Big liability

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It’s a chunky little title: “Why Newfoundland and Labrador’s public sector pension deficit is growing and why pension reform is imperative.”

The report, prepared for the provincial government last August by pension experts Mercer, one of the Marsh & McLennan Companies, doesn’t pull any punches: “With only $6.3 billion of assets to cover $11.4 billion of liabilities at year-end 2012, it is unreasonable to expect that the funded position will improve in the future without changes to benefit and/or contribution levels. In fact, should experience emerge as expected (i.e. the fund returns 7.25 per cent per annum and future contributions only cover future benefit accruals), it should be expected that the unfunded liability will grow by approximately $367 million each year.”

No much news in that, you might say: after all, the province for years simply took pension contributions and used them as government revenue, building roads and hospitals and hoping against hope that the future was so bright that it would somehow take care of the burgeoning pension rolls.

That isn’t going to happen, the review says: “It is simply not plausible to expect that the current fund will ever grow at a rate sufficient to meet accrued obligations. There just isn’t enough money at work.”

That doesn’t mean that governments haven’t tried to address the problem: the Williams government put $2 billion into the teachers’ pension plan in 2005-2006, and a further $1 billion into the public sector pension plan (PSPP) during the same time period. The money promptly disappeared. The teachers’ plan lost 21 per cent of its value in the 2008 market crash. Things were just as ugly in the public sector plan: “Unfortunately, the additional $1.042 billion contributed to the PSPP between 2006 and 2008 only slightly exceeded the $0.997 billion of investment losses reported by the actuary in the PSPP’s December 31, 2009 valuation report.”

All of that is bad enough news, but as this province chugs along in the relatively small club of the country’s “have” provinces, there’s a table buried in the report that shows just how “have-not” the province’s public pension plans are.

They are the fiscal elephant in the room, and it’s worth looking at comparative table Appendix C, below.

Pension Plan                                   Funded Ratio        Asset Value ($M)      Unfunded Liability ($M)

British Columbia                             100.0%                  $19,441                    -

Alberta                                            78.4%                    $6,481                    $1,790

Manitoba                                         85.6%                    $3,104                    $555

Ontario Pension Board                   88.5%                    $17,270                  $2,255

Ontario Public Sector Employees

Union Employees Pension Trust     100.0%                  $14,705                   -

Ontario Municipal Employees

Retirement System                          87.9%                   $60,767                   $9,924

Healthcare of Ontario

Pension Plan                                  100.0%                  $47,414                    -

New Brunswick                               96.5%                    $4,135                     $154

Nova Scotia                                     97.6%                   $4,392                     $109

Prince Edward Island                      87.4%                      $968                     $140

Newfoundland and

Labrador                                         54.8%                    $3,927                     $3,241

Source:  Mercer report (www.atipp.gov.nl.ca/info/completed/2014/pdf/fin_14_2014.pdf)

It’s a message about just how terribly far behind we actually are.

Organizations: Marsh McLennan Companies, Ontario Pension Board, Ontario Public Sector EmployeesUnion Employees Pension Trust Ontario Municipal EmployeesRetirement System

Geographic location: Newfoundland and Labrador, British Columbia, Alberta Manitoba New Brunswick Nova Scotia Edward Island

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Recent comments

  • Curious
    June 05, 2014 - 07:39

    Before any reform takes place there should be an inquiry as to how government could have mismanaged this so badly.

  • Stephen
    June 04, 2014 - 21:44

    These plans lost a lot of money in 2008, then the market rebounded. Why didn't the pension plans assets? Were they involved in some kind of exotic deals? Are any assets in hedge funds charging 2% of assets and 20% of profits per year?

  • Steve
    June 04, 2014 - 14:56

    There has to be massive reform on public service pensions and it doesn't take much mental power to deduce that. The formula is simple, you get out what you put in plus or minus the gain/losses your fund(s) receives during your working career. You can't continue to throw money into this bottomless pit. The numbers mentioned in this article are scary and the time is now for our government to take drastic measures. It won't be a popular decsion but necesity warrents it.

    • Little R
      June 04, 2014 - 16:19

      I always found it weird how people talk about pensions. They all say that they're out of control. They all say that we gotta do something about them. Funny how they rarely mention what needs to be done. People who advocate for pension changes should be straightforward and up-front about what they think should be done to pensions to fix them. Hiding this information and hoping no one will notice until it's too late helps no one.