Alberta’s Auditor General recently released a report criticizing the sustainability of Alberta’s public sector pension plans.
Pension plans under consideration include: Local Authorities Pension Plan (LAPP), Management Employees Pension Plan (MEPP), Public Service Pension Plan (PSPP) and Special Forces Pension Plan (SFPP). All are included in the Treasury Board and Finance Department’s pension reforms, in the purview of Spruce Grove – St. Albert MLA Doug Horner.
According to the report, the audit project began in 2011 as a result of concerns regarding the financial health of Alberta’s public sector pension plans. The audit report confirmed those concerns, noting that pension plans are facing funding challenges.
“Alberta’s public sector pension plans have significant unfunded liabilities and contribution rates that have risen to levels where some employers and employees do not want to pay more. On Dec. 31, 2012, those unfunded liabilities totalled $7.4 billion,” the report says.
Three specific recommendations have been listed in the report: first, that the department set standards for the public sector pension plan boards to establish funding and benefit policies; second, that they establish a risk management system; and third, that sustainability support processes be undertaken.
Horner said he’s pleased with the audit results and feels the recommendations are in line with what his department is already doing.
The results are based on the Auditor General’s observations up until July 2013. Since then, the department has put in much work on the pension reforms.
“In order to protect defined benefit pension plans for our employees, some changes have to be made. He agreed with that; he backed it up,” Horner said.
“We’ve talked to the plans, we’ve asked them for suggestions, we put some proposals on the table, we opened up a comment period until the end of December … and we said that in those defined benefit pension plans that we’ll be moving forward.”
Horner said pension reform isn’t something that should be creating a fuss among stakeholders. Since the process has been underway, he said he’s had many phone calls and emails from pension holders concerned that their pension will be changing — a misrepresentation he said is “irresponsible” to spread.
“We’re talking about earned service after 2015. If you’re retired today, nothing changes for you,” he said.
“Nothing in the program we’re doing would have any effect on current retirees’ pensions. To come out there and simply get people afraid so you’ve got more people to write letters, that just smacks to me of being very irresponsible.”
Unions such as the Alberta Union of Provincial Employees (AUPE), he said, have had opportunities to contribute suggestions, but most of the time those suggestions were that the pension process is fine as it is.
“As we’ve been saying for a long time, we wish (the unions) would have been at the table with us providing us with some good opportunities. Instead, they want us to stop. I don’t get the idea of stopping when you know there’s a problem,” he noted.
“The fiduciary duty of members on the board is to members of the plans, past, present and future. To do nothing, in my view, is to shirk that duty and I think it’s something the union leadership should be thinking about.”
Horner said the Department of Treasury Board and Finance has also received comments about early retirement. Many of the pension plans have an early retirement subsidy included in them, and he said that subsidy remains the same up to 2015. It’s only the years served after 2015 that would see a difference.
From July to December, the department accepted comments and suggestions. The end result will be some changes to what had originally been planned for pension reform.
“We identified that firefighters are probably (employees) where we need to make special circumstances, or peace officers who are in the line of duty,” he noted. “We’ve listened to concerns around the early retirement provision and we’re going to make some changes there (too).”
Those changes will be presented to the pension boards, followed by a public announcement.
Recommendation 1: Policies designed to achieve plan objectives
We recommend that the Department of Treasury Board and Finance set standards for the public sector pension plan boards to establish funding and benefit policies with:
- Tolerances for the cost and funding components;
- Alignment between plan objectives and benefit, investment and funding policies;
- Pre-defined responses when tolerances are exceeded or objectives not met.
Implications and risks if recommendation not implemented:
- Unclear disclosure of the circumstances could create a lack of stakeholder understanding about the decision making process.
Recommendation 2: Risk management system
We recommend that the Department of Treasury Board and Finance establish an Alberta public sector pension plan risk management system to support the minister in fulfilling his responsibilities for those plans.
Implications and risks if recommendation not implemented:
- Less likely to identify risks and implement risk management activities effectively. Because the system has been designed with multiple parties, a consolidated approach to risk management is necessary. Otherwise, plan boards, AIMCo, APS and the department are more likely to duplicate efforts, fail to identify and manage risks and fail to manage risks outside of the plans’ and stakeholders’ risk tolerances.
Recommendation 3: Sustainability support processes
- Validate the objectives for the pension plan sustainability review with stakeholders;
- Evaluate and report on how each proposed change meets the objectives for the review;
- Cost and stress-test all proposed changes to assess the likely and possible future impacts on Alberta’s public sector pension plans;
- Conduct or obtain further analysis of the impact of proposed pension plan design changes on employee attraction and retention;
- Prepare a detailed implementation plan for the changes.
Implications and risks if recommendation not implemented:
- The department may not achieve its sustainability review objectives.
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