Saint John council could cut its pension payments by $10 million a year by switching to a shared-risk plan, a consultant told the city on Monday night.
Susan Rowland, the chairperson of a pension task force that has been reviewing the city’s beleaguered pension plan, offered a blunt assessment of Saint John’s situation at a council meeting on Monday.
"This is the worst pension plan I've ever seen," she told councillors.
"Your pension plan is not in good shape at all."
She said the Saint John plan is the victim of a perfect storm — retirees living far longer than expected, low investment returns, and new rules which make it mandatory to prepare for even lower investment returns in future.
Rowland also said the actual pension plan deficit is much higher than Saint John residents may believe.
The official pension deficit stands at $195-million, but Rowland said the more accurate figure would be $342 million.
Rowland said the city has two options, either to convert the pension to a defined contribution plan or adopt a shared-risk model.
The consultant is advocating a shared-risk pension plan, similar to a new model adopted by the provincial government.
The proposed pension plan would share the risk for future deficits between workers and the city and opens the option to temporarily reduce benefits if the fund falls behind.
In the meantime, the city will have to pay $12 million a year for 15 years to retire the deficit.
Councillors will hear more about the proposed new plan at a special meeting on Thursday.
'Why should the taxpayers suffer this double-whammy? Have they not suffered enough and will they not suffer enough for the next 10 to 15 years?' — Coun. Susan Fullerton
Rowland’s plan may not be a foregone conclusion.
Coun. Bill Farren said he is going to take some time to consult with others before he decides whether he will endorse the proposal.
Coun. Susan Fullerton, who has said in the past she would like to examine offering city employees a RRSP or defined contribution plan, also sounded critical on Monday.
"Why should the taxpayers suffer this double-whammy? Have they not suffered enough and will they not suffer enough for the next 10 to 15 years?" she said.
The provincial legislature passed a bill before it adjourned for the summer that repealed the Saint John Pension Act. That move gave Saint John greater autonomy in handling its pension crisis.
With that new power over its pension plan, Saint John councillors requested Rowland lead a task force that would recommend a solution to the woes facing the city's pension plan.
Rowland was involved with a similar pension task force that recommended a shared-risk model for the provincial government.
When the provincial model was announced, Premier David Alward said these reforms would not cut the benefits that are in place for retirees but it will likely lead to "marginal" increases to employee contributions.
Other changes include, basing pensions on an "enhanced career average" of earnings rather than the employee’s final salary.
Further, the retirement age will be moved to 65 from 60 over a 40-year period.
In May, the New Brunswick Union, the Canadian Union of Public Employees Local 1252 and the New Brunswick Pipe Trades said they planned to use the new pension model for some of their pension plans.