PLAN FOR THE FUTURE
THE DAILY GLEANER
04 JULY 2012
We don’t want to be another Saint John.
While some might imagine a host of examples to illustrate that statement, what we mean is this: we don’t want the same messes the City of Saint John has had to deal with when it comes to employee pensions.
That’s why our city council is serious about fighting the current pension deficit and troubles that may come as the years roll on. We applaud council’s attention to this issue, sooner rather than later, because later could be disastrous.
The world market turmoil of the last four years gave the city pension plan a deficit of $37.5 million. That has since been whittled down to $31.6 million.
Last year, the city implemented what some would describe as unpopular measures to help address the deficit, namely the elimination of overtime in the calculation of pensionable earnings, and a cap on annual cost-of-living adjustments.
But that was not enough, because there’s more trouble around the corner.
“The changes made to the pension plan are working as planned for the short-term, although there are challenges ahead,” said Coun. Mike O’Brien, the new chairman of the City of Fredericton’s superannuation board. “The plan is not out of the woods.’’
It’s not just a shaky market that might put a dent in the most well-laid plans. It’s a growing population of pensioners taking money from the plan, and a lesser amount of money going into the plan.
The precarious balance is about to tip as baby boomers move to retirement, and those on pensions live longer — and neither of those issues has anything to do with unpredictable world markets.
“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,” said Coun. O’Brien. “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.”
The goal is a proactive strategy to provide long-term stability to the city pension plan, something the City of Saint John does not enjoy at the moment.
Saint John has had a pension deficit for 10 years, and it’s shocking compared to ours— $193 million as of earlier this year.
One of the reasons for the mess is the way it was set up decades ago. Fredericton’s council can change its own pension parameters, but Saint John could not. It had to petition the provincial legislature to tweak its plan, which has been a cumbersome and time-consuming process that is about to change.
But with a large deficit long before the recession of 2008 hit, it’s clear there were not the same controls, safety measures and speedy responses the plan obviously needed.
Saint John is an excellent example of how a pension deficit can quickly spin out of control. We’re pleased that’s not the case here in Fredericton.
We encourage city council to continue to pursue this path of vigilance and oversight. Indeed, we do not want to be another Saint John.