The New Brunswick government is overhauling its pension system that will see increased contribution levels and higher age of retirement phased in slowly over a period of time.
Premier David Alward announced the redesigned pension plan at a news conference on Thursday in Fredericton, along with several union representatives who support the changes.
Alward said the existing pension plan is not sustainable.
"While some plans have acute funding problems, many plans as they currently exist are not sustainable in the long term," he said.
"It is not fair or realistic to encourage New Brunswick workers to rely on a pension scheme which is not sustainable. And it is not fair or realistic to expect New Brunswick taxpayers to backstop huge swings in pension valuations because of the performance of pension plan investments."
The pension changes will not cut the benefits in place for retirees and it will "likely" lead to "marginal" increases to employee contributions.
Pensions will be based on an "enhanced career average" of earnings rather than the employee’s final salary.
The retirement age will also be moved upward, but it will be phased in. The targeted retirement age would be moved to 65 from 60 over a 40-year period.
The provincial government’s reforms would also see cost-of-living increases conditional on the pension plan’s performance.
There would be a provision that would still allow for cost-of-living increases in years where the pension plan was making money to account for any years where the increases were not imposed.
The various changes are slated to be phased in, according to the premier.
The New Brunswick is modeling its pension reform after the Dutch model, Alward said.
Protecting against failure
The Alward government struck a pension review committee to examine public sector plans last September.
The importance of these pension reforms, Alward said, can be found when looking at some high-profile failures in the province.
"Unfortunately, as we saw in the case of Nackawic and Fraser Paper, too often a ‘guaranteed pension’ is not actually guaranteed at all," he said.
"Those workers and pensioners found out that what they thought was a guaranteed pension plan was only as strong as their company’s ability to pay for it. When the company failed, the pension failed with it."
Workers from the St. Anne-Nackawic pulp mill launched a legal fight to avoid cuts to their pensions. The Supreme Court of Canada ultimately did not hear the workers' appeal.
Retired Fraser Papers workers saw their pensions slashed by one-third when the company went bankrupt.
An element of the provincial pension reforms is managing the security and risk of plans.
The changes are intended to include an investment mix that is less volatile to swings and ensure adequate contribution levels.
The new pension rules are taking into account a changing workforce demographic.
Canadians are living on average four years longer than the 1950s and are retiring seven years earlier.
"To put it simply, our pension system was designed in a time when people worked longer and lived shorter lives," Alward said.
While pension reform is generally a thorny issue, the province's opposition parties are giving the plan thumbs up.
"The pension liability to the taxpayers of New Brunswick is a major issue," said Liberal MLA Donald Arsenault.
"It needs to be addressed. I commend the Premier for putting together a task force to bring forward recommendations on a new path forward."
"I think it offers a really good way to offer safe and reliable pensions for workers in New Brunswick," said NDP Leader Dominic Cardy.
The plan hasn't won over everyone just yet. The Canadian Federation of Independent Business said it's somewhat optimistic but the devil is in the details.
The CFIB is voicing concerns over the length of the transition period and the cost to taxpayers.
Unions support reforms
The Alward government’s pension reforms also got a boost of support from some public and private sector unions.
The New Brunswick Union, the Canadian Union of Public Employees Local 1252 and the New Brunswick Pipe Trades will be using the new pension model for some of their pension plans.
Marilyn Quinn, the president of the New Brunswick Nurses Union, said in a statement the model would make the pension plan sustainable.
"Most importantly, we believe this solution will provide retirement security for nurses, paramedical and specialized health-care professionals working in our two regional health authorities," she said in the statement.
Gary Ritchie, the administrator of the New Brunswick Pipe Trades pension plan, said in a statement he was pleased to work collaboratively with the provincial government on the pension reforms.
"The new rules will allow us to recognize the advantages that our plan provides by being one of the few pension plans in Canada to be more than 100-per-cent funded on a going-concern basis," he said in the statement.
"These rules will provide our plan members with the security and benefit levels they deserve, while providing the sustainability and affordability that the plan's sponsors require in an increasingly competitive global environment."