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The City of Saint John provides retirement and disability benefits to its employees through the provisions of the City of Saint John Employee Pension Plan (the Plan). The Plan is a defined benefit pension plan that provides employees with a retirement pension equal to 2% of their average earnings for each year of pensionable service.

 

The Plan is a separate legal entity from the City administered by a Board of Trustees. The provisions of the Plan are set out in Provincial Legislation, The City of Saint John Pension Act. The Board of Trustees includes the Mayor and two members of Common Council, the City Manager, The Commissioner of Finance, the Common Clerk, one representative from each of the four civic unions, one representative from the management/non-union employees and one representative from the Retirees Association.

 

The Plan is jointly funded through contributions from the City and all employees. Employees are required to pay 8.5% of their earnings into the Plan and the City must contribute at least 7% of employee earnings. The City’s contributions vary as ultimately it must make up any difference between the employee contributions and the funding requirements determined through on-going actuarial valuations of the Plan.

 

 

In accordance with the Provincial Pension Benefits Act, every three years the Plan is required to have an independent review of the Plan funding completed by a licensed Actuary. It is the Actuary’s role to value the assets of the Plan (valuation assets) at a given date and compare that amount to the value of the estimated cost of benefits (valuation liabilities) earned by Plan Members to that same date.

 

The valuation process is very complex and requires a number of assumptions to be made related to general economic conditions, investment returns and member demographics in order to determine a reasonable estimate for the valuation assets and liabilities.

 

In general terms, if the valuation assets of the Plan equal or exceed the valuation liabilities then the funding of the Plan is deemed adequate. If on the other hand the valuation liabilities exceed the valuation assets then increased funding must be provided by the City to make up the funding shortfall.

An Actuarial Valuation of the Pension Plan as at December 31, 2000 showed that the Plan had a surplus of approximately $24 million on a “going concern” basis. Shortly after completion of this valuation however a number of concurrent events occurred which significantly impacted the funding of the Plan.

 

1.      Stock Markets – for a sustained period commencing in 2001 the world’s stock markets went into a significant decline. The Plan’s assets, which are invested through professional investment managers in a variety of investment instruments, were subject to these market conditions. While the Plan did not lose a significant amount of money during this period, it was not able to realize the 8% returns projected in the plan’s valuation.

 

2.      Interest Rates – long-term interest rates declined to very low levels. The impact of these low interest rates is that it increases the estimated costs of the valuation liabilities.

 

3.      Aging Workforce – the City went through an extended period of time where it was decreasing the size of its workforce and as a result was not hiring many new employees. As a result the average age of the city’s workforce increased which increases the cost of the Plan’s valuation liabilities.

 

By mid-year in 2002 it was readily apparent that the Plan would be faced with a significant funding shortfall at its next formal valuation scheduled to be completed as at December 31, 2003.

 

 

The first reporting to Common Council regarding this matter occurred in August of 2002. A report from the Commissioner of Finance indicated that the City could be faced with additional annual contributions to the Plan of at least $3.6 million starting in 2004.

 

In April of 2003 Common Council was once again appraised by the Commissioner of Finance that funding of the Plan continued to be an issue for the long-term financial position of the City.

 

In August of 2003 Common Council considered a report regarding the timetable for the 2004 budget preparation. It was recommended that the pension funding issue be the first item dealt with during the process.

 

On September 15, 2003 Common Council received a report from the Commissioner of Finance and the City Manager which recommended actions that could be taken to resolve the funding shortfall. At that same meeting the City’s four civic locals and Retirees also presented a report to Common Council.

In May of 2004 a report from the Commissioner of Finance was presented to Common Council which indicated that the Plan was currently facing a funding shortfall of approximately $40 million and that the City’s required annual contributions would have to increase by at least $4.5 million commencing in 2004 to fund this shortfall.

 

In November of 2004 a presentation was given to Common Council by the Commissioner of Finance indicating options that could be taken to deal with the Plan’s funding shortfall. Common Council referred the matter to the Board of Trustees of the Plan for a report on actions that could be taken.

 

In December of 2004 Common Council approved a recommendation from the City Manager to provide additional funding in the 2005 Operating Budget to commence funding the shortfall in the Plan.

 

On January 17, 2005 Councillor Ferguson submitted a letter to Common Council seeking answers to a series of questions regarding the Plan. The letter was referred to the City Manager for a report in consultation with the Board of Trustees.

 

On January 31, 2005 a report from the Commissioner of Finance and the City Manager was presented to Common Council responding to Councillor Ferguson’s questions.

 

In April, 2005 Common Council was presented with a detailed report from the City Manager and Commissioner of Finance with recommendations for dealing with the funding shortfall in the Plan.

 

On May 25, 2005 Common Council approved a motion to seek outside legal advice to respond to questions from Councillors regarding governance of the Plan.

 

On June 7, 2005 Common Council received a letter from the Board of Trustees of the Plan advising that the City’s contributions were in arrears.

 

In December of 2005 Common Council received an Order from the Superintendent of Pensions to pay the outstanding contributions into the Plan.

 

On December 19, 2005 Common Council received a report from the City Manager detailing the 2006 budget implications for the City making the required contributions to the Plan.

 

On January 30, 2006 Common Council received a letter from the Board of Trustees providing background on questions that had been raised regarding administration of the Plan.

 

On July 4, 2006 Common Council received a report from the Commissioner of Finance responding to questions that had been raised regarding Financial reporting and Pension Plan Administration.

 

On July 17, 2006 Common Council received a report from the City Manger regarding pension plan funding requirements and making recommendations on actions to be taken.

 

On July 17, 2006 Common Council received a detailed presentation from Councillor Ferguson raising concerns over the administration of the Plan.

 

On October 10, 2006 Common Council received a report from the City Manager detailing actions that could be taken to deal with the Plan’s funding requirements. The report was tabled to allow for presentations from various City Employee groups.

 

On October 16, 2006 Common Council received a presentation from the City’s Employee groups requesting consultation process.

 

On January 4, 2007 Common Council received presentations from the City’s Employee Groups suggesting actions that could be taken to resolve the Plan’s funding issues.

 

On March 26, 2007 Common Council received a report from the City Manager providing details of the Pension Funding Agreement that had been reached with various City employee groups.

 

On April 23, 2007 Common Council received a submission from the City’s Management/Professional/Non-Union employees agreeing to the Pension Funding Agreement.

 

On March 3, 2008 the City Manager tabled a report with Common Council suggesting next steps in dealing with the Plan’s funding position. Council did not deal with this report and instead directed the city Manager to commence discussions with the City’s employee groups.