Nova Scotia’s auditor general is sounding the alarm about the financial status of the province’s teachers’ pension plan, calling for action to address its “serious financial condition.”
In a report released Wednesday, Michael Pickup said the plan, currently funded at almost 78 per cent, is facing significant difficulties. “It is troubling that while there is a $1.4 billion deficit in the teachers’ pension plan, there is no clear plan how this deficit will be dealt with and this may impact all Nova Scotians now and in the future,” he said.
“Teachers and Nova Scotians need to ask why this plan is in such worrisome financial shape and what will be done to fix it. Teachers and the economy count on this plan that had a payout of $2 billion in benefits to retired teachers in the past five years alone.”
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In June 2005, the province and the Nova Scotia Teachers Union agreed to joint and equal participation in the governance of the plan. The report notes teachers’ contributions have increased by 33 per cent since 2014 even as the plan has continued to face a large deficit. Employee contributions are as high as 12.9 per cent, having risen from 9.9 per cent in 2013.
In addition to its mandatory annual contributions, which have been $93 million so far in 2017, the province also agreed to make a special payment when the plan’s liabilities exceed its assets by more than 10 per cent. Over the past five years, the province has paid an extra $52 million into the plan, according to the auditor general, who expects that amount to increase over the foreseeable future.
The report also notes that the chair of the teachers’ pension plan stated in its annual report at Dec. 31, 2016, that “actions should be considered by the plan sponsors to improve the long-term health of the plan. Without such actions, the plan’s financial position is likely to further deteriorate going forward.”
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Premier Stephen McNeil told The Canadian Press there would be no government bailout of the plan, adding that both sides would have to sit down and work things out. McNeil wasn’t specific about what has to happen, saying simply the sides would have to look at options.
“The sooner we can put in place steps both the government and the union can live with that will shore it up, the better,” he said.
The auditor general’s report also noted that the province’s two other largest plans, which cover health-care workers and public service employees, are in “solid financial shape.” The report stated that, at last count, the health-care workers’ plan had a surplus of $1.7 billion. As for the public service plan, it had a surplus of $239 million. Those plans have a more equal balance between current and future retirees. In the case of the health-care plan, it has almost 2.9 active members for every retiree. For the teachers’ plan, that number is just 0.97. Its deficit has remained stable despite achieving an 8.2 per cent investment return in 2016. Contributions in 2016 were just $184 million, while benefits paid out totalled $388 million, according to the plan’s most recent annual report.
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As a result of its poor funding status, the 4,320 teachers who retired after Aug. 1, 2006, haven’t seen an inflationary increase to their benefits since 2008. The plan provides that those teachers will receive a cost-of-living increase only if the plan’s funded status is more than 90 per cent.
“We share the auditor general’s concern with the unfunded liability in the teachers’ pension plan,” said Liette Doucet, the president of the Nova Scotia Teachers Union, in a statement. “Currently members have no prospect of future indexing and their contributions have increased by three per cent over three years. Their salaries have been frozen and members lost a retirement benefit when the service award was eliminated through Bill 75. The auditor general has stated that pay freezes have an impact on the pension plan because pension contributions are a percentage of salary.
“As we have done in the past, the NSTU will work with government through the sponsor board. Teachers work hard and they deserve a fair and equitable retirement fund.”
Besides the teachers’ plan, Pickup also provided details about the status of the province’s pension arrangement for members of the legislative assembly. Based on a 3.5 per cent accrual rate, the plan owes $109 million to 186 current and former members and their survivors. Members contribute 10 per cent of their pay, which in the year ending March 31, 2017, equated to $543,000. The province, meanwhile, put in $2.8 million to cover the pension obligations. The plan entitles members to a pension after two years of service.
Editor’s note: The story was updated on Oct. 6 with a statement from the Nova Scotia Teachers Union.