Shared-risk plans are gaining traction in Eastern Canada with the City of Fredericton, the latest employer to move to this pension arrangement. This move was unanimously approved by the city council on Monday, March 11, after a special meeting.
With the new shared-risk plan, the age of retirement will be pushed out five years (from 60 to 65), contribution levels will increase, and cost-of-living increases will be conditional on the plan’s performance.
Shared-risk plans are touted to provide more stability and predictability of long-term costs. Fredericton’s current pension plan has a $60-million deficit that fluctuates with the market, so moving to a plan that will allow them to better budget their costs, makes sense.
“Many DB sponsors are looking at transitioning somewhere. Key elements include predictable costs and no open-ended liabilities, which are drivers of the trend to [move to] DC plans,” says Derek Gerard, a principal with Eckler, in Halifax. “Shared-risk plans provide those characteristics.”
This comes on the heels of the conversion of the Saint John, N.B., plan. That city moved to a shared-risk pension system on January 1.
Susan Rowland, the chairperson of the provincial pension task force, told CBC that she believes all municipalities should join a province-wide, shared-risk pension plan. Currently, there are 44 medium-size and small New Brunswick municipalities sharing a single plan.