A decision by the New Brunswick government to exclude a financially troubled pension plan for provincial court judges from changes being forced on five other government pension plans is testing arguments that fiscal responsibility and fairness are soley behind the controversial initiative.

Last week, Finance Minister Ernie Steeves introduced the Pension Plan Sustainability and Transfer Act  to force five government "defined-benefit" pension plans serving school board and nursing home employees to switch to a "shared-risk" model.

The existing defined-benefit plans offer pensioners guaranteed retirement amounts that the province has to pay for if pension funds are not sufficient to meet the obligations.  

Shared-risk plans limit the amount government is responsible for when full retirement benefits and inflation protection of those benefits exceed a pension fund's ability to fully pay for them.

Premier Blaine Higgs told MLAs the forced changes were necessary to fix funding problems with the "five unsustainable pension plans" and to promote equity with other provincial government plans serving teachers, civil servants and others that switched to the shared-risk model years ago. 

"The current pension plans are unsustainable and our government has a responsibility to ensure all pension plan participants have a plan comparable to other government employees," Higgs said before the pension bill was introduced,

CUPE president Stephen Drost says members in unions having their pensions changed unilaterally by the New Brunswick government are preparing to respond 'We certainly are looking at every action, and this is not just going to be symbolic." (Jacques Poitras/CBC)

However, contrary to what the premier suggested, not all of the five plans targeted by the legislation are in financial difficulty.

According to the government's own briefing materials, two of the five pension funds, including one that serves 500 current and retired nursing home managers and one that serves more than 1,000 nurses and paramedical employees working in nursing homes, are both fully funded with surpluses. 

The three remaining pension plans targeted by the legislation do have deficits, but all three serve members of the Canadian Union of Public Employees, and union official Mark Janson said those deficits were primarily caused by the province in the first place. 

He points to an independent labour arbitration review in 2021 that found one of the school board pension funds was wrongly starved for money by the province over several years by withholding millions of dollars in required  payments.

He also points to a second report issued earlier this year by Angela Mazerolle, New Brunswick superintendent of pensions, who found a series of finance ministers beginning with Higgs in 2014 failed to properly supervise the funding of the financially troubled pension plan for nursing home workers.

"I think there was a political decision at some point by the New Brunswick government to just not fund these plans as part of a political effort to move them into the shared-risk model," Janson said.

Premier Blaine Higgs said he was compelled to take action against 'five unsustainable pension plans,' although two are running a surplus and the other three are in better financial shape than a pension plan for judges that is not changing. (Jacques Poitras/CBC)

Another oddity in the legislation is that the five pension funds being forced to change for being "unsustainable" are all in better financial shape than a pension plan that serves provincial court judges, which is nevertheless excluded from the legislation.

Judges have a defined-benefit pension plan like the five targeted plans but with more expensive provisions.

Judicial retirement benefits accumulate at three per cent of a judge's salary per year, a rate up to double those in the other five plans. 

Judges earn $300,000 a year. That salary, combined with the rate at which retirement benefits accumulate, can qualify a provincial court judge for a $90,000 annual lifetime and indexed pension after just 10 years on the bench.  

Maximum pensions of up to $195,000 at current pay scales can be earned after 22 years of service.

The financing of benefits that generous has saddled the judge's pension fund with a significant deficit that in the past the province has said needs to be fixed.

According to New Brunswick's latest public accounts, the plan's "net benefit liability," or the amount that pension obligations exceed pension assets, was $46.3 million in March.  

With only 65 current and retired judges and surviving spouses in the plan, it is a funding shortfall of  $712,300 per plan member.

Nursing home workers walk along Mountain Road in Moncton's north end this summer. Earlier this year New Brunswick's supervisor of pensions found that as finance minister in 2014 Blaine Higgs failed to have the adequacy of their pension plan funding reviewed. (Shane Magee/CBC)

By contrast the shortfall in the three pension plans with deficits the provincial government is forcing to change is just over $22,000 per current and retired employee.

In the legislature last Friday, Higgs said any government-sponsored pension plan that requires the province to fund a pension plan at levels "three to one, four to one" of what members of the plan themselves contribute is wrong.

"It's not fair," Higgs said. "It's not fair, so you'd have to say this needs to be fixed."

The judge's plan requires the province to pay nearly six to one what judges pay to support the plan, a level none of the other plans approach.

Last year, lawyers for the provincial government told New Brunswick's Judicial Remuneration Commission there was no reason for judges to have a pension plan as expensive as this one.

It asked the commission to approve a switch of the judges pension plan to a shared-risk model with benefits similar to other government plans.   

"As was expected, the Provincial Court Judges Association vigorously opposed these changes," the three-person commission said in its account of the province's pension proposals.

The commission eventually sided with judges and recommended against the pension changes but noted in its final report that the government was free to reject its advice on this or any issue related to judicial pay, if it had a reason significant enough.

"The government can reject or vary the commission's recommendations provided that legitimate reasons are given," it said, quoting a Supreme Court decision outlining how that procedure works.

Instead, the province accepted the commission's recommendation to keep the judges' pension plan unchanged and then excluded it from the forced changes the five other plans now face.

Questions posed to the Finance Department by CBC News last week about why an initiative to forcibly fix "unsustainable" pension plans includes two plans not in financial difficulty and excludes one with the largest funding deficit of any government plan were acknowledged, but have not been answered.

"Linkage assists in fostering respect for the commission process. Linkage avoids litigation and subsequent allegations of unfairness and bad faith."

Justice department spokesperson Geoffrey Downey said the province would comply with the recommendations.

"The commission's report has been received and reviewed by the department, and all eight recommendations were approved," he said.

The report was tabled at the legislature April 11.

Province wanted salaries tied to N.B civil servants

Under provincial law, a commission is appointed every four years to make decisions on the salaries and pensions.

That is because of the principle that the salaries of judges shouldn't be set by the province, which prosecutes criminal cases that the judges hear.

As of April 1, the commission estimates King's Bench judges would be earning $381,505. Provincial court judge salaries, indexed at 80 per cent of that amount, would be $305,204.

The commission heard arguments from the province and the Provincial Court Judges Association last year.

The province tried to argue that salaries should be "de-linked" from the King's Bench salaries and indexed to those of civil servants because of "continued challenges in restoring balance to New Brunswick's finances."

That would have meant increases of two per cent per year for four years, starting in 2020.

But the judges argued that the economy was bouncing back stronger than ever after a major pandemic slowdown in 2020. 

The province had a surplus of $408.5 million in 2020-21 and was projecting a surplus of $487.8 million for 2021-222 at the time the commission was hearing arguments.

And with inflation estimated at 17.4 per cent over the four-year mandate of the commission, the province's proposal would amount to "a substantial reduction in real salary."

The commission agreed with that. 

Pension reforms also rejected

On pensions, the commission rejected the province's arguments for incorporating the judges into the shared-risk plan, in which the majority of public-sector employees are enrolled.

The government argued the existing plan was costly, with taxpayers contributing $5.77 for every dollar from a judge. 

But the judges said it would put their pensions under the control of the board of Vestcor, the provincial pension management corporation, which has a board made up of provincial and union representatives.

"This would create the untenable perception and the real risk that judges would be vulnerable to economic manipulation from both the government and the largest unions in the province," the report says, citing the association.

The commission agreed.

Premier David Alward has introduced a bill to strip down the pensions of future members of the legislative assembly and move MLAs to a shared-risk system.

Under the bill, MLA benefits would be significantly reduced going forward, said Alward.

And under the shared-risk model, MLAs and the province would be equally at risk if pension plan investments don't perform as well as expected.

The changes will save taxpayers about $1.3 million annually, Alward said in a statement on Wednesday.

"Everyone has a role to play in pension reform and MLAs are no different," he said.

"What we need to make sure is that we have all of our plans sustainable for the long-term, and that's good for teachers, that's good for retirees and it's good for taxpayers."

MLAs will be able to retain the service they have accrued to date, but new service will be calculated differently.

Switch in September

The end of the current legislature session is the cut-off for the old system, so the new shared-risk plan will first apply to those elected in September's provincial election.

Any current MLAs who are re-elected in September will effectively have two pensions under two systems. The old rules will apply to what has been contributed, up until the new system takes effect, and be paid out of the government's general revenues.

After the election, all MLAs will contribute into the public service pension fund like civil servants. That fund will be subject to the shared-risk rules, and payments will be based on that as well.

One difference is that while the government has guaranteed the base amount for civil servants, there is no such guarantee for MLAs.

The age for unreduced retirement on future service will also be increased to 65 from 60.

MLAs will be treated like civil servants for the purpose of eligibility and become eligible for a pension after just two years, although the amount received will be small and based on their contributions.

Will take longer to accumulate

Alward says it will take an MLA 16 years under the new system to accumulate a pension equivalent to one that currently takes eight years to achieve.

Former MLAs won't see any reduction in their pension cheques, but they will now receive conditional cost of living increases on par with other members of the shared-risk plan, Alward said.

There are about 90 retired members and 55 active members in both of the existing MLA plans, the government says.

When Alward unveiled his government's new pension plan two years ago, promising MLAs would join, he gave no indication new MLAs would be treated so differently than current MLAs.

Speaker Dale Graham, an MLA for 21 years, for example, who just announced last week that he is retiring this fall, will begin collecting a $71,000-pension. The new rules would have cut his pension to less than $40,000 if they had been retroactive.

Although Alward says current MLA pensions like Graham's, are nearly double the size they should be, it's unfair to change them now.

"Members have contributed up until this point in time as part of the previous plan we have been part of, similar to public servants," said Alward, who has accumulated about $60,000 in annual MLA pension benefits so far, which will also be grandfathered and untouched when the stricter new rules take effect later this year. 

"On a go forward basis we will be part of the shared-risk plan," he said.

The government recently passed legislation to move 33,000 current and former civil servants out of their defined benefit pension plan and into a new shared-risk model.

Employees will have to increase their own contributions to the pension plan by 30 per cent or more starting next spring, even though benefits they can accumulate will be less generous.

The government did, however, give in on cost-of-living adjustments after a huge outcry, guaranteeing their pension payments won't drop below the current level if markets perform poorly.

Finance Minister Blaine Higgs has said he also wants to change the teachers' pension plan to a shared-risk model by the spring.