Saint John Pension Q&A

October 16, 2012

In Saint John a stalwart Councillor trying to make pension changes is Susan Fullerton. She wrote a op-ed and a Q&A paper to cover some of the key issues.

Here is the piece she wrote that was printed in the Saint John Telegraph Journal.


Saint John’s pension: some FAQs
Councillor – Susan Fullerton
Saint John
16 Oct 2012 08:50AM
It is an honour to have been elected as a councilor in Ward 2 in the municipal election this past May.
Your current mayor and council were elected with a very strong mandate to take action to change the way that the city is managed and governed. A major part of the change demanded in the last election was pension reform. Voters were looking for change and elected us with the strongest of mandates to take bold and courageous action on the pension situation.
Transparency between City Hall and the citizens was another big election issue in most, if not all, candidates’ platforms.
Since the election, new additions were appointed to the Saint John Pension Board. My appointment was as one of the three mandated city council members. (The mayor is an automatic member, as he is chairman of the Pension Board, and two councillors must also be appointed).
By current estimates the city pension plan is short approximately $200 million on a “going concern basis” and the “solvency basis” deficit is approximately $385 million. Without significant pension reform, this will require contributions of around $26 million this year and for at least the next 10 years. This is a significant part of the city’s total budget and it will impact everything the city does. This money will be diverted from other operations, including police and fire, road repairs, transit, recreation, infrastructure upgrades for sewers and water project. My biggest concern is that services for our citizens most in need – the disabled, the poor, youth at risk and seniors – will be axed. We have already seen the financial impact on the city’s transportation budget.
Some information has come publicly to light in the past five months, specifically about this issue. Many of you have voiced your concern that council is keeping secrets about the pension from the taxpayers. This just not true.
A lot of questions are swirling around, with not many answers. I want to personally assure our citizens that I, as a councillor and also as a member of the Pension Board, have not been privy to any proposed solutions to the pension plan which are not also in the public domain.
City council and the Pension Board have been waiting for the provincial pension task force, which promised to provide further direction to us in a now overdue report. We are still waiting. Our mayor is on the inside track and assures us that the provincial pension task force will come with their proposal soon.
Many citizens have asked questions and expressed concerns about the current situation. I have decided to answer some frequently asked questions (FAQs) that cover many of the key issues that citizens are asking about. I am as concerned as you are; I have been and still am prepared to take action and want you to know your input is important towards helping to solve this problem. I thank you for your many emails, phone calls and comments I have received over the past few months.


Below is a list of frequently asked questions, which I hope may provide some additional clarity to the public.

Q. Where does the pension stand today?

A. The last official report from November of last year, showed the pension had a shortfall of around $133 million, with $372 million in assets. During the past year the shortfall has exploded to approximately $200 million, based on recent estimates. The November 2011 report showed the city pension plan had 827 retirees in the plan and we have around 800 active current employees.

Based on the current pension rules Saint John must fund the shortfall from current and future city revenues. The current estimate before council is that the city must contribute $26 million into the plan next year. In 2010 the city paid $12.4 million into the plan. This year’s estimated required pension contribution will be close to 15 per cent of the total city budget.

Q . Where will the money come from to fund the shortfall?

A. There are limited options for funding the shortfall. These include raising taxes, cutting services and perhaps, borrowing to fund the contributions. All of the options will mean significant sacrifices for city taxpayers. The option of major changes to the pension absolutely must be considered as well.

The city has paid its employees based on long-standing collective agreements. When these contracts were established, they were deemed to be fair for both employees and taxpayers. Now the city is in the position of adding another $200 million onto the compensation for employees paid over the past few decades. There are no assurances that the problem will ever be solved, will go away and not continue to increase. In the past year alone, city taxpayers have been put on the hook for major increases in the shortfall. In my opinion it is not fair that taxpayers are solely responsible for the current shortfalls, and employees should take some of the responsibility also.

Q. Why are “defined benefit” plans like ours no longer affordable?

A. There are three reasons why we can no longer afford defined benefit plans. People have a shorter working career during which to contribute to a pension plan, retirees live longer in retirement and therefore collect a lot more benefits and the performance of the stock market and interest rates have been low and unreliable over the past number of years.

Q. What is happening in other cites because of the pension crisis?

A. The worst examples are occurring in the United States, where these pensions have caused recent bankruptcies in California; the high profile cases include Stockton, Vallejo and San Bernardino. Cities in other states have gone bankrupt as well, but the largest ones have been in California.
In Canada several cities have serious pension problems. These include Montreal, with a $600 million pension shortfall with pension contributions eating up 15 per cent of the total city budget. Regina has a $293 million pension shortfall and Saskatoon saw its pension deficit double in the past year to $113 million. Unfortunately Saint John is one of the worst, if not the absolute worst situation of all Canadian cities.

Q. What do you think about the Dutch model pension plan that has been suggested for Saint John and which is currently being very well received in Fredericton?

A. I am very concerned about the Dutch model, as it does not appear to be doing nearly as well in Holland as the Dutch had hoped. I think that the Dutch model is mostly a defined-benefit plan, and I have already explained why I do not think that defined-benefit plans work any longer. In one piece of irony, the Dutch retirement age is 65 and it is moving to age 67 by 2023. In Canada today, the average police and fire employee retires at age 53, with the rest of regular employees retiring at age 58.

Q: Does Common Council, as a whole, know anything more about the Dutch model pension proposal than any Citizen who has educated themselves about it?

A. No. The mayor is looking after this file personally, and most (or at least many) councillors have no more information on when and what we expect to hear from the “provincial pension task force” and what they are going to propose than do the citizens and taxpayers.

Q. Do members of the Saint John Pension Board know anything more about the Dutch model pension proposal than any citizen who has educated themselves about it?

A. No. Other than the union members on the Pension Board who have an inside track to the provincial pension task force, and who have been asked to remain silent on it and have done so, others on the Pension Board, including myself, have no more information on what the proposal will be and how it will affect the employees, the citizens and taxpayers.

Q. What is Common Council doing about the pension situation?

A. Much to my dismay, Common Council is doing nothing until we hear from the provincial pension task force.

Q. What do you believe Common Council should be doing now about the pension situation?

A. One option that I have recommended would be for Common Council to have struck a committee of interested councillors, with qualified members from the business community, to craft a “made in saint john” solution to the pension situation. This way, when the provincial pension task force comes to present its proposal to us, we will have already crafted our own proposal so that we have something ready with which to make a comparison. Then we may choose what we think is the best option for the citizens and the employees.

Q. Why is this not happening?
A. The mayor has repeatedly requested, in the strongest of terms, that council do nothing but wait until the provincial pension task force comes to present their proposal to us.

Q. What happens then?
A. I would hope that council would then feel it appropriate to commence due diligence on a “Made In Saint John” proposal of its own to see what we can come up with, before we decide whether or not to accept the proposal made by the provincial pension task force.
Q. Is working on the numbers and trying to come up with a practical and workable solution to have on hand for comparison classed as “making changes”?
A. Not in my opinion, but it seems to be the opinion of the mayor that this would “send the wrong message” to the provincial pension task force, which is working on something to present to us.

Q. What is going on with the repeal of the Pension Act? Can council deal with the pension plan or not?
A. The situation with the pension plan is further exacerbated by the confusion and lack of clarity by the city’s ability to make changes (or not).

Q. What can we do about this?
A. It is vital that council learn, immediately, what the true situation is, and have the necessary legislation passed (or other steps taken) to give the council the ability to change our city pension plan if indeed, we do not have it now.
Although this was the intention when council asked the Legislature to repeal the Saint John Pension Act this past spring, it appears that something went amiss, as has recently become evident.

Q. You and Councillor Farren have made recommendations to change the Pension Board;, why?
A: Major conflicts of interest exist within its current structure. All but three of the members of the 12-person board have a vested interest in maintaining the status quo. The legislation mandates that even the mayor and the two councilors appointed are there to protect the interests of the pension and its recipients. There is no one on the Pension Board there to specifically look out for the interests of the taxpayers.

Q. Who, then, is supposed to be looking out for the interests of the citizens and the taxpayers?
A. Common Council.

Q. How can we get to the bottom of the situation regarding whether or not we can make changes to the Saint John Pension Act?
A. This is a very good question. I have asked everyone I can think of, from Saint John to Fredericton, and those in authority are either unable to or choose not to give me a straight (or in some cases, any) answer.

Q. What questions have been asked?
A. I have asked whether Saint John did not make the correct request of the Legislature to have the ability to make changes to our Pension Plan without asking the Legislature to approve them, or, whether the Legislature did not make the changes we asked for, and if so, what must we do now to get that power. It has been impossible to get a straight answer from anyone on this. I have asked it over and over.

Q. What can I do as a concerned citizen?
A. Please call, write or send an email to your provincial and municipal elected officials with your concerns.

Q. What action do you recommend we take?
A. I hope that after we hear from the task force, we will finally be free to take a little time to craft a “Made in Saint John” solution. If we develop a plan that provides a sustainable pension for our employees, and a fair shake for our taxpayers, my hope is for the Legislature to agree to the concessions that we will be forced to make to make the pension plan sustainable for our employees and our taxpayers going forward.
In closing, I would simply tell you that, like you, I am very frustrated and concerned about the pension situation, and council has recently decided that resolving the pension issue by the end of this calendar year should be a priority.

Susan Fullerton is a Councillor for Ward 2 in Saint John.