New Brunswick: Milestone or millstone? Shared-risk pension, 10 years on

NEW BRUNSWICK – The people who run one of the New Brunswick’s biggest pension plans are celebrating a milestone that some thought would become a millstone around their necks.

It was 10 years ago that New Brunswick switched over tens of thousands of workers, both unionized and non-unionized, from a badly underfunded defined-benefit plan to a shared-risk plan, a signature piece of legislation of Blaine Higgs.

He was finance minister at the time but is now leader of the Progressive Conservative Party, running for re-election as premier.

“Just look at the results of the plan,” said Katherine Greenbank, a retired executive and government accountant who has been chair of the New Brunswick Public Service Pension Plan for three years.

“Over 10 years, our annual average rate of return on investment was over six per cent, 6.61 per cent, which is really good. We went through a big downswing after the pandemic, and we’ve recovered from that. The plan is secure and sustainable.”

Although four big unions signed a memorandum of understanding in 2013 to join the plan, there was an outcry from some quarters, particularly among retired civil servants, who had no real representation or say in the changes.

Higgs had warned that the old defined-benefit plan, called the Public Service Superannuation Act, was severely underfunded, with a deficit of about $1 billion. Over the previous two decades, provincial taxpayers had made special payments into the plan to shore it up, over and above the provincial government’s regular contributions, of $673 million.

Without any changes, the provincial government said at the time, special payments were expected to cost taxpayers a further $1.5 billion because defined-benefit plans are the responsibility of the employer to keep on sound financial footing.

Higgs’s idea was to convert the plan to a shared-risk model, that, as the name suggests, calls for shared responsibility of financial risk between employers and employees.

Such plans protect the members’ base benefits but when investments in the big fund sour, both the employer and the employees are expected to contribute to get the plan back in good financial shape.

Under the old plan, cost of living adjustments could go as high as five per cent annually, in concert with inflation whereas under the new plan, those adjustments could be curtailed or delayed, depending on the plan’s financial health.

Unbowed, a group representing 13,000 retired public sector workers filed a lawsuit in 2014, arguing the provincial government had violated their contracts after putting in decades of work. Pension Coalition NB’s legal team said the government had put their financial contributions into their pension at risk without their say.

The lawsuit also pitted the pensioners against the board of trustees of the new plan, which Greenbank said put her in an awkward position.

“I’m not a legal person, but it was odd, because we’re only the people who run the plan. We don’t decide if anyone should come join us.”

It caused a rift between some of the pensioners and their old labour representatives, including New Brunswick Union, the International Brotherhood of Electric Workers, the New Brunswick Nurses Union, and locals within the Canadian Union of Public Employees, or CUPE.

The pension board of trustees includes representatives appointed by the province, such as Greenbank, but also union appointees, such as Paula Doucet, president of the New Brunswick Nurses Union, and Susie Proulx-Daigle, leader of New Brunswick Union.

In December 2021, Court of Queen’s Bench Chief Justice Tracey DeWare ruled against Pension Coalition NB, putting an end to its eight-year legal battle. The judge awarded no damages or costs to the plaintiffs.

Greenbank argues that the concerns about retirees losing their cost-of-living increases were overblown.

For the first nine years of the plan, from 2014 through to 2022, the plan awarded increases that matched the Consumer Price Index.

In 2023, it faltered a bit, not meeting inflation, going up 5.24 per cent when the Consumer Price Index showed a 5.56 per cent increase. Still, the hike was higher than the old plan’s maximum increase of only five per cent.

In 2024, it slipped slightly again, with a 5.32 per cent increase when inflation was 5.59 per cent (with the adjustment again higher than the old plan’s cap of five per cent).

For the upcoming year the plan is back on track. It is granting a 3.7 per cent increase, of which 3.11 is tied to inflation and the rest – 0.59 per cent – is a catchup for the less generous years of 2023 and 2024.

As of Jan. 1, 2024, the plan’s funding status was 111 per cent, with a surplus of nearly $1 billion. The pension is managed by Vestcor, a private, not-for-profit company that administers 11 pension plans for about 55,000 active and 30,000 retired members in the province, including the New Brunswick Teachers’ Pension Plan.

“The investments are very well managed, we have broad classes of investments and the returns are, in the lingo of pension plans, above the discount rate of five per cent,” Greenbank said. “It’s been very good that way. We’re overfunded. When the plan was converted, there was a deficit to make up and now we’re in a surplus.”

CUPE has hundreds of members in the plan, including hospital workers, court stenographers, and community college employees.

But other CUPE locals have opposed a conversion to the shared-risk model, and their national office has supported their fight.

Mark Janson, a CUPE pension expert in Ottawa, told Brunswick News that locals within the union have a certain degree of autonomy and if they ask for help on an issue such as pensions, the national office steps in.

He described the results posted for the New Brunswick Public Service Pension Plan as unremarkable, given that the markets have done well over the last decade. For instance, the Dow Jones Industrial Average has had strong growth in seven of the last 10 years.

“The last decade as a whole has been extremely good for pension plans,” he said in an interview. 

“COVID was terrible for our country in many ways, but strangely it was good in the financial markets in 2020. This period has had strong returns. Interest rates have been going up, and we know that’s tough for borrowers and people with mortgages, but it’s actually a good thing for the world of pension plans. So, the New Brunswick plan isn’t alone in reporting good news. Virtually every pension plan in the country has good and even better news.”

Last December, the Progressive Conservative government passed legislation to convert five defined-benefit pension plans that had been protected in CUPE workers’ contracts through the collective bargaining process.

They had been left out of the first round of conversion 10 years ago because the other pension schemes were not tied to the workers’ collective agreements. In the latest battle, the Progressive Conservative government waited until the unionized workers’ contracts had expired and negotiations had failed before rushing through its law, with union leaders heckling from the legislature’s public gallery.

Both the opposition Liberals and Greens opposed the forced conversion.

The union then lost a court injunction last May. It had filed the emergency order against the Higgs government to stop the conversion of plans of 16,000 workers and retirees, including active and former school bus drivers, educational assistants, personal support workers at nursing homes and other public employees.

CUPE is appealing the case while the conversion is taking place.

Janson said CUPE still wants the Higgs government to adopt a model from Ontario, the CAAT pension, which has more than 100,000 active and retired members. 

Higgs rejected CAAT, saying it would cost $1 billion, or about two-thirds more, to convert the members to that plan, a figure Janson said was exaggerated. The union leader won’t disclose the amount because it was provided during private negotiations.

“We believe there are much better options out there that don’t break any pension promises and will deliver more benefits per contribution dollar,” he said, pointing out that CAAT had an annual average rate of return of 9.3 per cent over the last decade compared to the New Brunswick plan’s return of 6.61 per cent.

“It may not sound like a massive difference, but when there’s money accumulating at those rates of return and compounding it, it really makes a significant difference. It really means you can deliver a lot more for members.”

John Chilibeck is a Local Journalism Initiative reporter with The Daily Gleaner in Fredricton, NewBrunswick. Title image courtesy the Local Journalism Initiative ("As finance minister, a mustachioed Blaine Higgs tells reporters in November 2013 he does not believe it would be morally right to continue asking the public to prop up the pensions of civil servants when an estimated 60 per cent of those taxpayers do not have pensions themselves. Brunswick News archive.)