© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the December 2006 edition of BENEFITS CANADA magazine.
Industry Q&A: A lesson from teachers
In an effort to solve the underfunding problem in Newfoundland, the provincial government started with the Teachers’ Plan. We speak with Loyola Sullivan, Minister of Finance, Newfoundland and Labrador.
By Joel Kranc

BC: What are you doing about pension issues in your province?

LS: All the pension plans in our province had significant unfunded liabilities…so we decided to do something to correct that. We are receptive to correcting unfunded liabilities in all of our pension plans, and we started with the Teachers’ Pension Plan(TPP). And we put an infusion of $1,953 billion in that plan. That plan was 28% funded, and by putting that amount of money into it, it put it to a funded level of over 90%.

BC: When did that actually take place?

LS: It took place in stages. The last one was March 2006 and it went in, in two different allotments.

BC: What about the situation made you want to infuse cash into the plan?

LS: From the time [the Liberals] took over the government in November 2003, and we looked at our financial situation, we noticed that we had a severe unfunded liability in our pension plans. I think it was important that we had to do something about it. Some of these plans would have gone bankrupt; the Teachers’ would have gone bankrupt. So we had to prevent something from happening down the road.

The Teachers’ plan is sustainable at the 90% level, based on actuarial projections. Based on our performance and return on investment on that, we’d be getting a return in our pooled pension plan of about 10.7% since inception in 1981. Based on that return we could have fully funded plans.

There was a commitment in the most recent budget to borrow, if necessary, $800 million in this fiscal year to put the Public Service Pension Plan in good shape.

BC: How are things faring in Eastern Canada in general?

LS: I wouldn’t want to comment on other jurisdictions, but I do know that we are in the most serious situation in terms of unfunded liability in our province and we wanted to change that. Other provinces have had higher levels of funding…but I wouldn’t want to comment on those specific ones. But companies are looking at defined contribution as opposed to defined benefit and it’s taken a variety of forms.

BC: But you are seeing that in your part of the country?

LS: We are seeing more awareness of [conversions]. Even all over the country, companies are looking at contributions in lieu of having a pension. Many companies never even had a pension plan, certainly in our province. And to see a move even to a defined contribution is a step forward from what they had prior to that.

BC: How do you feel about(the taxation of)income trusts?

LS: As an investment, based on the best advice we get from pension experts, we’ll look at investments that will help us maximize returns. There’s an estimated $1 billion that will be lost by the federal government and all provinces under income trusts. That’s a tax leakage that’s occurring because of the nature of income trusts. It’s an area of concern that we are looking at, and we will assess as time goes on, but from the federal perspective, that was one of the hotbutton issues that impacted the election over a year ago. But I would say any loss of taxes is always a concern, but there are always other considerations, too.

BC: Have you noticed a movement toward real estate strategies?

LS: As pension funds increase, opportunities arise that you can maximize. I can’t speak for other plans, but in the more recent past, we have invested in real estate where traditionally we didn’t have the same level of investment, but ours has been a fairly conservative investment in real estate compared to the total amount of the plan. We [have] 5% invested in real estate.

Joel Kranc is managing editor of BENEFITS CANADA. joel.kranc@bencan-cir.rogers.com

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