For years, Premier Tom Marshall has been talking about the need to reform the province’s troubled pension plans. On Tuesday, less than two weeks before he’s set to retire, Marshall unveiled a sweeping plan which will make massive changes to the system.
According to government projections, the public-service pension plan — which currently has a shortfall of around $4 billion — will be fully funded in the next 30 years.
At Confederation Building, Marshall and Finance Minister Charlene Johnson announced the deal flanked by a host of union officials.
For the past two years, the government has been holding talks looking for a way to reform the pension plan, and those negotiations intensified over the summer.
The final deal means higher pension premiums for current employees starting in January of next year — about $600 extra for public servants making $40,000 per year, up to more than $2,300 per year for public servants making $135,000.
Taxpayers will pay more, too. The government will sign a promissory note for $2.685 billion, amortized over the next 30 years. The government will also match employee contributions, so as the premiums go up, so too will government contributions.
Pensions will now be calculated based on an employee’s best six years instead of best five, and pension indexing will be frozen until the unfunded liability is wiped out.
The government will also rejig retirement eligibility, with employees having to work longer to receive the same benefits, but that will be phased in over the next five years.
Current retirees’ benefits are not affected.
At the announcement, though, union leaders were happy about the changes, because it means they keep a defined benefit pension plan.
“This is a very good deal,” NAPE (Newfoundland and Labrador Association of Public and Private Employees) president Carol Furlong said. “Government had an opportunity to unilaterally legislate changes.”
The other thing which is making unions happy is that they will now be given a say in how the pensions are managed.
The government will introduce legislation this fall which will set up an arm’s-length corporation to run the pension fund. The government will appoint half the members of this new entity’s board, and the unions will appoint the other half of the board.
“Now there will be a team of experts who will tell us — and both our union representatives and government representatives will be at the table to make the decisions when the decisions need to be made,” Johnson said.
The joint-management structure is something that union leaders were also very excited about.
“Under joint trusteeship, we won’t have to go to government and say, ‘please, let us at the table,’” Newfoundland and Labrador Nurses’ Union president Debbie Forward said. “We’ll never again look at a government and say that they can make unilateral changes. We will have ownership of the plan.”
The joint-management agreement also means that pension shortfalls will be shared 50-50 between taxpayers and public servants. If there’s an unfunded liability in the future, it’ll have to be made up half by increased contributions from the government, and half from higher premiums or lower benefits for workers.
The announcement comes as Marshall is just about set to retire, and rumours are swirling that Johnson is set to resign any day now.
Marshall seemed to briefly allude to Johnson’s impending departure during the news conference.
“I cannot over-emphasize enough the contribution that Minister Johnson has made to this process,” he said. “I thank her, in particular, for putting her private life on hold to stay here and see this through to the end.”
The public-sector pension plan is the biggest, but there are four other pension funds that the government still wants to restructure.
Johnson said talks are ongoing with the province’s teachers to deal with their pension plan — which is also massively underfunded.
The judges’ pension plan, the uniformed services pension plan and the MHA pension plan are also on the government agenda for reform.
When it comes to those reforms, Johnson said she wants to see a joint-management structure similar to what the public-service unions have agreed to.
Marshall said that protecting the defined benefit structure for pensions was important to him, and that current pensioners would not see their benefits clawed back. He said those principles should continue through the negotiations on the other pensions.