New Brunswick Pension Progress
Posted June 6, 2012
The biggest challenge facing newly minted Minister of Finance Maureen MacDonald is the $1.65 billion deficit in the Teachers Pension Plan. It is also a challenge for new NSTU president Shelley Morse because none of her active members are likely to receive indexation of benefits unless changes are made.
Last week the Government of New Brunswick unveiled a new approach to pensions both public and private. Directionally it is like the needed changes announced by the Governments of Ontario and Canada and by Nova Scotia for civil servants.
But in scope, substance, and breadth of support it is several steps ahead. The concept is built around a defined benefit core which keeps expenses low and allows retirees to pool the longevity risk. Benefit levels are adjustable, but the funding mechanism is cautious enough that the basic benefit targets are highly likely to be met and enhancements are much more likely than reductions. Funding levels are adjustable within a narrow range for both employees and employers. All funds are there to provide benefits so any future good experience will be used to improve benefits. No taxpayer bailouts are called for.
The new regime will be available to public and private sector plans and four unions representing various health care workers and pipe trades (plumbers, pipefitters, etc.) have already signed on.
This is to the great credit of those union leaders who understand that pension costs are not just a tug-of- war between employers and employees, but also represent conflicts between the interests of present and future retirees.
The Premier and Minister MacDonald have stressed that she will be staying the course to fiscal responsibility. In pursuit of that goal she inherits several difficult files of which the most important is the Teachers Pension Plan and its deficit, which is over $120,000 per active member.
Teachers who retired before Aug 1, 2006 continue to receive unreduced indexation. But those who have retired since then , or will retire in future , will only receive indexing if the plan is adequately funded. Given the $1.65 billion deficit it is unlikely that they will ever see any benefit indexation.
In fact the longer action is postponed the greater the reduction in basic benefits that younger teachers will receive because so much of their contributions are being used to subsidize past retirees. Shelley Morse, the newly elected president of the Nova Scotia Teacher’s Union, must be open with her members about their prospects.
Decisive action (not including another taxpayer-funded bailout ) is urgently required to right this injustice. This will likely include some combination of conditional indexing for all retirees, a very gradual increase in retirement age, and increased annual contributions by teachers, matched by taxpayers.
A satisfactory resolution of the Teachers Pension Plan is critical for its own sake, and will pave the way for responsible management of other public, quasi-public, and private sector plans. The New Brunswick model emerged from an extensive consultation process and a study of best practices from around the world. It represents the way that fiscally responsible jurisdictions will manage their affairs.
Minister MacDonald, it is your time to lead.
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