Tuesday, July 03, 2012


MORE WORK NEEDED TO STABILIZE CITY PENSION FUND

BY HEATHER MCLAUGHLIN


03 JULY 2012


The new chairman of the City of Fredericton’s superannuation board says more measures will have to be put into place to stabilize the pension account and continue to diminish its unfunded liability.

Coun. Mike O’Brien was appointed to chair the board at its June meeting.

“Even though we’ve put ‘stop gap’ measures in place to address the current situation, we will be working towards a long-term sustainable pension plan strategy for not only current employees but for the next generation to come. We realize pensions are important to employees and want to make sure we have a reasonable long-term sustainable plan that is affordable, can withstand significant market fluctuations,” O’Brien said.

Fredericton’s pension fund shortfall was largely created by the 2008 financial market downturn which created a $37.5 million deficit.

Negotiations and discussions with employees spanned two years, and changes to the plan, to address the immediate short term challenges, were introduced in 2011. Those changes included hikes to employee and employer contributions coupled with benefit reductions to claw back the deficit over 15 years, O’Brien said.

Both the city and its workers agreed to pay an extra 0.9 per cent in contributions. The definition of pensionable earnings was altered to exclude overtime earnings. The indexation of the pension — which provides for annual inflationary hikes in pensions — was reduced to two-thirds of the change in the annual consumer price index.

“The good news is that the $37.5 million deficit the city had to address has decreased to $31.6 million in 2011,” O’Brien said.

“The changes made to the pension plan are working as planned for the short-term, although there are challenges ahead. The plan is not out of the woods,” he said.

Over the years lower interest rates mean lower returns on investment and increased liability. An aging work force where fewer employees are paying into the pension plan compared to the number of retirees drawing benefits is going to mean less money coming into the plan compared with the dollars flowing out.

“People are living longer, therefore the pension plan is paying retirees for a longer period of time,” O’Brien said.

“We will start to see the impact of these challenges, especially the low interest rates, impacting the pension plan most likely for the 2012 valuation of the plan. This means in addition to the deficit that we just put a plan in place to address, we will need to start planning to make further changes in 2013,” he said.

For the city’s superannuation board, creating a long-term sustainable plan for the pension account is going to have to take place, O’Brien said.

“All stakeholders will be engaged along the way. It is my hope that any new short term measures would be part of the upcoming 2013 or 2014 budget discussions, and that a new long-term sustainable strategy will be formulated and implemented soon after,” O’Brien said.

Recently city council took another step to limit city and employee contributions in 2012 and in future years for those employees who are unfairly contributing earnings to the fund that they can never draw out.

City council approved the amendment to the Fredericton Superannuation Fund bylaw at a recent council meeting.

Under the federal Income Tax Act, there is a cap on the amount of pension funds a person can receive.

“Employees earning above the Income Tax Act pension cap are making contributions to the plan on the portion of their earnings for which they cannot receive a pension. The (superannuation) board recommended that council address this fairness issue by amending the plan bylaw,” says the report handed to city councillors on the bylaw amendment.

“This means that both the city and employee pension contributions in 2012 and future years will be capped at the earnings producing the Income Tax Act pension limit in that year,” the report stated.

The change doesn’t impact the amount of pension that plan members get, only the contributions over and above the maximum pension identified under the federal pension law.

Council also switched out a member of the Fredericton superannuation board. Coun. Dan Keenan will replace Coun. David Kelly as a member.


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