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The Province Must Not Abandon Its Retirees

Commentary by Jo-Ann Fellows

Published in Telegraph Journal - March 4, 2013

The Public Service Superannuation Act is the oldest pension plan for public sector employees.

It is a defined benefit plan. The employee pays an annual contribution into the plan and, in theory, the provincial government makes an equal contribution. These contributions go into a fund, which is invested. When the individual employee retires, the money for paying the benefit comes from the fund. The promise is made by the employer, in this case the Province of New Brunswick, that the benefit will be paid. The benefit is calculated on a formula which combines average annual pay and length of service.

Before, I go further I will mention that I am a retiree of the PSSA. I worked for 10 years at the University of New Brunswick, and nearly 20 years for the province.

It is customary, when changes are made in a pension plan, that these changes only affect new hires, or present employees, for service after the changes are introduced. Such changes are not applied retroactively to people who are already retired, unless the company is bankrupt. The retirees made their decision based on the amount of their pension. Until recently, there was a mandatory retirement age of 65, and most long term employees retired at that age. If the province were to abandon the retirees by reducing their benefits, such a decision is possibly illegal, and it is certainly unethical.

The province of New Brunswick has just announced that the PSSA will be changed from a defined benefit plan to a shared risk pension plan. In future, indexing, which is the adjustment made annually to reflect the amount of inflation, will only be applied if the health of the pension fund permits. The government likes to say that this indexing of the benefit will depend on the state of the New Brunswick economy.

There are two things that come into play here. First, the province promised that annually they would make nearly matching payments to the pension fund. I fear that the government took holidays occasionally from this requirement.

The other issue is how the pension fund is invested. Along with reforms to all the pension plans made in the early '90s, the government of the day gave investment of the funds over to the New Brunswick Investment Management Corporation. How has the NBMIC made out in its investing? Where have they ranked in terms of all pension funds in Canada?

I was a member of the committee that worked on the reforms to the plans in the early '90s, and some of us suggested that the government should go to private sector management. The government chose to keep the investment activity in Fredericton.

I know that public servants cannot expect much sympathy from the public. I have already noticed one letter to the editor that talked about the "fat cats." Fair enough, but I am afraid the fat cats are enrolled in other pension plans. The PSSA only covers the low to medium paid employees of the province. Many retirees with PSSA pensions have modest benefits. The average annual payment is $21,000.

There are richer plans. The Teachers Pension Plan is much richer than the PSSA and therefore more costly. The teachers have considerable political power which they acquired after the "Equal Opportunity" reform in the province. Teachers discovered that they were not prevented from running for election as MLAs and they took full advantage of becoming their own employer. As I recall in the first McKenna government, teachers made up one third of the MLAs and one quarter of the cabinet. It will be interesting to see if the teachers' political power is still operational.

There are a few more generous plans under the PSSA itself. The Power Commission tops up the benefit for certain employees, as does NB Liquor. The deputy ministers' plan provides up to five years of additional service.

Of course, the most generous pension plan of all paid out be the provincial government is the MLA's pension plan.

Finally, although little information has been made available, it appears that there may be one more major surprise. The government may be abandoning their pension plans altogether. There is mention of the government no longer giving a guarantee, and of their setting up a new style of governance. A board and an administration outside of government would have control of the plans. Unfunded liabilities, if there are any, would be the responsibility of this new organization. This leaves open the question of a possible further reduction of the benefit. And, it's not immediately obvious what would happen to the $5.6 billion in the PSSA fund.

One of the things that makes government palatable to the electorate, is a degree of trust. "A promise made is a debt unpaid