You could call it the big grey elephant in the room. Or in the provincial government’s bank account. But, whatever you call it, there’s a looming financial storm over provincial pensions and benefits. Despite the government pumping $3.6 billion into pension fund shortfalls in the province, those funds are now in worse shape that they were in 2005.
In fact, much of that $3.6 billion has dwindled, thanks to stock market losses.
And other benefit numbers are growing drastically.
Here’s a section from the most recent report of auditor general Terry Paddon, and he puts it in plain language: “The unfunded liability related to employee future benefits declined significantly in 2005-06, the year the $2-billion advance payment under the Atlantic Accord 2005 was directed to the Teachers’ Pension Plan.
“In addition, further special payments totalling approximately $1.6 billion were made between 2006 and 2013 to address the unfunded pension liability. Since 2007-08, the unfunded liability has increased, such that, at March 31, 2013 the total unfunded liability is now greater than it was at March 31, 2005, despite in excess of $3.6 billion in special payments over that period.”
The AG outlines some of the causes for the increase in the unfunded liability for employee future benefits since 2005.
• Pension assets are subject to market risk and were affected hugely by the stock market “correction” that occurred in 2008 and 2009. A big chunk of the province’s additional contributions to the pension assets diminished in value as a result of this market correction, which just goes to show the volatile nature of this liability. As the AG notes, “The impact of this market correction is presently being amortized into the liability over the estimated average remaining service life of the active participants of the retirement benefit plans.”
• As a result of the increased cost of group health and life insurance plans and the increased number of employees earning benefits, the tab has grown from $1.2 billion to $2.3 billion since 2004-05 — an increase of approximately 92 per cent.
• The liability for employee future benefits increases each year because of interest on the unfunded portion of the liability. “Since 2004-05,” the AG notes, “the obligation has increased by $2.7 billion as a result of interest.”
This, despite years of oil surpluses. Now, with oil numbers weakening, the pension woes are exacerbated by the fact that the province has allowed its overall expenses to take off. As Paddon put it: “Since 2004, the province’s expenses have grown from $5.1 billion to
$7.7 billion in 2013, an increase of $2.6 billion, or 51 per cent. Per capita expenses in Newfoundland and Labrador are the highest in Canada. In fact, per capita expenses are approximately 40 per cent higher than the average of all other provinces.”
The solution Paddon is suggesting is pretty plain. But that doesn’t mean you’re going to like it. He says the government will have to “consider a number of alternative options — increasing revenue, decreasing expenses, borrowing or a combination of all.” You don’t have to read very far between those lines.