Legislated public sector pension plans

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Defined benefit (DB) pension plans in the broader public sector (i.e., governments, universities, municipalities, etc.) are exposed to the same risks and pressures as all other DB plans in Canada, including funding deficits and volatility issues. Many provincial bodies have recognized the need to address these concerns today to ensure positive outcomes in the future. Morneau Shepell worked with the governments of both New Brunswick and Prince Edward Island in the implementation of updated pension models for their major public sector pension plans that enhances security, transparency and affordability. Sustainability in government pension plans is key, and to achieve it, you must understand the risks your plan is facing and what can be done to mitigate them.

Developing a consultative approach

There is growing concern that public sector DB pension plans may no longer be sustainable as presently structured, given their size, maturity, the growing number of retirees and the challenging fiscal realities most public sector plan sponsors are currently faced with.

As a result, a number of provincial governments are considering the issue of how to make public sector pension plans not only more affordable, but also highly secure, transparent and fairer for all generations. Morneau Shepell worked with the Task Force that developed the New Brunswick government’s shared risk pension plan model. We understand the issues governments need to tackle having been a part of the process.

Lessons learned

Our real-life experience in working with governments and their employees / unions to solve pension sustainability issues has highlighted these factors for success:

  • Be collaborative and transparent. Ensure that all stakeholders understand the process and its objectives and invite them to be part of the dialogue.
  • Be realistic about the problems. Prioritize issues and address the most pressing challenges.
  • State outcome goals up front. It’s important to have all stakeholders understand the desired outcome from the outset.
  • Take a long-term approach. Our clients have said they weren’t looking for a quick fix.
  • Think differently and keep an open mind. There is more than one option and it’s important to consider all possibilities in terms of what you’re trying to achieve.

FAQs

  • How can we understand the extent of the risk to long term sustainability our plans are facing and the options available?

    Morneau Shepell can help you understand the risks confronting your pension plan today and assess the effectiveness of strategies to mitigate tomorrow’s risks. In our work on the development of the New Brunswick Shared Risk Plan (SRP) model, we conducted “stress-testing,” using 2,000 computer simulations extending over 20 years (i.e., 40,000 years of modelling) to illustrate both the expected average outcome but also, more importantly, the range of outcomes that are possible. Understanding the diversity of possibilities and establishing plans to deal with this variability are key to making pension plans sustainable in an unforeseeable, uncertain future.

  • Why is it important to collaborate with other stakeholders during the initial exploration phase?

    In our experience, it’s especially important to involve member representatives and other stakeholders from the start. It’s important to understand their point of view, as well as give all parties an opportunity to learn about the challenges and solutions together.

What Morneau Shepell can do for you

Understand the risks facing your employee pension plan and learn how you can manage them in the manner most beneficial for all your stakeholders. Morneau Shepell specializes in helping organizations like yours clarify pension plan objectives, assess the health of your plan, evaluate the risk tolerance of stakeholders, and determine whether the plan is strategically positioned to meet your goals. We pride ourselves on prioritizing collaboration and efficiency and will ensure that all your stakeholders have an educated voice at the table. Want a pension plan that is built to last? We can help you get there.

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