Finance
December 11, 2014

Sustainable Solutions to Pension Reform

Provincial Government Implements Public Service Pension Plan Reform

Implementation of the Public Service Pension Plan (PSPP) reform, announced on September 2, begins today with the introduction of two Bills into the House of Assembly, An Act to Amend the Pensions Funding Act and the Public Service Pensions Act, 1991 and An Act to Modify Eligibility for Other Post-Employment Benefits. This follows the signing of the Joint Sponsorship Agreement on pension reform by the Government of Newfoundland and Labrador and the five largest unions representing employees of the Public Service Pension Plan.

“We have worked closely with the unions and are pleased to have the Joint Sponsorship Agreement signed to ensure the sustainability of the pension plan and maintain a defined benefit pension plan which is an important issue for public service employees. Now that we have this agreement and the legislation before the House of Assembly, we are continuing efforts to inform those impacted about the details and the changes as it relates to their specific circumstances so that they can make informed decisions that best suits their situation.”
- The Honourable Ross Wiseman, Minister of Finance and President of Treasury Board

There are approximately 29,000 contributing plan members in the PSPP and approximately 17,500 pensioners. The Joint Sponsorship Agreement provides for joint management of the pension plan and an equal sharing between government and plan members in any future surpluses and deficits. The pension plan changes will come into effect on January 1, 2015 and include previously announced increases to contribution rates, and changes to pension eligibility and eligibility for group health and life insurance post-retirement benefits.

“In the coming months our government will continue to work with the unions to finalize joint management through the establishment of the Public Service Pension Plan Corporation as it prepares to take over the administration of the PSPP. Establishing this joint trusteeship will ensure that both government and plan members will be responsible for the sustainability of the plan for employees, retirees and all taxpayers into the future and will share equally in future surpluses and deficits.”
- Minister Wiseman

Details on the Joint Sponsorship Agreement, the Public Service Pension Plan Reform Agreement, and changes to post-retirement group health and group life insurance eligibility, can be found in the backgrounder below.

For more information please visit the Human Resource Secretariat website, //www.exec.gov.nl.ca/exec/hrs/pensions/plans_pspp.html. Inquiries can be emailed to pspp@gov.nl.ca. Individuals can also call 709-729-3600, or toll-free 1-844-373-9848.

QUICK FACTS

• The Provincial Government and the five largest unions representing employees of the Public Service Pension Plan (PSPP) today signed the Joint Sponsorship Agreement on pension reform.
• The Joint Sponsorship Agreement provides for joint management of the pension plan and an equal sharing between government and plan members in any future surpluses and deficits.
• The pension plan changes will come into effect on January 1, 2015 and include previously announced increases to contribution rates, and changes to pension eligibility and eligibility for post-employment group health and life insurance benefits.
• The signing of the Joint Sponsorship Agreement and the introduction of the legislation follows the Public Service Pension Plan Reform Agreement announced September 2, 2014.

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Media contacts:

John Tompkins Director of Communications Department of Finance 709-729-6830, 728-7762 jtompkins@gov.nl.ca

BACKGROUNDER

Public Service Pension Plan Reform Agreement Updates

Joint Sponsorship Agreement
A Joint Sponsorship Agreement has been entered into between the Government of Newfoundland and Labrador and the five largest unions representing employees of the Public Service Pension Plan (PSPP). This agreement will establish principles of the Joint Trusteeship Framework of the Public Service Pension Plan, with government and plan members responsible for the sustainability of the plan and sharing equally in future surpluses and deficits. A Funding Policy to ensure long-term funding goals of the plan and the Trustee Corporation Framework are attached as schedules to the agreement.

The Funding Policy and Trustee Corporation Framework will provide for:

• Two plan sponsors, Government of Newfoundland and Labrador and the plan members (the Sponsors) who, by their common agreement, will be responsible for future plan design changes;
• Creation of an independent corporation known as the Public Service Pension Plan Corporation, or PSPP Corporation, which will be a statutory corporation without share capital and which is not a Crown agent, to administer the plan and manage the investment of the Public Service Pension Fund; and
• Equal sharing by the Sponsors of future actuarial surpluses and deficits.

The Trustee Corporation Framework gives the PSPP Corporation the power to administer the pension plan, which includes collecting contributions, paying pensions and managing the pension fund assets. The board will be comprised of six Government of Newfoundland and Labrador appointees, six union appointees, one non-union and one inactive member appointee. The PSPP Corporation is scheduled to be in place March 31, 2015.

An Act to Modify Eligibility for Other Post-Employment Benefits
This Bill removes existing rights to eligibility for group health and group life insurance, also known as Other Post-Employment Benefits (OPEBS), and provides a transition period for existing employees, deferred pensioners and those on salary continuance as of December 31, 2014 to retain their existing rights. Amendments to collective agreements and employers’ human resource policies will provide new eligibility criteria for employees hired after January 1, 2015 and existing employees who continue employment after the five-year transition and are not grandfathered under the old rules. These policy changes include a requirement for 10 years of pensionable service instead of five, with immediate retirement under the PSPP upon termination of employment. The details of the changes to post-employment group health and group life insurance eligibility are:

• Employees who qualify for an unreduced pension during the five-year transition period will be grandparented under the current rules for group health and group life insurance benefits (five years of service).
• Employees who qualify for a reduced pension during the transition period must retire during the transition period in order to qualify for group health and group life insurance benefits.
• Deferred pensioners (people no longer employed with the public service and have deferred their pension) and employees on salary continuance (post-employment) must meet the eligibility requirements for an unreduced or reduced pension and must retire during the transition period in order to avail of the existing provisions and the current rules for group health and group life insurance benefits.
• Deferred pensioners or employees on salary continuance (post-employment) prior to January 1, 2015 who do not retire during the transition period, are eligible for OPEBs if they agree to pay 100 per cent of the required premiums. This allows deferred pensioners and employees on salary continuance prior to January 1, 2015, the opportunity to maintain benefits under the Government of Newfoundland and Labrador group insurance plan.
• After the five-year transition period, all employees will qualify for group health and group life insurance benefits with at least 10 years of pensionable service instead of five and immediate retirement under the PSPP upon termination of employment. As noted these new rules apply to all new employees hired after December 31, 2014.

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 58 with a combination of age and years of service equaling 88 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 or employees on salary continuance 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 and retire at the time of termination in order to qualify for OPEBs. Deferred pensioners or employees on salary continuance prior to January 1, 2015 who do not retire during the transition period shall be eligible for OPEBs if they agree to pay 100 per cent of the required premiums. This allows deferred pensioners and employees on salary continuance prior to January 1, 2015 the opportunity to maintain benefits under the Government of Newfoundland and Labrador group insurance plan.

2014 12 11                                             4:10 p.m.