Legislation that mandates the transfer of five New Brunswick public sector defined benefit pension plans to a shared-risk model goes into effect today.
The Pension Plan Sustainability and Transfer Act, which received royal assent in December, will impact more than 7,800 active members enrolled in five plans serving school board and nursing home employees and allow a further 2,500 part-time employees to join a plan, subject to eligibility.
When the provincial government first tabled the legislation in November 2023, it said the move was necessary to ensure the sustainability of plans that have become unaffordable. On its website, the province said it has put in more than $55 million in extra funding into three nursing home plans since 2008.
Indeed, the deficit for the Pension Plan for General and Service Employees of New Brunswick Nursing Homes is roughly $123.4 million, while two plans for the Canadian Union of Public Employees 1253 and CUPE 2745 employees, which includes bus, drivers, custodians, maintenance workers, administrative support and educational assistants, currently have a combined deficit of nearly $162 million.
A shared-risk model pension plan incorporates some benefits from a DB plan but prioritizes flexibility, since it self-corrects depending on its funding status, says James Fu, a partner and national leader of pensions and benefits law at Borden Ladner Gervais LLP. He says the move will provide the province with more certainty about the plans’ funding status. “This shared-risk model really becomes more of a type of pension plan that gives plan sponsors much more predictability in the sense that it’s not at the full whims of the market.”
Affected plan sponsors will now select their preferred plan to which they’ll be transferring their assets and liabilities, a process that the province said it wants to conclude within six months of the legislation taking effect. Issues like transition funding, treatment of accrued pension benefits and the selection of the intended receiving plan will be negotiated in this transition phase.
The fact that the New Brunswick government felt it was important to go this route speaks to the financial pressures of running a DB pension plan across industries, says Fu, noting the move could spur other jurisdictions across the country to consider implementing a similar shared-risk pension plan model.
“I think [other jurisdictions will] look at it with interest in terms of deciding whether or not they would also . . . implement a shared-risk type model and . . . if they were to do this on a more required basis, as opposed to a voluntary basis.”
The government said it’s taking these steps after ongoing attempts to negotiate reforms to the plans through the collective bargaining process, including previous attempts to transfer two school district pension plans to an existing New Brunswick shared-risk plan, which has been performing well, is fully funded and offers enhanced benefits like cost-of-living annual increases for retirees.
In a press release, the New Brunswick branch of the CUPE, which represents full-time school district employees, called the legislation’s passing disappointing but “not surprising” and vowed to explore every legal avenue to stop the policy. The union argued the provincial government broke an agreement in place to negotiate pension concessions, which was set up to end a 2021 public sector strike by 22,000 CUPE members.
This isn’t the first time the province has elected to shift existing plans to a shared-risk model. Ten years ago, most of the province’s DB pension plans were transferred to a target-benefit model, resulting in an additional 23 per cent to cost-of-living allowances for retirees, according to a report by the Canadian Press.
The main difference here, Fu says, is that the province felt the need to introduce legislation mandating the change.