Unions bolster new, fully-funded public sector retirement program
With less than two weeks before his retirement, Newfoundland and Labrador’s outgoing premier Tom Marshall announced a sweeping deal to reform the province’s troubled Public Service Pension Plan (PSPP).
To do so, Marshall — alongside now-former finance minister Charlene Johnson — collaborated with five public sector unions, including the Newfoundland and Labrador Association of Public and Private Employees (NAPE), the Newfoundland and Labrador Nurses’ Union, the Canadian Union of Public Employees, the Association of Allied Health Professionals, the International Brotherhood of Electrical Workers and the Newfoundland and Labrador Public Sector Pensioners’ Association.
Together, the parties crafted an agreement that is expected to fully fund the pension plan — which currently has a shortfall of about $4 billion — in the next 30 years.
"It seemed like the government just kicked it down the road, nobody would face the issue," Marshall said of the pension plan. "No one else had ever touched it and it was my feeling that no one would; that if we didn’t do it now it would never get done."
According to Carol Furlong, president of NAPE, Marshall was the only man for the job.
"(The) government did not have to consult with us. They could simply have gone to the legislature unilaterally and arbitrarily imposed changes to the Public Service Pension Plan. We did not want them to impose those changes without an opportunity to have some input," Furlong said. "Tom Marshall is a very big man who is very soft-spoken. He’s not a fighter and he’s not a scrapper. People tend to like him. We were very clear that we wanted to play a role in this and we had meeting after meeting."
Marshall’s disposition made him an ideal collaborator, she said, when those meetings ran into the early morning hours for months on end. Finally, a deal was reached.
Current retirees will not be affected by the deal and a five-year transition period will be implemented to allow for changes to early retirement.
The final deal will see the government matching employee contributions and signing a promissory note for $2.685 billion, amortized over the next 30 years. In return, the union agreed to plan changes — including a contribution rate increase beginning in January 2015 — with a value of $1.128 billion.
Additionally, pensions will be calculated based on an employee’s best six years instead of their best five. And while pension indexing is frozen until the unfunded liability is eliminated, both Marshall and Furlong expressed optimism that the issue will be addressed again sooner rather than later.
Increased contributions are not ideal, Furlong said, but the unions were willing to make compromises to protect their defined benefit pension plan and to prevent a two-tier system.
"We wanted to make sure we protected people to the best of our ability," Furlong said. "This is by far, without a doubt, the best change to a pension plan we have seen."
The ability to continue to protect employees — guaranteed by further commitment to collaboration — was equally important to both government and unions. The upcoming introduction of legislation to set up an arm’s-length corporation for the pension fund assures unions and government will continue to work together to shape the future of the plan.
The joint trusteeship agreement will see shortfalls shared at 50-50 between public servants and taxpayers. The government will appoint half the members of the new entity’s board, and the unions will appoint the other half. The joint trusteeship will be independent from the provincial government and legislation will establish its framework, structure, appointment process and procedural rules. Government and unions will work together to establish the foregoing framework.
The establishment of the joint trusteeship also means the government loses its ability to simply legislate changes to the plan without first consulting the unions.
"It places us in a position where we have equal control over the pension plan," Furlong said.
And while that also places the unions in a position of equal responsibility for any liability that should arise, the guarantee of control — especially when it comes to maintaining a defined benefit pension plan — is worth the risk.
"This agreement will help to ensure the future health of the Public Service Pension Plan and the overall unfunded liability of all public sector pension plans which, when combined with other post-employment benefits, accounts for 74 per cent of the province’s projected net debt as of March 31, 2015," said Johnson. "This agreement on the future of the Public Service Pension Plan is an important step in addressing the liability of all public sector pension plans."
And indeed, there are four other pension funds the government still plans to restructure accordingly.
Moving forward, Marshall hopes the partnership will lead not only to more effective management of the PSPP, but to a stronger relationship between government and union leaders.
"There was a lot of blame going on," he said of the initial negotiations. "So I said, ‘Let’s forget the blame. We know we’ve got a problem, the problem is ours. Let’s just deal with it.’ And we did. We got it done."