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Pensions & Benefits Law A Discussion of Canadian and U.S./Cross-Border Pension & Benefit Legal Issues

Federal Budget 2014 Includes Pension Changes for Public Sector Employees

Posted in Canada Pensions & Benefits Law, Pension Reform, Public Sector Plans, Target Benefit Plans

Yesterday’s federal budget demonstrates that, like many of its provincial counterparts, the federal government is looking for cost savings in its employees’ compensation arrangements.

Federal Budget

In an effort to ensure that “public service employee compensation is reasonable and affordable, as well as aligned with that offered by other public and private employers”, the federal government announced the following proposed changes to its employees’ compensation and benefits:

  • implementing a new disability and sick leave management system, including the introduction of a formal short-term disability plan;
  • transitioning from currently paying 75% of retiree benefit costs under the Public Service Health Care Plan (PSHCP) to equal cost sharing for retired federal employees; and
  • increasing from two to six the number of years of service required to be eligible to participate in the PSHCP in retirement, except for current pensioners.

The budget indicates that these changes will be a “priority” in this year’s round of collective bargaining negotiations, but does not specify that such changes would be enacted via legislative amendments.

In addition, the federal government reiterated its previously announced plan to align the pension plans of Crown corporations with the federal Public Service Pension Plan (PSPP) by implementing a 50:50 employer-employee pension plan cost sharing model by 2017. The budget also calls for an increase in the retirement age for new Crown corporation hires to 65, as well as raising the age at which other retirement benefits are available to correspond with the age at which they are available under the PSPP.

Perhaps more of a political gesture, the budget also indicated that the federal government will introduce legislation to prohibit Members of the Senate and the House of Commons from accruing pensionable service as a result of having been suspended from Parliament through a majority vote by their peers.

Provincial Announcements

As noted above, the federal government is not the only Canadian jurisdiction making changes to public sector pensions.

  • Last fall, the Alberta government announced that it will be making changes to its public sector pension plans to ensure that they are more “secure, adaptable and affordable”, including ending subsidies on pension benefits earned for service after 2015 for those who retire before age 65 and making cost-of-living adjustments (COLA) on benefits earned after 2015 “targeted” at 50% of the Alberta inflation rate.
  • In its 2013 Economic Outlook, the Ontario government indicated that it would implement an asset pooling framework for public sector pension plans in 2014 and that it had already reached agreements with the four Ontario jointly sponsored pension plans to freeze employer contribution rates for a period of five years.
  • Late last year, New Brunswick passed Bill 11, the Public Service Superannuation Act, to change its public sector plan to a “shared risk” pension plan.
  • Most recently, Prince Edward Island passed changes to its public sector plans which included placing limitations on COLA for its public sector retirees and increasing the age at which employees may retire with an unreduced pension.

For a number of years, many have expressed concern regarding the sustainability of defined benefit plans. It appears that governments across Canada have also begun to turn their attention to the costs of such plans. Will reductions in benefits, asset pooling and contribution rate freezes be enough? Or is it time to take a more targeted approach?