City’s pension deficit slashed by $5.9M
(Excerpts of article written By HEATHER MCLAUGHLIN
26 Mar 2012 11:24PM
(Note: I was the Chair of the City's Pension Board 2009/10/11 during the staff/union negotiations process that led to the modified pension plan)
The City of Fredericton’s pension plan has managed to make a $5.9 million financial recovery on what had been a $37.5-million pension deficit as of June 30, 2010.
City councillors were given a pension briefing Monday night at their council-in-committee session.
City treasurer and director of finance Tina Tapley said the city’s pension deficit now stands as of June 30, 2011, at $31.6 million. The plan was audited by Mercers, a third party hired by the city.
In May, after a heated debate with workers who protested cutting back their pensions and urged the city to up its contributions on a matched, co-funded plan with employees, they reached a compromise plan over the next 15 years.
Under the plan approved by council, employees will get increases equal to two-thirds of the consumer price index to a maximum of 1.5 per cent effective Jan. 1. The city had introduced a full indexation of post-retirement pension cheques several years ago when the pension account was flush with cash and by law, the fund couldn’t hold large surpluses.
With the plummet in financial markets, the city’s pension account took a hit. Part of the compromise deal to rebuild the pension account was to increase contributions by 0. 9 per cent each for plan members and the city effective June 12, 2011.
“The changes that council made to the pension plan in 2011 to increase contributions and decrease some benefits ... along with better-than-expected investment performance, helped to reduce the pension deficit in 2011,” Tapley said.
“We do have some challenges ahead, though. With the low interest rates, that could impact ... our liabilities because basically our liabilities are going up faster than the investment returns than we’re expecting.”
The city’s pension fund was valued at $160 million in 2010 and $176 million in 2011, but the liabilities — the demands on the fund to pay benefits to retirees — was $197 million in 2010 and nearly $208 million in 2011.
As the city’s workforce ages, there will be fewer employees paying into the plan than those receiving pension payments. “With people living longer, our pension plan retirees will be receiving payments for a longer period of time,” Tapley said.
“We’re not at a critical point there yet, but we do have our eyes on these things and we will need to address these. Good news is that the deficit is reducing, but we need to be cautious in the future.”