PensionBy Roxanna Woloshyn

Barely a week has gone by to remind us of the last vestiges of the 2012 campaign hopefuls. Regina has a new mayor and council, and, a new but old wicked problem to deal with – one that the City of Regina has been struggling with for over a decade.

 

The City of Regina’s unresolved and growing pension deficit reduction is a lurking menace that, if not solved soon, will create significant challenges for Regina’s future growth and prosperity.

 

Mayoral candidate and city employee Tim Siekawitch, whose biggest campaign issue in 2012 was the pension deficit fund, did not win the election. But it is clear he reached his objective - to create public interest in this long unresolved dispute between the City of Regina and its employees. Late in the race, it created an interesting diversion to the other money issues that dominated the election, namely, the stadium and housing. 

 

During the campaign, Michael Fougere avoided the issue, saying it was being dealt with.  Marion Donnelly took time to understand the growing problem. And Meka Okochi said it was in his platform from the beginning to address it. What can be said is, none of the top three candidates were able to offer a concrete solution.        

 

Regina’s pension deficit issue is complex, multifaceted, highly controversial and divisive, pitting City of Regina management against its employees.

 

According to Colin Lowenberger, the city’s director of pension and disability administration, the pension deficit has grown to $293 million and the current structure of the fund is not sustainable. There are several reasons for this.

 

Based on the City of Regina’s 2009 Plan Valuation report, there are several inherent issues affecting the plan’s sustainability.

 

First, there are fewer members actively paying into the plan because workers are retiring earlier and living longer, meaning they draw more benefits from the plan than was anticipated when the it was drafted.

 

Second, the financial status of the plan has been problematic. In the last 20 years, the plan experienced only one surplus, and that was in 1999.

 

Third, the unanticipated recession in 2008 was a significant setback, not just for the city workers pension plan but for all pension plans, in general. Recovery of pension investments has been slow and steady but not adequate to address the shortfall.

 

Fourth, in comparison to The City of Saskatoon’s pension fund benefits, Regina’s pension fund is richer in benefits. For example, it offers a bridging benefit to age 65 and a guaranteed cost of living adjustment clause, whereas the City of Saskatoon does not.

 

According to Regina’s 2009 Plan Valuation, Saskatoon’s city pension deficit was projected at $23 million, whereas Regina’s was more than 10 times larger at $238 million.

 

Mayor-elect Fougere and the new council will need to have a deeper understanding of the issues and options for pension plan sustainability. The recommendations outlined in the 2009 plan valuation approved by the city’s pension plan board were filed with Saskatchewan’s superintendent of pensions in October 2010.

 

According to Brent Sjoberg, deputy city manager and chief financial officer, the plan identifies two primary options to work towards financial stability. First, it suggests a contribution rate increase on the part of the five employer groups and the 21 employee groups. And second, it calls for a reduction to future benefits. These two actions would put more money into the plan.

 

This is something that has not gone over well with employees and has added to the length of the negotiations.

 

Overall, the financial assets of the plan appear to be managed accountably by a pension board, which includes professional money managers that invest funds and professional administrative managers that oversee this process on behalf of the members. For example, even though the plan has shown that it is earning money at an average rate of nine percent annually over the last 20 years, this is still not enough money to sustain the fund.

 

So, under the current situation, there is enough money for workers to retire on the plan. But the real issue is what is left in the plan for people who are paying into it now and who will retire in the future.

 

Despite the earning success of the plan, its inherent structure appears to be flawed because it is based on a model that was developed over 50 years ago.

 

The employer groups, which include the city, have proposed to cover the nearly $300 million dollar deficit on the condition that the current plan be replaced by a new ‘target benefit’ pension plan, which would create new conditions for new hire employees. Essentially, employee benefits would be reduced.

 

One complication is that the current plan governance structure requires all parties to reach a consensus in changes to the plan. And, there are no guidelines for how the negotiation process works. Adding to the problem is the number of representatives negotiating the deal. Each of the 21 employee groups has three representatives, and each of the five employer groups also has three representatives. That means, there are nearly 100 people needed to reach a consensus.

 

The issue for a new mayor and city council is not just understanding the larger complex problem but what implications the new agreement, when reached, will have on city council’s budget.

 

The reality is, city council may ultimately have to increase the mill rate in order to meet the financial requirements agreed to by all parties.

 

The new settlement is expected to be presented to city council by the end of this year.

 

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