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Questioning Pension Fund Changes

For a public sector workforce expecting to retire with a good pension, the “health” of their defined contribution pension plans are dependent on both the market and the actions of […]
Published on February 4, 2021
Graham Lane
Featured | Commentary | Government
For a public sector workforce expecting to retire with a good pension, the “health” of their defined contribution pension plans are dependent on both the market and the actions of the provincial government. Recently, Pallister’s government seems to be stalling on realizing large public plan deficits to save having the provincial treasury ante up.The Pension Benefits Act regulates Manitoba’s public and private sector pensions. Pension law and practices usually move “slowly” and carefully, but here in Manitoba “the times are a’ changing.”

In these unprecedented times (COVID-19), the Pallister government intends to (a) change pension regulations to reduce the expected level of funding of defined benefit pension plans, from 100% to 85%; (b) and, again by regulation, suspend — through to 2022 — the requirement on plan sponsors to fund to cover shortages of required funding levels, and; (c) by dialogue, “convince” provincial public sector pension plan boards, managing $40 billion of assets, to merge their management services —  Pallister forecasted that such a “merger” would generate savings of $200 million or more each year, presumably to the benefit of current and future retirees.
The Pallister government’s actions and desires concerning Manitoba’s defined benefit pension plans have created more anxiety for pension boards and their members, particularly for those expecting to retire soon. Increased uncertainty caused by the stock market fluctuations of 2020 and the bond yield collapse brought by the COVID-19 pandemic hasn’t helped.
Whatever the party in power, Manitoba’s provincial governments have a long history of being concerned with the ongoing viability of Manitoba’s public and private defined benefit pension plans. An important element of protecting the plans has provincial legislation requiring that plans ensure the forecasted future level of contributions (from the employer and employees), plus forecasted investment revenues less forecasted administrative expenses, must be sufficient to meet forecasted required future pension payments to pensioners.Oddly, for a person who fancies himself as a supposed fiscal conservative, Pallister’s first action is to amend the law to allow pension sponsors to delay the now-compulsory injecting of cash when a plan’s funding is more than 15% or more deficient. Going further in providing plan sponsors flexibility, Pallister would now allow plans to avoid meeting now statute-required funding requirements of the Pension Act by holding back making special contributions to address funding deficiency to 2022.

Even before entering the year 2020, some major provincial public sector pension plans were in trouble.

Contributions from both government/public sector sponsors and their employees have not been contributing enough to fully fund the plans. Three large public sector plans alone — The Civil Service Superannuation Board (CSSB), the Healthcare Employee Pension Plan (HEPP), and the Teacher Retirement Allowance Fund (TRAF) — may, together, be headed towards a $10 billion actuarial deficiency.This past year has not been a good year for most investors, and pension funds are very big investors. Government bonds yields have caved and the only stock segment that has done really well was big American technology stocks.

Pallister’s latest estimate for his government’s deficit for 2020-21 of an astounding $2 billion doesn’t count provincial pension plans actuarial deficits. He needs to understand that bureaucratic gimmicks on pensions and other budget issues are a path to trouble.

 

*Republished from The Winnipeg Sun

Graham Lane, a retired CPA CA, served as PUB’s chair from to 2004-12. He is a long time member of the Frontier Centre for Public Policy’s Expert Advisory Panel. 

Photo by Michael Longmire on Unsplash.

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