Update on Pension Reform November 13, 2014 Current Structure of - - PowerPoint PPT Presentation

Update on Pension Reform

November 13, 2014

Current Structure of Public Service Pension Plan (PSPP)

• Provincial government is sole trustee of plan
• Government guarantor
• Defined Benefit Plan
• EE/ER contributions + investments = defined benefit
• 2% x years of service = pension
• Reduced early retirement/unreduced early

retirement/normal retirement

Problem with PSPP

• Unfunded liability growing
• $4.7 billion extra payments into plan by

government since 1997-98

• In 2014, unfunded liability estimated at $4 billion
• Pensions and other post-employment benefits

(OPEBs) make up 74% of provincial debt

• Pension reform taking place across country
• Threat of legislation

Political Climate

• Consultation started with Premier Dunderdale,

Minister Marshall, Minister Kennedy

• Winter of 2014, Premier Marshall took over
• Business community lobbied for defined

contribution plan (DCP) and removal of benefits

• Premier Marshall publically stated support for

defined benefit plan (DBP)

Political Climate cont.

• Public commitment to retirees
• Commitment to maintain accrued benefits
• Uncertainty about new PC leader and
• utcome of 2015 provincial election. What

stance might Liberals take?

Union Strategy

• Five public sector unions work together
• Avoid legislation
• Influence government decisions
• Work to get a deal before Premier Marshall

leaves office

• Maintain DBP and minimize impact on

pension benefits

Consultation Process

• Took place over 2 years
• Included 6 weeks of intense negotiations
• Real time modeling Eckler
• Presentations on other plans/reform
• Union hired expert pensions lawyer
• Unions expertise on pensions

Government’s Position

• Share unfunded liability 50/50
• Put $1.6 billion into plan
• Move from best 5 years to career averaging and

then best 10

• Early retirement age 60

Government’s Position (cont)

• Three year transition period
• Other post employment benefits would be

paid be retiree (currently cost-shared 50/50)

• Joint trusteeship

Union’s Position

• Maintain defined benefit plan
• Minimize impact on benefits
• Has to be 100% before considering joint

trusteeship

Union’s Position (cont)

• Due to government’s promise to retirees,

government owns their portion of the debt ($1.8 billion) –Government eventually agreed

• Leaving $2.2 billion, unions agreed to cost

share 50/50; about $1.1 billion.

Final Joint Position

• Changes effective January 1, 2015
• 100% funded in 30 years
• Government has to pay $2.685 billion,

amortized over 30 years, $195 million/year

• Union changes and contribution increase

contribute about $1.128 billion

Contribution Increase

Current PSPP Agreement for Reformed PSPP First $3,500 earnings – 8.6% $3,501 to Yearly Maximum Pensionable Earnings (YMPE) – 6.8% Above Yearly Maximum Pensionable Earnings – 8.6% First $3,500 earnings – 10.75% $3,501 to Yearly Maximum Pensionable Earnings – 8.95% Above Yearly Maximum Pensionable Earnings – 11.85% Implementation - January 2015

Pension Calculation

Current PSPP Agreement for Reformed PSPP Best Average Earnings (BAE) - best 5 years Best Average Earnings – best 6 years (frozen BAE 5 for past service) Indexing on future service removed (no impact on current retirees) Implementation – January 2015

Unreduced Early Retirement

Current PSPP Agreement for Reformed PSPP Age 55 with minimum 30 years service Or Age 60 with minimum 5 years service Age 58 with minimum 30 years service Or Age 60 with minimum 10 years service  With five year transition under old rules Implementation – January 2015

Reduced Early Retirement

Current PSPP Agreement for Reformed PSPP Age (minimum 55) plus Years of Service equal 85 Or Age 50 with 30 years service Or Age 55 with 5 years service Age 53 with 30 years service Age 59 with 29 years of service Age 55 with 5 years service With 5 year transition under

• ld rules

Implementation – January 2015

Other Post-employment Benefits (OPEBs)

Current PSPP Agreement for Reformed PSPP Pension eligibility with minimum 5 years service Pension eligibility with minimum 10 years service With 5 year transition under

• ld rules

Implementation Date – January 2015

Grandparenting

• Two ways to grandparent (at the end of the 5 year

transition period)

– Active or deferred pension members with 55/30 or 60/5 can receive early unreduced retirement anytime after the transition period – Active or deferred pension members with 30 years service can receive early unreduced retirement anytime after the transition period after they reach 55 years of age

Grandparenting (cont)

• Window option

– Any member who is eligible to retire with a reduced benefit will have the old rules apply during the transition period; after the transition period, the new rules apply

Joint Trusteeship

• In conjunction with the Plan changes and

government making a special payment of $2.685 billion, government and unions have agreed to a joint trusteeship arrangement

Joint Trusteeship (cont)

• To equally share any actuarial surpluses and

deficits

• Creation of an independent corporation to
• versee and manage the fund
• Act as Sponsors responsible for future plan

design changes and make decisions by their common agreement

• Framework and funding policy to be

determined

Next Steps

• Negotiate joint trusteeship language
• Important deadlines for achieving language:

– October 31, 2014 – March 2, 2015

Information Sources

• Government’s website:

www.exec.gov.nl.ca/exec/hrs/pensions/plans_ps pp.html

– Includes a self-serve pension estimator

• Government by telephone:

– PSPP information line at 709-729-3600 or toll-free at 1-844-373-9848

• Our website: www.nlnu.ca/mynlnu
• NLNU Telephone Town Halls

Frequently Asked Questions

• If I work an extra 3 years will I get an extra 6%

when I retire?

• What is the average retirement age of NLNU

members?

• As a new grad will there be a pension there for

me when I retire?

• When was the last contribution rate increase?
• It seems like we are paying a lot. How do these

rates compare with other pension plans?