Earnings by N.B. civil servant pension funds among lowest in Canada in 2020

Executives with New Brunswick's pension investment firm Vestcor had their performance incentives slashed by more than 20 per cent last year after the funds they invest for public employees, retirees and others earned some of the lowest returns in Canada.

It's the second year in a row Vestcor results have been near the bottom of Canadian pension plans but Vestcor's president insists that is to be expected from a conservative investment strategy in periods when stock markets are rising like they have for the last two years.

"The returns of our clients tend to lag (other) plans in periods of stronger equity market returns and do better in weaker equity market periods." wrote John Sinclair in an email to CBC News about the 2020 results.

Vestcor is the Fredericton-based organization set up to manage what is now $19.4 billion in New Brunswick government employee pension and other funds.

According to its latest annual report, Vestcor earned a return of 6.96 per cent on its holdings in 2020, for a gain of $1.27 billion.

In a news release, Vestcor called those "strong results". However the earnings ranked in the bottom quarter of more than 100 pension funds in Canada tracked by the Royal Bank's Investor & Treasury Services division .

According to that survey, the median return of defined benefit pension funds in Canada last year was 9.2 per cent, with plans in the top quarter of pension plans earning 11.58 per cent and above.

That places earnings by Vestcor in 2020 about $400 million below what an average pension fund return in Canada would have generated and nearly $1 billion short of what some top performing funds for the year were earning

It's the fourth year in the last five that investment earnings posted by Vestcor have ranked in the bottom half of the RBC survey and the second year in a row it has generated investment returns among the bottom quarter.

According to Sinclair, Vestcor is governed by stricter rules than most pension plans and is unable to take on the level of risk required to generate high returns in a rising stock market.

He said the strength of its approach emerges during economic downturns and points to 2018 when Vestcor beat most funds with a 2.07 per cent return in declining markets.

"The majority of Vestcor's clients are Shared Risk / Target Benefit Pension Plans." wrote Sinclair. "These pension plans are not able to take on as much investment risk in their investment strategy as a typical Defined Benefit Pension Plan."

Vestcor's 2020 results also fell below its own internal set of investment targets, or benchmarks and that led to an across the board reduction in "performance incentives" paid to the organization's employees.

Vestcor's top five executives saw their bonus pay fall by a combined $498,070 (21.1 per cent) to $1.86 million. Sinclair lost the most from the incentive pay reductions -$201,309 - and saw his total compensation package for the year drop just below $1.2 million.

The release of Vestcor's 2020 results comes four months after the former New Brunswick auditor general, Kim Adair-MacPherson, called for more public oversight of the organization and its operation.

Vestcor used to be a New Brunswick crown agency but is now jointly owned by the province's two largest public pension funds serving civil servants and teachers.

It oversees those retirement plans as well as plans for hospital workers, nurses, crown corporation employees, provincial court judges, MLAs and other groups like Fredericton municipal employees

Vestcor also manages other investment accounts, including a University of New Brunswick endowment fund and nuclear waste and decommissioning funds for NB Power.

In February Adair-MacPherson listed a number of areas of Vestcor's operations her office would be interested to audit, including its investment performance and compensation packages, but said she was refused access to the organization's internal records.

She said although it was no longer owned by the Crown, Vestcor was created by a special act of legislature and given unique non-profit status by lawmakers. In addition, she said it was handed billions of dollars in government employee pension dollars to manage without having to compete for the business.

"In my view, the Auditor General Act currently grants me the authority to conduct performance audits of Vestcor, as well as unrestricted access to perform financial audit procedures," she said

Vestcor asserts it is now independent of government and beyond the reach of the auditor general, a position Premier Blaine Higgs has also taken.

In May, Adair-MacPherson left her position to become the auditor general for Nova Scotia.

Her replacement is acting Auditor General Janice Leahy, but she had no comment on Vestcor's latest results or whether she shares Adair-MacPeherson's view that her office should oversee the organization.

Jolyne Roy is the communications officer for the auditor general and said with the year end audit of the province's financial statements underway it was not possible for Leahy to speak about Vestcor.

"It is premature for the Acting Auditor General to comment at this time," wrote Roy in an email to CBC News.

Investment returns Year Cdn median Vestcor 2020 9.2 6.96 2019 14.0 11.76 2018 -0.7 2.07 2017 9.7 8.03 2016 6.8 6.53

Source: RBC, Vestcor