Newfoundland and Labrador Pension System

Heading For Broke

Consulting on employee compensation and pensionsHouse of Commons Finance Committee Senate National Finance CommitteeProvincial consultations on pensions Municipal consultations on compensation MEPCO Policy think tanks Chamber of CommerceCanadian Federation Independent Business

Policy work

Demographic Tsunami

Statscan:Focus on Geography Series

N.L. Population Projections Ages

0 to 19 20 to 64 Over 65 2012 108,377 329,477 84,2542026 110,205 281,547 130,055Change 2 % - 15 % + 54 %

Source: Department of Finance Population Projections,

N.L.

Population Projections

Top Healthcare Systems 2011 2008 % INC N.L. $ 5,061 $3,930 28.7 %Alberta $ 4,486 $3,252 37.9 %P.E.I $ 4,291 $3,845 11.6 %

N.L. Estimated Per Person cost 2013$5,399

Cost per person, public healthcare costs

Source: National Health Expenditure Database, CIHI

The Problem of Aging

Where is healthcare going?

Health Care $ 2,843,585,000Pensions / Retiree Benefits $ 875,613,000Debt Expense $ 847,569,000Pension Shortfall * $ 840,000,000Education $ 795,350,000Post-Secondary $ 789,746,525

* FPFA Recommendation

N.L. Budget $ 7.6 Billion

"They are not sustainable as they are…They are not going to last." 

Tom Marshal – CBC Dec 2, 2013

The shortfall to the pensions amounts to $7,500 per NL resident.

Source : Board of Trade

It’s Bad

How bad?

NL Pensions have promises of $13.5 B and assets of $

8.0 B

Pensions are 59% funded.

March 31, 2013

Future Retiree Benefits

Promises of $ 2.87 B Add: Pensions $ 5.50 B Total - 2013$ 8.37 B2008 $ 2.97 B

Standard and Poors

The $ 2-billion advance payment under the Atlantic Accord in 2005 was directed to the Teachers’ Pension Plan. Further special payments totaling approximately $1.6 billion were made between 2006 and 2013

Bailouts $ 3.6 B $4.5 B???

Front Door Bailouts

These are annual increases in the premiums paid into the pensions plans. The province has not taken advantage of this feature yet.

Ie. Canada public sector contributions in 2002 were $ 12.4 B by 2012 they were $ 33.6 B

Statscan Cansim 280-0004

Backdoor Bailouts

If the bailouts don’t work the governments can just change the rules

Solvency relief funding 2008, from 3 years to 10 years.

OOPS! Solvency relief rules extended in 2010

Recent conversations with Finance are talking about 30 years!

Changes the R ules

Public employees might appear to have little incentive to push for reforms, yet they will pay a price for inaction: salary freezes, layoffs, increased payroll deductions and the threat of a city or county bankruptcy. Doing nothing to current pension obligations will cost public employees everything. A pension cannot grow without a job attached to it.

Little Hoover Commission for Pension Reform

Why changes are urgent

“Unfunded liabilities, simply put, are the amount of money needed to be put into the plans today to fully support promises made to retirees and current employees for services already provided. Unfunded liabilities do not include amounts required to pay for benefits related to future service”

Alberta Auditor General's Fall Report 2013

Every Day The Hole Grows

Why are pensions underfunded?

CFA Institute – Feb 2014

TeachersPolice, Firefighters MilitaryPublic WorksLibrarians, etc.

Can we afford to pay them what they have negotiated??

We Love Public Sector Employees

Value of OMERS Pension

$75,000 Survivor Pension

$450,000 Lifetime Pension aged 65-84

$155,000 Lifetime Bridge Benefit

Total Value $960,000$280,000 Inflation Protection @ 2.5%

Source: OMERS Report to Members Based on $ 45,000 Annual Income

Total Contribution $50,000

Total Value $960,000

Cost of Pension

Excessive Compensation??

Assets VS. Liabilities

2006 2007 2008 2009 2010 2011 2012 -

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Assets Liabilities

Source: Pension Investment Committee, Activity Reports

We are all in this Together

Unions

Government

Taxpayers

Enroll all new hires in the public sector in Defined Contribution (DC) plans

Convert existing employees to DC plans Phase out early retirement for all employees Eliminate the bridge benefit Convert all pensions for Members of the

House of Assembly (MHA) to DC plans

Solutions

Questions ?