Saint John mulls cutting pension guarantees

The City of Saint John is going to look at removing payment guarantees in its employee pension plan, which would give new workers less retirement security.

Coun. Gary Sullivan requested a report on how the city can end the rule guaranteeing set payments to retirees even if the fund's investments do poorly.

"If you find yourself in a hole, the first step to getting out is to stop digging,” he said.

Under the current defined benefit plan, the difference between the fund's return on investments and the amount owed to retirees is made up by taxpayers.

The pension plan's deficit has ballooned to $190 million.

Dropping defined benefits won't change much in the short term, said Sullivan.

It won't excuse the city from its debts to the pension fund, or from its obligations to current and retired employees who would still get guaranteed payments.

"They've earned that. You can't take that away from them,” Sullivan said.

Toronto pension law expert James Pierlot agrees there would be no real saving for the city, at least not for a while.

And new employees would have a much less attractive pension, he said.

Pierlot suggests the city consider instead switching to a jointly-sponsored plan, where both the employer and the employee share the additional expense required to make up deficits.

"So when the employer contribution goes up the employee contribution goes up too.

"So the employer doesn't end up in this situation where the city of Saint John is where they have this huge hole. And they're the only ones who are being called upon to fill it."

Many public sector plans in Ontario use that shared-risk model, Pierlot said.

Council has asked to be updated on the worst-case financial scenario for the city in case the legislative assembly refuses to approve pension changes.

Council has asked the provincial legislature to approve several changes to the city's pension plan, such as cuts to cost-of-living increases, to help deal with the plan's deficit.

Meanwhile, council has already passed a budget that cuts $9 million in services across the board.

But city manager Pat Woods will now prepare a report on what the will happen if the pension changes are denied and the city has to cut an additional $6.4 million in operations.