The City of Saint John's Pension Plan Problems

Please Note: Each Date that is highlighted in Blue, is a link to a .pdf file containing the minutes of Common Council

At the meeting of Common Council on November 1, 2004 City Manager Terry Totten stated, "the present financial problems with the plan is not something that happened over night, but has been an issue for several years."

Looking at the minutes of Council, Mr. Totten seems correct in that the plan had an unfunded liability of $2.5 Million back in 1975, (September 1977) 33 years ago.

City records show this unfunded liability grew to $5.04 million by the end of 1984, $7.02 million by the end of 1986 and $11.4 million by the end of 1987. Yes, it appears the problems with the pension go back more than thirty years and seem to have multiplied as the years passed.

Councillor Dennis Knibb raised concerns about the number of employees retiring on disability in 1990 and in 1991. (August 7, 1990) and (January 21, 1991)

When the Saint John District Labour Council wrote a letter to council asking for an apology from Councillor Knibb for raising the matter in the media Councillor Dennis Knibb re-iterated his concern that the number of people leaving the City's employ on early retirement is excessive and suggested "the number of employees retiring on disability with non-identifiable illnesses should be looked into." (February 25, 1991.) Mr. Paul Goody, the Human Resources Manager at the time responded that "the City has a situation with respect to disability pensions and, like any other responsible employer, the situation must be and is being reviewed with a full report to be submitted to Council in the near future."

The problem wasn't lost on Mayor Elsie Wayne when at a council meeting in 1991 (April 22, 1991) she

expressed her concern that "no agreement has been made by the Board of Trustees of the City of Saint John Pension Plan on how to address the serious problem of disability claims or the ever-increasing funding deficit."

In early 1992 (February 24, 1992) Mr. Darryl Wilson, who was the Treasurer of the Pension Plan at the time spoke of the rates of return the plan experienced in the previous five years.

He stated the plan generated an average of 9.6% interest over the previous five years and he said this made the real rate of return 5.1% as inflation for the period was 4.4%.

He also mentioned that the unfunded liability at the end of 1986 was $7.02 Million and it had grown to $11.4 million by the end of 1987. Mr. Wilson also referred to a change in the definition of disability to conform to Federal legislation.

Was this a change in wording from one being totally disabled from one's own job (e.g. Firefighter) to being totally disabled from any job (e.g. Fire Department dispatcher)?

Wouldn't you think drastic action would be taken if you were making such great rates of return and the plan was still going behind?

In early 1993 (February 22, 1993) Mr. Wilson reported that the plan's unfunded liability was $8.9 million at the end of December 1991. Mr. Wilson confirmed that people who retire on disability can not qualify for a higher disability pension than what is provided for in the definition in the Canada Pension Plan, and that it is quite common for disability to be covered through an insurance program and not be part of a pension plan; and advised that the actuary, when doing his estimating, always comments on the high incidence of disability the City has, which does in fact, result in having to provide for much more in the way of disability liability than would normally be expected and that, while at this time he could not give an actual percentage, it has been raised on a number of occasions that disability coverage in the Plan has been a significant drain on the monies that are otherwise available for pensions.

Remember the famous overly generous Sick Leave plan proposed for the City's managers in October 2008 that got leaked before it was implemented? Think that is something new? Let's go back 15 years to March of 1993 (March 22, 1993) when former City Manager John Brown advised,

that having reviewed the matter of an earned sick leave as opposed to an entitlement, is suggesting the approach proposed to ensure that sick leave is there when employees need it, and the intent is to make a clear and understandable statement of what the City's policy is for management staff as that is not something that existed before in written form; and that this interim policy would allow staff to review the experience and report to Council in one year's time so that if Council, after one year sees the need to adopt a different approach, that could happen at that time. It is interesting that Councillor Gould said he could not support the proposed Sick Leave Plan for management in that it would result in a two-tier sick leave program and there can be an abuse of sick leave both by management and union employees.

In February 1994 the subject of the effect of disabilities on the viability of the Pension Plan rears its ugly head once more when

Councillor Knibb expressed the opinion, that having made the general statement that "Council should not be congratulating persons who go out on disability because in fact it hurts the fund in that nothing would kill the fund faster and make it impossible for the retirees to survive if half the City staff retired on disability because they draw full pension and contribute far less than their share." (February 7, 1994)

Several changes to the Plan were forwarded to the Legislature in 1996 including Indexing of the pension. (January 29, 1996). By year end 1997 the Plan had a surplus of $13.3 million. Instead of leaving the surplus for a possible rainy day the Pension Board in 1999 chose to distribute $12.1 million of the surplus in enhanced benefits to the Plan members. (November 1, 1999)

The City's Pension Plan had reported ASSETS of $121. 6 Million at the end of 1991 (February 24, 1992) which grew to $275.4 Million by the end of the year 2000. (April 2, 2001) The LIABILITIES at the end of 2000 were $251.1 Million leaving the Plan a Surplus of $24.3 Million. By June of 2002 the Plan's ASSETS had shrunk to $239.2 Million, with the LIABILITIES rising to $271.1 Million leaving the Plan with a DEFICIT of $31.8 Million. The City (Taxpayers) would have to contribute an additional $3.6 Million a year to fund this $31.8 Million going concern shortfall. (August 6, 2002) By this time there were concerns with the Pension Plan and Councillor Titus raised the point about employees retiring on a disability pension rather than a regular pension as their health and dental plan was covered at an additional cost to the taxpayers if they went out on a disability pension. (September 3, 2002) The Annual Report of the Pension Plan for December 31, 2002 showed the ASSETS at $238.6 Million and a going concern DEFICIT of $39.3 Million. (March 10, 2003)

Other strains on the Pension Plan were the voluntary separation program (December 16, 2002) which included some employees who had not reached the age of 55. There were at least fifty early retirements approved which means money flowing out of the plan rather than in.

Responding to a question raised by Councillor Court Mr Beckett advised that approximately 50 employees took the buyout in 2002 and explained that he would request the actuary for the financial impact of these buyouts on the Plan's solvency and going concern deficit. During discussion Mr Woods advised that Council is responsible to fund the Pension Plan as it is presently set out and the Trustees are responsible to look out for the best interest of the beneficiaries. What would justify buy-outs of employees that was meant to save costs when instead many of the positions were replaced thus costing more for the City and the Pension Plan. (April 11, 2005)

Meanwhile the Pension Board members' Conflicts of Interest were being discussed at Council. The City Solicitor (November 1, 2004) raised the matter as did Councillor Glen Tait, the former Fire Chief and Pension Plan recipient (May 18, 2005).

Councillor Tait moved, Seconded by Councillor Court

RESOLVED that Council request the City Solicitor to examine the situation that exists with Councillor Tait the concerns being outlined in

the submitted letter by Councillor Tait and identify if and where any conflict currently exists now and in the future Furthermore if it is determined that a conflict exists the City Solicitor provide advice as to when Councillor Tait should exclude himself from participating in debate and decisions of Council as it relates to Pension issues

Councillor Titus asked if the City Solicitor was able to advise individual members of Council with respect to conflict to which the City Solicitor responded that in this case it is advice to Council and not to an individual member

Councillor Titus proposed an amendment to the motion which was accepted by the mover and seconder to include the Mayor and Councillor Titus to the motion (May 25, 2005) Motion passed.

By the Fall of 2002, the Council and the Pension Board looked at options to fix the obvious DEFICIT problem. In the minutes of Public Committee of the Whole of Council on September 15, 2003 (September 15, 2003) the options to address the funding deficit were:

1. Seek changes to or exemption from legislated funding requirements.
2. Decrease benefits provided under the Pension Plan.
• eliminate future indexing (would decrease the deficit by 28.9 million).
• Eliminate early retirement option (eliminating this option immediately would decrease the deficit by 35.5 million, while eliminating the early retirement option in 3 years time rather than immediately would decrease the deficit by 20 million). Either one of these changes would resolve the funding issue and satisfy the legislative requirements.

Were the suggestions followed? It appears part way in that the change to having to pay based on the solvency evaluation was changed through provincial legislation but there doesn't seem to have been any decrease in the benefits.

Meanwhile the workers at the Saint John Transit Commission applied to join the City Pension Plan. (January 12, 2004)

In 2004 a new Council was elected and many of the new councilors did not know the history of the City's Pension Plan. That is when two of the new Councillors, Ferguson and Farren, started asking questions. (January 17, 2005)

It didn't take long for the stonewalling of the Councillors questions to begin. (January 31, 2005) Any attempt to get at the bottom of the Plan's problems was rebuffed. (March 14, 2005) This stonewalling continued through 2005 and 2006 with attempts to get a proper accounting of the Pension Plan and its problems done rebuffed at every turn.

On motion of Councillor Ferguson

Seconded by Councillor Court

RESOLVED that Common Council engage an independent third party expert in the area of pension law pension administration pension structure and pension investment to perform a complete and thorough review of The City of Saint John s Pension Plan To ensure public confidence in the final report this independent third party engagement must be free from staff members of the Pension Board and Common Council

Councillor Ferguson expressed concern regarding the financial status of the pension plan and stressed the need for a complete independent third party review Councillor Farren spoke in support of the proposed motion and Councillor Court questioned if the City has any protection if the markets drop as they did approximately three years ago to which Mr Beckett responded there is no guarantee against a downturn and pointed out the Pension Board has taken actions to diversify its investments so that if there is a particular downturn in the investment it would be marginalized by having investments in a number of different places. (June 5, 2006)

It is worth noting that any shortfall in the Pension Plan is the responsibility of the 'Plan Sponsors' (us taxpayers) while surpluses have forever been distributed in the form of these 'enhanced benefits'.

There is an anomaly in the Income Tax Act that limits surpluses so CRA doesn't lose tax revenue from plan members if they over contribute. That limits the "rainy day" savings to 110% of the amount required to fund the members' pensions, not a real healthy cushion in the real world of 2008.

An odd thing one sees when looking at the Annual Report to Plan members is that there is no references to the Plan's LIABILITIES or the Plan's DEFICIT in the listed figure. Why not? Shouldn't the Pension Plan members know the whole story? (Members Report Dec 31, 2007)

Simple accounting recognizes that ASSETS minus LIABILITIES equal either a SURPLUS or a DEFICIT. The reciprocal is that ASSETS plus a DEFICIT equals LIABILITIES. What are the Plan's LIABILITIES or its DEFICIT now?

When he was interviewed on CBC Radio on December 10^th., Councillor Titus, the former Pension Board member made reference to the plan's assets and said they are $300 million +. It seemed strange that he did not mention what the plan's LIABILITIES or its DEFICIT or SURPLUS were.

Looking at Council minutes, the Plan's Assets at December 31^st. 2000 were $275.4 million. Didn't Mayor McFarlane, Chair of the Pension Board at the time say the Pension Plans Assets had grown to around $375 million just before the election in 2008?

Councillor Titus in his CBC interview said the plans rate of return from 2000 to 2006 was 6% in 2000, a loss of 4% in 2001, a loss of 3% in 2002, growth of 12% in 2003, 11% in 2004, 17% in 2005, 16% in 2006 and then a loss of 2 1/2 % in 2007. He stated the plan lost 9 to 10% this year.

Let's take $100 and add and subtract the various percentages Councillor Titus alluded too over the 9 year period. The following is a very simple chart using interest compounding only once a year.

The Pension Fund Assets were reported to be $275.4 million at the end of the year 2000, the year it made 6%. Using the growth of our $100 by 46.14% the $275.4 million would have a present Asset Value of $402 million. Where did the $100 million go?

Well, it probably went to pay for a lot of those early retirements and disability claims.

We aren't pension experts, just ordinary taxpayers who feel the City's Pension Plan's financial problems are a very serious drain on our City's finances.

Looking at Council minutes, we know that there have been ongoing problems mentioned for over 30 years and nothing seems to have improved for the taxpayers benefit in that time, meanwhile there have been obvious conflicts of interest on the Plan's Board. The structure of the Board invites Conflicts of Interest in that a minimum of nine of the twelve Plan's Board members are beneficiaries of the decisions made at the Board Table. We feel the Board structure must change to have a fairer representation for taxpayers.

With the equity markets down between 40% and 50% this year are the Assets really still over $300 million? Maybe they are, but taxpayers and pensioners alike have been kept in the dark about our City's Pension Plan for many years and it seems that asking questions can get you sued as happened with Councillor Ferguson rather than provide him with answers we all need.

We feel the video of Councillor Ferguson's presentation to Council initiated by City Solicitor John Nugent shows that Councillor Ferguson was asking questions any councillor should have the right to ask in a free and democratic society.

Please take the time to watch the video of Councillor John Ferguson's presentation to Council and see what was really said.

(VIDEO OF JOHN FERGUSON'S PRESENTATION TO COUNCIL)

If you feel you have had enough of the secrecy and paying to fund a lawsuit against a Councillor for asking questions on our behalf please join us in our effort to get the mess cleaned up.