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The Third Rail: New Brunswick’s electrifying pension-plan revival Add to ...

The other decision was to follow Rowland’s advice to seek direction from the courts regarding the pension committee’s right to change plan benefits and contributions.

After two days of hearings, Mr. Justice William Grant of the Court of Queen’s Bench of New Brunswick handed down a decision on July 8, 2011, that would help pave the way to pension reform. Grant made three key findings. Recognizing the serious condition of the pension plan, he ruled that the governing committee of the Nurses and New Brunswick Union had a legal obligation to protect the long-term survival of the pension plan, even if that meant imposing benefit cuts. He ruled that the committee had the power to eliminate cost-of-living allowances (COLA) from the pensions of active workers. COLA increases, Justice Grant ruled, were not a benefit accrued during workers’ careers but rather a perk earned on retirement day. The flip side of Grant’s ruling was that retirees’ COLAS could not be touched. Stripping a benefit that was already being paid to retirees would be a contractual violation. On the issue of asking workers to increase paycheque pension contributions, Grant ruled such hikes were possible, provided the employer, in this case the Government of New Brunswick, similarly increased its contributions to the plan.

Grant’s decision marked one of the few times a Canadian court allowed a solvent pension plan to change benefits without a membership vote or collective bargaining process. The struggling pension fund had a green light to suspend a perk it could no longer afford.

Grant’s decision also sharpened the legal boundaries of pension rights. If troubled funds needed to scale back payments to retirees or ask employees and employers to save more for pensions, New Brunswick had to change its laws. Premier David Alward was willing, but before he introduced laws to shrink pension benefits, he had to ensure his government was bulletproof. That meant rolling back rich pensions for provincial politicians. MLAs would be the province’s first pension beneficiaries, outside of bankruptcy proceedings, to swallow significant benefit reductions. “It was the right thing to do. We needed to be part of the change,” Alward said.

For the next ten months the task force and Alward’s government worked behind the scenes to draft new legislation and calculate the right mix of pension cuts and funding increases needed to rescue their retirement system. Although reformers were confident they could find financial solutions, they were uncertain of political support. “We were taking a significant risk as a government,” Alward said. About 70 per cent of the province’s workers did not have pensions. If the government was too generous with troubled funds, which largely covered public sector workers, it could have a taxpayer rebellion.

He had to convince unions and voters that a pension overhaul would save the province from a financial meltdown.

After Justice Grant’s decision, Rowland encouraged unions to meet with Alward in late 2011 to pave the way for a new approach. Alward promised union chiefs Quinn and Proulx-Daigle that he would support a collaborative approach. If they worked with the task force to repair broken pension funds, their solution could be a template for other ailing funds.

Over the next weeks and months, the two sides inched toward an agreement. Alward’s government agreed to increase contributions to the pension fund, but in exchange the unions had to swallow benefit reductions and other changes to ensure the long-term viability of their pensions. Rowland and Ferguson, played a key role in guiding the unions to the right mix of benefit cuts.

By March 2012, the task force and unions had reached an agreement on general terms of a new pension plan. They also had something else. Thanks to Rowland’s shuttle diplomacy with other troubled New Brunswick pension funds, two more unions agreed to consider reforms.

The blueprint for New Brunswick’s reforms came from the Netherlands. The Dutch had reformed their pensions in the early 2000s to prepare for the strain of baby boom retirements. The result was a shared-risk model that ranked as one of the world’s most admired pension systems.

Like the Dutch model, the province’s pension system would be called a shared-risk plan. Employers and employees would increase contributions if needed, and benefits could be scaled back or redesigned to ensure pensions had sufficient surpluses to survive market shocks and demographic changes. Unlike Conrad Ferguson’s alarming 2009 prognosis that the plan for the two New Brunswick unions would need to slash benefits by more than 60 per cent to save pension plans, most new reforms would be introduced incrementally. Those pensions that agreed to reforms would also have to adhere to more conservative risk management tactics – practices that would use more modern and conservative mortality and investment forecasts. Overly optimistic forecasts would no longer mask funding issues. Overseeing all these changes would be independent administrators.

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