what they had paid into the plan, if anything, when they retired.

Though they had spent years talking to government about the need for contribution increases and even negotiated a small one, they approached the province again. They were quickly directed to the province's pension task force.

'I think they made it clear that they weren't interested in just increasing contributions without changes to the plan that would be sustainable - and frankly, we weren't either. We weren't looking for just a Band-Aid solution.' What ensued was 10 months of discussions with the task force, a review of options and a hard look at the realities of financial markets that were paying out at lower rates while plans needed more money to account for pensioners living longer lives. Quinn says all pension plans face these realities.

'When we work through all of those, moving to a shared-risk model, we believed then - and I'm more firmly convinced now - was the right decision for our plan.' The group was among the first four to sign onto the so-called shared-risk model promoted by the province. It was an acknowledgment that its defined-pension plan was broken.

The defined plan had paid out benefits based on an employee's top five years of service, allowed retirement at age 60 and had guaranteed cost-of-living increases even if the plan was losing money.

The new one, modified from the so called 'Dutch model,' would be based on all of the years worked, gradually increase the retirement age to 65 and only pay out a cost-of-living increase if the plan had enough money.

While the move to that model is proving contentious in some circles, the nurses union sees it differently.

The changes to the plan, which included both employer and employee increasing their contributions (with workers paying about 1.2 per cent to 2.8 per cent more and employers up to 3.9 per cent more, depending on how far a worker is from retirement), will see the retirement age gradually raised to 65 over the next four decades. Cost of living adjustments are now contingent on the performance of the plan in any given year and strict risk-management rules have been enacted to ensure the plan is always properly funded.

Based on those changes, the new plan started out funded at 117 per cent of the estimated requirement. In January, pensioners were told they will be getting a 2.4 per cent cost-of-living adjustment.

While municipalities such as Saint John and Fredericton have embraced the option to deal with plans that are in deficit, other groups, such as New Brunswick's teachers, are treading more carefully.

Faced with the province's review of pension plans, the New Brunswick Teachers' Federation, New Brunswick Teachers' Association and the Association des enseignantes et des enseignants francophones du Nouveau-Brunswick have formed their own 'expert advisory group' and have hired an independent actuarial consultant.

While the teachers group isn't speaking publicly about those efforts, it has been issuing bulletins to the members about the pension issue.

'We are also prepared to enter into discussions with government to determine if there are issues that we need to deal with related to the sustainability of the plan for all members,' one bulletin stated this spring.

The group held a meeting met with Finance Minister Blaine Higgs, representatives of the Department of Finance, and the pension plan actuaries.

While the group has shown that it is willing to talk, it has also pointed out that the teachers' plan has a different history from the pension plan for Certain Bargaining Employees of New Brunswick Hospitals, and the pension plan for the Canadian Union of Public Employees of NB Hospitals, which have both signed on to the shared-risk plan.

'Both of these plans are negotiated pension plans that were seriously underfunded and in need of attention.' In contrast, the Teachers' Pension Act and the Public Service Super¬annuation Act are legislated pension plans for which the government of New Brunswick is guarantor and sponsor.

The group also noted that at the last actuarial valuation, the teachers' pension plan had a funding level of 89.8 per cent on a fund of approximately $4 billion.

'This represents the highest funding level of any public plan in New Brunswick and one of the best-funded pension plans in Canada. All of this has occurred despite two of the worst economic downturns in the financial markets that we have ever witnessed.' Higgs said last month that the province is pressing on with pension reform despite strong returns last year in plans for the province's public service, teachers and judges.

Despite gains, Higgs said the province had to spend about $140 million on special payments to the plans during the year ended March 31, 2013. He said the government needs to get to a point where extra payments aren't necessary for the plans to meet their requirements.

According to the government, the public service plan, which covers about 32,000 people, has a $1-billion deficit and is only about 50 per cent solvent.

A number of New Brunswick cities have found themselves facing down the same challenges.

In Miramichi, where the city's finance department scrambled to find $490,000 for its 2012 pension commitments, all of the parties involved agree the city's current pension plan is unsustainable and in need of change.

In June, acting city manager Mike Noel said good progress was being made with the four unions representing municipal workers in identifying a common resolution.

Noel stopped short, though, of indicating whether a shared-risk approach was in the mix, saying simply that he was encouraged by the tone of discussions to date.

'We're moving toward modifications … As for what those modifications are, we'll have to wait and see - but the acknowledgment by everybody has been that the current plan is underfunded, is essentially unsustainable and that modifications have to be made.' The talks in Miramichi come as the City of Saint John, saddled with a $195-million pension deficit, voted to adopt a shared-risk pension model. In March, the City of Fredericton, coping with a $59-million deficit, did the same.

CUPE president Gordon Black, said he knows a number of other unions are examining the model.

'There are people looking at it,' he said.

'It's not uncommon for plans to run deficits. Things are different now because of long, protracted period of low interest rates, the stock market hasn't done as well as it used to, and the biggest thing is people are living longer.' His organization represents union locals with members in the Saint John and Fredericton pensions joining the shared-risk model, as well as 4,500 members who are part of the other hospital workers union that signed on to the shared-risk plan at the same time as the one Quinn chairs.

Having pensioners living longer is a good problem to have, he said, but unions have to find a way to pay for it.

But he knows there is criticism of the reforms too, particularly the argument that contracts were made, and workers shouldn't be making new arrangements with the employer now.

'It's a lot easier to say that than to live with the outcome,' Black said.

'Your guarantee of a pension is only as good as the person guaranteeing it. I think we've come to a point where the province is financially strapped,' he said.

One of the benefits of the new model, Black said, is that province is no longer required to take a 'contribution holiday' if the plan is funded at more than 115 per cent of its requirement.

Susie Proulx-Daigle, of the New Brunswick Union which represents some of the employees in the Certain Bargaining Employees of New Brunswick Hospitals plan, said the fate of pension plans is an important issue not only for retirees, but also for current workers.

'We see what happened with Nackawic and what happened at Fraser mills,' she said, pointing to examples in the forestry industry where bankruptcy of employers and underfunded pension plans left pensioners collecting a fraction of the retirement income they had planned for.

'You may think you have a contract and think it's safe, but from one day to the next it can be gone. Rather than see it gone, we take control of the situation, have a say and look at saving them,' Proulx-Daigle said.

'I don't want to see that here in New Brunswick, especially on the pension plan that I intend to retire on and that I see my parents retired on. I want to see that pension plan continue to thrive and make sure it's sustainable for a long time.' Quinn still remembers telling members about the plan after a deal was reached in 2012.

'Members understood this wasn't about cutting costs, this was about making sure that we had a plan nurses and the province could afford, and it was good for members not only close to retirement, but also those who still had 20 years to work.' Many had been concerned that the province might pressure them to move into a defined contribution program used by many private-sector employers.

She's also pleased that the new plan sees 2,000 part-time employees who used to be in such an RRSP program moved into the pension plan.

Testing of the plan, she said, shows that it pays out the cost-of-living adjustment 75 per cent of the time, while the plan would pay out the base benefit 97.5 per cent of time.

'If the cost of living goes up five per cent and the plan can pay, the plan will pay.' If it can only pay a portion, she said, 'as soon as plan in a surplus position, we go back and pay the money that wasn't paid before.' 'I believe we made the right decision in terms of the plan sustainability for the province going forward. It was the right thing to do. We're proud of the work we did and we believe it was the right decision.'