Executive Council
Finance
September 2, 2014
Sustainable Solutions to Pension Reform
Provincial Government and Unions Reach Agreement on Public Service Pension Plan Reform
The Government of Newfoundland and Labrador and unions representing employees of the Public Service Pension Plan (PSPP) today announced an agreement to ensure the sustainability of the plan, which includes a commitment to changes in the governance of the PSPP by negotiating the terms of a joint trusteeship agreement. Current retirees will not be affected and there will be a five-year transition period for changes to early retirement. Changes to the pension plan, including an increase in contribution rates, will come into effect on January 1, 2015.
“In reaching this agreement, we are protecting a defined benefit pension plan for current and future Public Service Pension Plan members and we are working to address the most significant financial issue facing the province. This agreement is contingent on joint trusteeship, meaning that both government and members will share responsibility for the plan equally, and deficits will no longer rest solely on the taxpayers of Newfoundland and Labrador.”
- The Honourable Tom Marshall, Premier of Newfoundland and Labrador
The Provincial Government will pay $2.685 billion, amortized over 30 years, to address the unfunded liability of the PSPP. In return, unions have agreed to plan changes and contribution rate increases with a value of $1.128 billion. The agreement is contingent on implementing joint trusteeship, meaning that both government and unions will be responsible for the sustainability of the plan into the future and will share equally in surpluses and deficits. In addition, an independent corporation will oversee the administration of the plan. Legislation that will set out the framework for the corporation will be introduced in the fall sitting of the House of Assembly.
Premier Marshall, then the Minister of Finance and President of Treasury Board, began consultations in 2012 with public sector unions, including the Newfoundland and Labrador Association of Public and Private Employees (NAPE), the Newfoundland and Labrador Nurses’ Union (NLNU), the Canadian Union of Public Employees (CUPE), the Association of Allied Health Professionals (AAHP), the International Brotherhood of Electrical Workers (IBEW) and the Newfoundland and Labrador Public Sector Pensioners’ Association. These consultations have continued since that time and the Provincial Government and unions have now reached an agreement that includes the following highlights (see Backgrounder for further information):
- Matching contribution increases of 2.15 per cent of all pensionable earnings for all plan members and an additional 1.1 per cent for the portion of pensionable earnings above the Year’s Maximum Pensionable Earnings (YMPE), an amount defined annually by the Canada Pension Plan. (In 2014 the amount is $52,500);
- Future service to be calculated using the best six year average earnings. For existing employees, past service will be calculated on the basis of the higher of the frozen best average five year earnings or the best average six year earnings;
- Early retirement with an unreduced pension at age 60 with a minimum of 10 years of service or age 58 with a minimum 30 years of service;
- Early retirement with a reduced pension at age 55 with a minimum of five years, age 53 with a minimum of 30 years, or age 59 with 29 years, including a five-year transition period;
- Employees who will meet the current early retirement provisions or have at least 30 years of service at the end of the five-year transition period will be grandparented under the current early retirement rules;
- Eligibility for a pension and at least 10 years of service will be required for entitlement to other post-employment benefits, such as health insurance, with a five-year transition period for existing employees;
- Indexing on future service is suspended; and
- Current retirees will not be affected by plan changes.
“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. 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.”
- The Honourable Charlene Johnson, Minister of Finance and President of Treasury Board
There are approximately 27,000 contributing plan members in the PSPP and approximately 17,000 pensioners.
For further information, or to use a self-serve pension estimator which shows individual pension payments upon retirement, visit www.exec.gov.nl.ca/exec/hrs. Beginning tomorrow afternoon (Wednesday, September 3), employees can call the PSPP information line at 709-729-3600 or toll-free at 1-844-373-9848.
QUICK FACTS
- The Government of Newfoundland and Labrador and unions have reached an agreement that will ensure the sustainability of the Public Service Pension Plan (PSPP).
- The Provincial Government will pay $2.685 billion, amortized over 30 years, to address the unfunded liability of the plan. Unions have agreed to plan changes with a value of approximately $1.128 billion.
- The agreement includes provisions to establish joint trusteeship of the plan, meaning that both government and unions will be responsible for the sustainability of the plan into the future and will share equally in surpluses and deficits.
- A five-year transition period will be in place for early retirement changes.
- Changes to the pension plan, including an increase in contribution rates, will come into effect on January 1, 2015.
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Media contacts:
| Milly Brown Director of Communications Office of the Premier 709-729-3960 MillyBrown@gov.nl.ca |
Kevin Guest Press Secretary Office of the Premier 709-729-4304, 730-2320 kevinjguest@gov.nl.ca |
| Tansy Mundon Director of Communications Department of Finance 709-729-6830; 693-1865 tansymundon@gov.nl.ca |
BACKGROUNDER
Changes Outlined in the Agreement on Public Service Pension Plan Reform
| Plan conditions | Current PSPP | Agreement for reformed PSPP |
| Contribution rates | First $3,500 of earnings - 8.6%
$3,501 to Year’s Maximum Pensionable Earnings (YMPE) – 6.8% Above YMPE – 8.6% |
First $3,500 of earnings – 10.75%
$3,501 to YMPE – 8.95% Above YMPE – 11.85% |
| Normal retirement | Age 65 with minimum five years of service | No change |
| Early retirement with unreduced pension | Age 60 with minimum five years of service
Age 55 with minimum 30 years of service |
Age 60 with minimum 10 years of service
Age 58 with minimum 30 years of service Five-year transition under the old rules for current employees and former employees with deferred pensions |
| Early retirement with a reduced pension | Age (minimum 55) plus years of service equal to 85
Age 50 with 30 years of service Age 55 with five years of service |
Age 53 with 30 years of service Age 55 with five years of service Age 59 with 29 years of service Five-year transition under the old rules for current employees and former employees with deferred pensions |
| Pension calculation formula | Best five-year average earnings | Future service: Best six-year average earnings
Past service: The greater of frozen best five-year average or best six-year average Indexing on future service suspended (no impact on current retirees) |
| Other post-employment benefits (OPEBs), for example, health insurance | Pension eligibility with a minimum five years of service | Pension eligibility with a minimum of 10 years of service, with a five-year transition for current employees; former employees with deferred pensions will need to retire within the five-year transition period to be eligible for OPEBs. Employees terminated after changes are in effect will have to be pension eligible at the time of termination in order to qualify for OPEBs |
Joint Trusteeship
The agreement on pension reform includes provisions for establishing joint trusteeship of the Public Service Pension Plan, meaning that both government and plan members will be responsible for the sustainability of the plan into the future and will share equally in surpluses and deficits. Basic conditions of the plan include:
- The Trustee will be a corporation independent from the Provincial Government
- Legislation will establish the framework for the corporation including ownership structure, number of directors, chair(s), appointment process, voting, quorum and procedural rules, and provide that actuarial surpluses and deficits shall be shared equally between the government sponsor and the member sponsor. The parties will work together to establish the foregoing framework;
- There will be no government guarantee of any deficiency in the Public Service Pension Plan;
- An agreement will be reached between the parties establishing a funding policy to direct the trustee with respect to how to respond to actuarial surpluses and deficits at prescribed intervals; and
- The Government of Newfoundland and Labrador will fully exempt the plan from the Pension Benefits Act.
2014 09 02 2:55 p.m.