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Quebec, Newfoundland face pension ‘challenge’: Moody’s Add to ...

These are stories Report on Business is following Thursday, Sept. 19, 2013.

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Quebec, N&L face pension risk
The governments of Quebec and Newfoundland and Labrador face the biggest “pension risk” among Canada’s provinces given their fat pension liabilities, Moody’s Investors Service warned today.

In a new report, the U.S. agency looked at liabilities-to-revenues and finds those two provinces as potential trouble spots. In Quebec, that measure stands at 49.2 per cent, and in Newfoundland and Labrador at 55 per cent.

Also an issue is Saskatchewan, at 55.1 per cent, and it “stands out because it closed its defined-benefits plans and takes a pay-as-you-go approach to funding,” Moody’s said.

But its focus was on Quebec and Newfoundland and Labrador given that “relatively large unfunded pension liabilities pose a challenge as they are likely to rise for multiple reasons.”

Said Moody’s: “On the asset side, average asset returns have been lower since 2008-09, which reduces expectations of future returns on assets. On the liability side, discount rates have started to decline, which increases reported liabilities. Finally, the average life expectancy of pensioners is rising, which creates the need for longer benefit payouts and therefore larger reported liabilities.”

Moody’s looked at all provinces in the report, which also covered states in Australia, Germany and the U.S.

The Canadian portion of the report, prepared by analyst Michael Yake, noted that, in 2012, British Columbia had the smallest burden, at 3 per cent, while Ontario had a small surplus.

“We believe that credit risk tied to pensions is manageable because of the relatively small size of unfunded liabilities as a share of revenue and because we expect the provinces that are facing the highest liabilities to enact reforms,” the agency said of the Canadian provinces.

“If they do not, then credit risk could rise.”

Here's what Moody's said of the three provinces in the spotlight:

Saskatchewan: "Saskatchewan is in an unusual situation among Canadian provinces because it began to close all of its defined-benefit pension plans and transition to defined-contribution plans in the 1970s. Enough time has passed since these plans were closed to new members that Saskatchewan can reasonably forecast the required annual payments to members. Saskatchewan, therefore, treats its defined-benefit pension plans as pay-as-you-go plans in which annual obligations are funded from current revenues. This places a larger requirement on the province to ensure that it fully pays its annual pension requirement."

Newfoundland and Labrador: "Following the 2008 financial crisis, the province saw a substantial loss in the value of its pension assets, which lowered the funded ratio to 54 per cent in 2009 from 77 per cent a year earlier. The province forecasts deficits through 2014-15, and rising pension costs will add another challenge as the province tries to balance its budget. Newfoundland and Labrador has included pension reform as part of its 10-year sustainability plan, and has committed one-third of its annual surpluses, once achieved, toward the unfunded pension liability.

Quebec: "Over the next few years, the province will face pressure to reduce both its relatively high debt burden and unfunded pension liability, within a context of having little room to increase new revenue given its status as a highly taxed Canadian jurisdiction. Quebec has made changes in recent years to its pension plans, including allowing employees to work more years (and hence delaying the start of pension payments) and lowering the benefit for early retirement."

(Editor's note: An earlier version of this post incorrectly stated New Brunswick had the smallest burden at 8.3 per cent. B.C. has the smallest, at 3 per cent.)

Canada takes another run at single regulator
The Canadian government has struck a deal with two provinces, Ontario and British Columbia to create a new securities regulator that covers roughly two-thirds of Canadian capital markets, reigniting a long fight over a national securities regulator, The Globe and Mail's Barrie McKenna and Janet McFarland report.

The three governments said Thursday the other provinces and territories will be invited to join the new “cooperative” regulator, slated to be operational by 2015.

Finance Minister Jim Flaherty said the proposed new system would help attract more investment, better protect investors, make it easier to prosecute white collar criminals and manage risks to the financial system.

JPMorgan settles probes
JPMorgan Chase & Co., the largest U.S. bank, has agreed to pay nearly $1-billion (U.S.) to regulators on both sides of the Atlantic to settle probes into its “London Whale” trading disaster.

That’s a whopper of a fine. But, our New York correspondent Joanna Slater writes, don’t be distracted by the big numbers in the settlement.

The real news here is that JPMorgan has admitted that it broke securities laws. That marks a major departure from past civil settlements involving financial institutions.

Moore hopeful BlackBerry ‘able to make it on their own’
Canada’s industry minister says his government is hopeful BlackBerry Ltd. can make it on its own, without any help.

James Moore’s comments today come as the smartphone maker, up for auction for all or part of the company, is poised for deep cuts.

“I want BlackBerry to do well,” Mr. Moore told reporters in Oakville, Ont., according to Reuters.

“I want BlackBerry to grow and to continue to employ Canadians to continue to innovate and be a challenger to the Android and iOS platforms and Windows platforms and to create a good product that’s doing well.”

He was referring to systems from Google Inc., Apple Inc. and Microsoft Corp.

Mr. Moore was asked whether his Conservative government could come to the smartphone maker’s aid. He said he hasn’t been asked but “we’re hopeful that they’ll be able to make it on their own.”

Even as BlackBerry goes through the auction process, yesterday it unveiled a new smartphone. And this weekend, users of rival systems will be able to use BlackBerry’s popular messaging service.

As The Globe and Mail’s Omar El Akkad and Sean Silcoff report, it is also making plans to cut about 5,000 jobs, or 40 per cent of its work force, by the end of the year.

Ford upgrades Canadian plant
Ford Motor Co. is pumping $700-million into a Canadian assembly plant to “meet surging global demand.”

The auto maker said today the investment would secure more than 2,800 jobs in Oakville, Ont., as it retools, The Globe and Mail's Eric Atkins reports.

“The enhancements at Oakville Assembly are Ford’s latest step in maximizing its existing North American manufacturing assets, matching production to consumer demand as Ford’s North American sales surge to pre-recession levels,” the auto maker said, adding it will bring “several new models” to the factory.

As The Globe and Mail’s Greg Keenan reported earlier this week, the Canadian and Ontario governments are kicking in some $405-million to the Oakville overhaul, which will allow Ford to retool to assemble mid-sized crossover utility vehicles.

Number of EI recipients declines
Canada’s labour market has marked something of a milestone: The number of people collecting jobless benefits has for the first time eased to pre-recession levels.

That doesn’t mean Canada’s jobless rate isn’t still elevated – it stands at 7.1 per cent and is projected to remain around the 7-per-cent mark for some time – but it is a sign of the rebound from the slump possibly coupled with fewer people qualifying for benefits.

The number of Canadians relying on regular Employment Insurance benefits fell in July by 2.1 per cent from June, or by almost 11,000 people, to 503,900.

That also marks a drop of 5.7 per cent from a year ago.

“This decline brings the number of beneficiaries to a level similar to that observed before the start of the labour-market downturn in 2008,” Statistics Canada said today.

The latest numbers don’t indicate how many people no longer need benefits because they have found work, and how many have simply run out. As well, the Canadian government has brought in restrictions on the EI program.

The number of Canadians needing jobless benefits climbed steadily from the 506,830 in September, 2008, the month Lehman Bros. collapsed, to peak at about 840,000 in June, 2009.

It then began a slow decline.

“Compared with 12 months earlier, there were fewer beneficiaries in almost all occupation groups,” Statistics Canada said.

“The declines ranged from 3.7 per cent in management to 16.8 per cent in health occupations,” the federal agency added.

“At the same time, there was virtually no change in trades, transport and equipment operation, while the number of beneficiaries in natural and applied science occupations was up 10.3 per cent in July – the fifth consecutive month of year-over-year increases for this group.”

Having said that, the number of initial and renewal claims climbed in July for the second month in a row. That's a statistic that indicates how many people could become beneficiaries, according to Statistics Canada.

And economist Erin Weir of the United Steelworkers called it a “black day,” noting that while the number of unemployed Canadians is above the pre-recession level of 1.1 million, those receiving benefits, as a proportion, is at a record low 36.5 per cent.

Unlike many other countries, Canada has regained all of the jobs lost to the recession, though almost 1.4 million people still can’t find work.

And according to the Organization for Economic Co-operation and Development, long-term unemployment remains a problem in Canada.

“The share of the unemployed who have been jobless for a year or longer has nearly doubled since the beginning of the recession and this group needs additional assistance to be able to benefit from an improving labour market,” the OECD said in a report two months ago.

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