The Nova Scotia Legislature

The House adjourned:
October 26, 2017.






Tuesday, February 7, 2006


Private Sector Pension Funds

Printed and Published by Nova Scotia Hansard Reporting Services


Ms. Diana Whalen (Chairman)

Mr. Brooke Taylor

Mr. William Dooks

Ms. Judy Streatch

Mr. Howard Epstein

Mr. Charles Parker

Ms. Marilyn More

Mr. Wayne Gaudet

Mr. Harold Theriault

[Ms. Diana Whalen was replaced by Mr. Manning MacDonald.]

[Ms. Judy Streatch was replaced by Mr. Gary Hines.]

[Mr. Charles Parker was replaced by Mr. Graham Steele.]


Mrs. Darlene Henry

Legislative Committee Clerk


Department of Environment and Labour

Ms. Nancy MacNeill Smith, Superintendent of Pensions

Mr. Bill Turpin, Director of Communications

[Page 1]



9:00 A.M.


Ms. Diana Whalen

MR. CHAIRMAN (Mr. Brooke Taylor): Good morning, I would like to call the Standing Committee on Economic Development to order. With us today on the topic of Private Sector Pension Funds are Ms. Nancy MacNeill Smith, Superintendent of Pensions. As well, sitting not too far away, is Bill Turpin, Communications Director with the Department of Environment and Labour. Welcome to our guests. I will ask if we can now go around the table and introduce ourselves as members of the committee.

[The committee members introduced themselves.]

MR. CHAIRMAN: Our clerk this morning is Cathe Loughery. Cathe is under the mentorship of Darlene this morning for the purpose of this meeting, so we wish Cathe well in her duties. We will now turn things over to our witnesses.

MS. NANCY MACNEILL SMITH: I am pleased to have this opportunity. You requested that I limit my opening statement to five minutes, so I'm going to dive straight into the topic.

In your letter inviting me to attend you cited a steep decline in the funding of private pension plans in Nova Scotia. You raised concerns about the effect on the citizens and the Government of Nova Scotia. I want to assure you at the beginning that private pension plans in Nova Scotia are stable and are healthy.


[Page 2]

The decline in funding that you refer to is, in fact, a reflection of the cycles of the financial markets where pension plan funds are invested. There has already been a significant improvement in pension fund solvency. Employers have been making additional contributions to their plans and investment earnings have improved over the 2001 to 2003 year period.

Moreover, every private pension plan in the province is closely monitored. Each plan must undergo an actuarial valuation every three years and the actuarial report must be forwarded to my office for review. In preparing the actuarial report, the actuaries look at plan obligations, the available funds to pay for those obligations, contribution levels, market performance and market trends. With that information the actuaries make an assessment as to whether the plan has sufficient funds to meet its obligations.

If the plan is not fully funded, then the employer must bring it up to full solvency within five years. This is a requirement under the pension regulations. There is one exception to this that I will review at the end of my presentation.

The requirement to address shortfalls in funding is more than a helpful suggestion. The requirements of the pension legislation and my office are for a detailed strategy outlining the special payments needed to attain solvency within five years, and that is laid out in the regulations.

Within five years, any plan that has a deficit will be fully funded and that deficit will be eliminated. It should also be noted that the companies sponsoring these plans are well-motivated to co-operate. They are financially responsible for the pension plan commitments and so are their directors, so everyone agrees the importance of maintaining solvency. I have brought some slides today to illustrate these points.

I know in our outcome measures for the department we look at a measure to determine the security of benefits promised to pension plan members. We use as a measure the percentage of plan members covered by pension plans registered with the province that are either 100 per cent funded or have a strategy in place to achieve full funding within five years.

On this slide you can see that in 2001 - in the dark blue - the majority of members were in plans that were over 90 per cent funded. There was a small majority of members who were in pensions plans that were not fully funded. You can see the decline until 2004, where we have a significant number of members, 40 per cent of members, in plans that are not fully funded and roughly 60 per cent of members are in plans that are fully funded. So there has been a decline in the funding of those plans.

On the face of it, it does appear that there is a decline in the funding of the pension plans. These figures are based on valuation reports that are performed every three years. The

[Page 3]

figures for 2001 are based on reports that were done in the year 2000, the year 1999, and 1998. The 2002 figures will be based on reports done in 2001, 2000, and 1999, so there's a time lag built into that reporting. Reports are done every three years. They have a year to file them. So the 2001 figures don't reflect the status of the pension plans as of December 31, 2001. That's not what they're doing; the same with the 2004 figures. They're reflecting the valuations done in the three previous years.

I looked at all of the plans that filed valuations in the past year, in 2005. This would have been done primarily on plans that had previous valuations done as of December 31, 2001 - a three-year time lag. This sample is for the plans that were not fully funded at the last valuation, the previous valuation. The worst plan, No. 16, the first one, was only a little over 65 per cent funded, 66 per cent funded. I've ordered them in order of funding status as of the previous valuation. No. 28 was 95 per cent, 96 cent funded. That was the funding status of those plans.

For those very same plans, this is the funding status as of the latest report. A large number of them that were underfunded previously are 100 per cent funded, or more. There are a few that are about 80 per cent funded, or more. They've already either attained full funding or are getting much closer to full funding. There has been quite significant improvement.

Now part of the reason for this improvement is the change that was made last December to exempt pension plans from the requirement to fund grow-in. That, if you'll remember, was the benefit imposed under the pension legislation to grow-in to early retirement benefits if the plan provided for subsidized early retirement provisions. It's an expensive benefit, mandated by the government, and at the time it was felt that it was appropriate to remove it. Grow-in is only payable when a pension plan winds up. So there were a lot of assets being held for an eventuality which may never occur. Of that same group of plans, these are the plans that actually benefit from the grow-in change. A number of them did experience some improvement. That's it. Any questions?

MR. CHAIRMAN: Thank you, Ms. MacNeill Smith. Questions. We'll go to Mr. Epstein.

MR. HOWARD EPSTEIN: Superintendent, thank you very much for the presentation. As you correctly suggested, it was the indicator in the Nova Scotia Department of Environment and Labour Annual Report that caught our eye. We were very concerned when we saw the table that showed a decline in numbers of plans or numbers of individuals covered by fully-funded plans over the last four years. It was a very striking table. Of course it was worrisome when we saw it. So thank you for some of your comments today that give us a bit more detail.

[Page 4]

I'm wondering if we can try to maybe just build on this a little bit. What I feel I'm missing at the moment is some understanding of the number of people involved, or even maybe the number of companies involved here. Perhaps you could help us with a little background information about this. I take it that the stats we've seen here, of course, were only to defined benefit plans, is that right?

MS. MACNEILL SMITH: In the outcome measures in the departmental report?

MR. EPSTEIN: Yes, and of course in the slides you've given us, as well. I think it would relate only to defined benefit plans, since defined contribution plans are, by definition, always 100 per cent funded, is that right?

MS. MACNEILL SMITH: Yes, that's right.

MR. EPSTEIN: But, nonetheless, do you know how many defined contribution private sector plans we would have in Nova Scotia?

MS. MACNEILL SMITH: We have roughly 480 plans registered. About 160 of those are defined benefit plans.

MR. EPSTEIN: Only 160 are defined benefit, of the . . .

MS. MACNEILL SMITH: Of the ones registered with my department.

MR. EPSTEIN: So you have 480 plans registered.

MS. MACNEILL SMITH: And 160 defined benefit plans.

MR. EPSTEIN: Only 160 are defined benefit.

MS. MACNEILL SMITH: Yes. The defined benefit plans are generally offered by larger employers. Nova Scotia traditionally has many smaller employers. For those employers, the smaller employers, they tend to offer defined contribution plans.

MR. EPSTEIN: Can you tell us how many employees are covered by the 480 plans?

MS. MACNEILL SMITH: Roughly, we have about 41.8 per cent of employer paid workers participating in pension plans. We collect information and feed it to Statistics Canada. As of January 1, 2003 - and this is for all pension plans not just the ones registered in Nova Scotia - we have 30,000 Nova Scotia members in defined contribution plans, and 132,000 participating in defined benefit plans. So while the number of defined benefit plans is smaller, the number of members they cover is much larger than the defined contribution plans.

[Page 5]

MR. EPSTEIN: Did I just understand you to say that people could be working at a company in Nova Scotia but participating in a plan that's registered in another province?

MS. MACNEILL SMITH: Yes. We have an agreement among the provinces that assists employers, that they only have to register a pension plan in one jurisdiction. So if I have a plan registered in Nova Scotia that has New Brunswick members, the majority of members are in Nova Scotia, I have entered into an agreement with New Brunswick that says that for those New Brunswick members I'll make sure that New Brunswick laws are applied to those members.

MR. EPSTEIN: I think you just told us there's 132,000 employees in defined benefit plans and 30,000 in defined contribution.


MR. EPSTEIN: Do those include any public sector employees, as well?

MS. MACNEILL SMITH: The Pension Benefits Act applies to private sector plans and municipal government plans, it does not apply to the Public Service.

MR. EPSTEIN: What about the broader public sector, for example, universities?

MS. MACNEILL SMITH: Yes, they fall under the Pension Benefits Act.

MR. EPSTEIN: But not schools?

MS. MACNEILL SMITH: The teachers have their own pension plan, but employees of the school boards are subject to the Pension Benefits Act.

MR. EPSTEIN: Okay, so that would be the support staff at the schools.


MR. EPSTEIN: Okay, that's fine. So there's still a significant number of employees in Nova Scotia who are covered by plans that have to be registered with you, and even if we look at the defined benefit, 132,000 people, it's a fair number of people.


MR. EPSTEIN: Okay. Sorry it took a little while to clear that away. What I'm concerned about is this, we've seen examples, and a lot of them are reported in the Financial Press recently, and a lot of the examples have been American examples of companies that have gone out of business. There's a knock-on effect for their employees. We've seen

[Page 6]

examples where as a result of either outright bankruptcy or temporary protection of the bankruptcy legislation while companies are restructured that one of the things that happens is that pension plans are sometimes altered and indeed we see some employees who had anticipated pensions coming their way, after years of contributions, either being completely deprived of them or seeing their pensions modified through the company's restructuring. Although I'm not aware that we've had a lot of examples of this in Canada, there have been some. There was a pulp and paper plant in New Brunswick, I believe, where this occurred.

[9:15 a.m.]

What I'm wondering is really how that system would work in Nova Scotia. I'm wondering if you could tell us what would happen if one of these companies covered by a defined benefit plan were to go out of business? To what extent are the employees protected, or another way of thinking about it would be to say, what is the worst that could happen under our existing regime in Nova Scotia?

MS. MACNEILL SMITH: There are some differences between American and Canadian legislation with respect to pensions. In Canada, the pension plan is not permitted to invest in the assets of the company sponsoring the pension plan, unless those assets are on a listed stock exchange, and there are limitations as to the amount of assets of the pension plan that can be invested in the company. As well, the American pension plans tended to be much less conservative in their valuations, many of them had assumed long-term interest rates of 9 per cent and 10 per cent. We never reached those heights in Canada or in Nova Scotia and, in fact, we actively discourage plans from assuming too aggressive interest assumptions. So the funding is much more secure because of those two things.

Also in Nova Scotia, of course the assets of the pension plan are held separate and apart from the company's assets. So if a company does go bankrupt the assets of the pension plan are secure. If the plan is not fully solvent at the time the company goes bankrupt, the assets that are there will be used to provide further benefits for the members.

MR. EPSTEIN: The assets of the company?

MS. MACNEILL SMITH: No, the assets of the pension plan, to the extent that there are sufficient funds there to provide further benefits. If the assets aren't sufficient, then the benefits would be reduced back to the level that could be provided by the plan's assets.

MS. EPSTEIN: Okay, because that really is the focus of where we are. If we look at one of those companies with a defined benefit plan that is only 60 per cent or 70 per cent funded at the moment, if that company were to go bankrupt, then what happens to the employees in terms of their pensions?

[Page 7]

MS. MACNEILL SMITH: For a plan, a valuation is done every three years and there is five years to bring the plan to full funding. If a company goes bankrupt in that five-year period, of course, it depends upon which stage of that five-year period the company goes under as to how much money has been put into the plan to bring it to full funding. If the company goes bankrupt in the first year there won't be very much of those special payments made to bring the plan to full funding. If it goes under in the fifth year, the plan should be solvent.

MR. EPSTEIN: Yes, but I guess, again, I'm focusing on it folding at the point where it's not solvent. Let me ask again, is there any claim that the beneficiaries of the pension plan would have on the assets of the company?


MR. EPSTEIN: None at all?

MS. MACNEILL SMITH: No, not under the pension legislation.

MR. EPSTEIN: Is there any other way you can think of that employees would have any claim, or is there any benefit at all?

MS. MACNEILL SMITH: In a bankruptcy situation you're dealing with federal legislation and I don't know of any situation where provincial legislation is able to overcome that paramountcy.

MR. EPSTEIN: So the answer would lie only in federal legislation not in any provincial legislation?

MS. MACNEILL SMITH: You would need to make changes to the Bankruptcy Act, I believe.

MR. EPSTEIN: In Ontario there is a special Pension Guarantee Fund, I understand?


MR. EPSTEIN: Can you tell us about that?

MS. MACNEILL SMITH: It's a fund created from levies of plans that are underfunded, so in addition to making solvency payments to bring the plans to full funding, they also make payments into the pension guarantee fund to provide for plans that are underfunded. So in addition to making solvency payments to bring the plans to full funding,

[Page 8]

they also make payments into the Pension Guarantee Fund to provide for payment of any deficiencies should a plan go under. I have many things to say about the guarantee fund, I'm not quite sure where to start.

The concept works somewhat, but if you take the plans that we have registered here in Nova Scotia they are generally well funded, but in 2001-02, you had a decline in the stock markets where most plans are underfunded. So you don't have one or two plans that are in a deficiency, you have every one deficient. If a number of the plans happen to be wound up at that particular time, that's a real drain on the guarantee fund. In Ontario, for example, the provincial government had to take over the liabilities of one of the big steel plants that went bankrupt to prevent the bankruptcy of the guarantee fund.

There are guarantee funds in the United States that are in serious problems. They introduced a guarantee fund in Great Britain, it has some real problems. I, myself, don't believe in a guarantee fund. The best security for members is to get the money in the pension plan itself. Nationally, with the different superintendents across the country, we are working on the development of funding standards for all pension plans across the country trying to make them more similar. There will be most likely a strengthening of those requirements and we will probably wish to introduce those into Nova Scotia at some point in the future.

One of them would be to provide for a requirement that if a plan is wound up and the employer is still solvent, that there would be a requirement that the employer fully fund those liabilities. Right now in Nova Scotia there is not that requirement.

MR. CHAIRMAN: Howard, your time has long since expired. You're quite cagey. (Laughter)

MR. EPSTEIN: Sorry, you can put me on the list for a second round, Mr. Chairman.

MR. CHAIRMAN: Mr. Manning MacDonald.

MR. MANNING MACDONALD: I have a couple of statements to make on pension benefits and RRSPs and then there are a couple of questions to follow. Perhaps I could make a statement and then ask a question, make another observation and ask another question, okay?


MR. MANNING MACDONALD: I do have some questions and concerns surrounding accessing early pension benefits and RRSPs. When a pension plan or an RRSP is locked in, you can only access those two funds under two circumstances, one being the 10-year provision where an individual can access funds 10 years prior to their retirement date, and the other circumstance is where there is considered to be shortened life expectancy. My

[Page 9]

first question is, it's my understanding that our province does not allow access to these funds when there's extreme financial hardship. Am I correct in saying that?

MS. MACNEILL SMITH: That's right.

MR. MANNING MACDONALD: I believe in two provinces, Ontario and Alberta, there are measures in place where an individual can access financial assistance by dipping into their pension benefits or RRSP funds when it is determined that there is financial hardship. My real concern is that there are Nova Scotians out there, and I've heard and talked to people directly about these particular circumstances, where individuals are forced into dire situations financially and the reason for that is that some social service agencies, agents, or departments in this province consider the amount of money in RRSPs or the amount of money in pension plans to be tangible assets, even though these people can't access these assets. As a result they are denied benefits in some cases, so there are some dire circumstances out there where, in the case of RRSPs, for example, they can't use them as collateral against a loan. Those are situations that could be avoided if they were able to access some financial assistance by having the ability to access funds within their pensions or RRSPs.

I guess my question at this point is, do you think it's appropriate for the Province of Nova Scotia to not have such a provision within our respective regulations or legislation, like the ones in Alberta or Ontario?

MS. MACNEILL SMITH: Firstly, I'd like to address the issue with respect to Community Services denying social assistance payments because people have locked-in RSP money. We have always advised Community Services and anyone who calls us that that is not a basis for denial of benefits.

MR. MANNING MACDONALD: Tell them that.

MS. MACNEILL SMITH: Well we have.

MR. MANNING MACDONALD: They're not listening.

MS. MACNEILL SMITH: That's what I need to know. The people I've talked to, we've directed them back to Community Services, asked them to get their caseworker to call us, and then we advise them that the individual does not have access to those funds and they cannot and should not be considered as assets when they're seeking social assistance.

MR. MANNING MACDONALD: So you have done that?


[Page 10]

MR. MANNING MACDONALD: You've made them aware of that.

MS. MACNEILL SMITH: Yes. We run across new caseworkers sometimes, or sometimes a particular office hasn't gotten that message clearly. There is always new individuals working.

MR. MANNING MACDONALD: Well, I don't expect you to defend or indict the Department of Community Services in this province, I can do that quite adequately, and do do that. I think that in terms of dealing with Community Services in Nova Scotia, it's tough at the best of times, but when you're dealing with people who are very frustrated because they have assets tied up and do not want to access any of the benefits or the meagre benefits, the draconian measures that are out there in Community Services in the province. In some cases these assets are considerable.

I'll give you an example of the miners in Cape Breton who have been given severance packages from Devco and the federal government and can't access those benefits, and sometimes they're in the hundreds of thousands of dollars. When they go to Community Services, they say I can't live, I can't get this money. They're not eligible for a pension, they're eligible for a severance package. So it is a serious problem.

MS. MACNEILL SMITH: The Pension Benefits Act of Nova Scotia does not apply to the Devco miners. They fall under federal legislation.

MR. MANNING MACDONALD: Yes, okay, but that was an example. The same principle applies, though, that they can't access public services support because they have that asset.

MS. MACNEILL SMITH: Once again, we really need to know about that. Any time I've talked to Community Services workers and informed them of the locking-in requirements of the pension legislation, that has resolved the matter.

MR. MANNING MACDONALD: Well, maybe I should take it up with the Community Services people, then.

MS. MACNEILL SMITH: Yes, or we could work together. Certainly.

MR. MANNING MACDONALD: Since the creation of the Ontario provision, as of last year the government has unlocked roughly $500 million in benefits. This is a significant amount of money which has been accessed with these individuals who have been faced with financial hardships, and now that there's $500 million released, there can be immediate damage which may have extreme long-term consequences for individuals when they fall into bad times, financially. I think of a case with a young family. Their immediate concern is certainly not retirement, and being able to access these funds may be a necessity. Access to

[Page 11]

their paid pension benefits or RRSPs may help them move into better financial times. With government financial support not being sufficient at times, there may be no other alternative. I'm getting back to other benefit options.

I'm certainly for the promotion of savings, specifically when it concerns retirement because all too often people get to their retirement stage and they haven't prepared themselves for that. They find themselves with a problem at that point in time, as well. But not to allow an individual to access their own assets when they're facing tough financial times seems to me to be wrong. It should be a judgment call, with the proper financial counselling available to them to tell them about what the impact of accessing or breaking into their funds might be down the road. I think the call should be left to the individual.

MS. MACNEILL SMITH: Well, the pension legislation was brought into effect for many reasons, one of them being there's a strong social need for society, Canadian society and Nova Scotia society overall, that people have other assets to provide them with retirement income other than government benefits. Without the locking-in provisions that exist now, if we look back to the legislation prior to 1988, your benefits were only locked in if you were age 45 and if you had 10 years of employment or membership in a plan. Generally nobody had locked in the money. They changed careers or they weren't old enough, and they left, they had no benefits.

[9:30 a.m.]

MR. MANNING MACDONALD: You're talking about the portable pension?

MS. MACNEILL SMITH: In 1988 the laws were changed to say that you're locked in and you're vested in your benefits after two years, if you've been in the plan two years. With that change, that is when people started to actually accumulate pension funds, because they had an asset, a pension benefit they could take with them when they left their employment. It's my firm belief that it's only that legislation that has allowed people to actually save for retirement. Without those savings, our seniors would not have the income that they have now. Retirement income that's coming from registered pension plans has risen considerably in the last 20 years; in my mind it's only because of pension legislation.

For those people in Ontario and Alberta, they introduced access for financial hardship. One of the reasons for financial hardship in Ontario is if you're earning what is actually the average wage in Nova Scotia. So there's a bit of a difference there. You mentioned that there was $500 million released in Ontario - I have not seen any analysis, anywhere, coming out of Ontario, as to what is going to replace that money and investment income in supporting the seniors in retirement. The cost is going to be there on the far end, and it's going to be for a much longer period.

[Page 12]

I think that if there is a real strong need to assist people prior to retirement, that's where the focus should be. If we start using retirement assets for other purposes, then we're not going to have those retirement assets, and we're going to have people that we have to support for 30 and 40 years on the social system, whereas if we can focus and provide them with the immediate support they need now to get employment, to get out of whatever their problems are - it's much costlier the other way.

MR. MANNING MACDONALD: Can I turn to another pension plan that seems to make the news every once in a while, the Teachers' Pension Plan? We've seen an obvious downturn in pension coverage over the past couple of years. You made a statement earlier that most plans in Nova Scotia are stable and healthy. In terms of public pensions in Nova Scotia a great example is the Teachers' Pension Plan. The Teachers' Pension Plan had 95 per cent coverage in 1999, and in 2004 it had only, roughly, 75 per cent, 76 per cent coverage.

In the private sector, as reported in the 2004-05 accountability report, in 2001, 93 per cent of private pensions were covered in Nova Scotia. We come to find out now that in 2004 only 59 per cent of private pensions have full coverage, and I would venture an educated guess that this year the number of pensions which are fully covered has decreased even further. I don't know if that's correct or not, I'm just guessing at that, but I suspect that to be the case.

As we all know, the province reached an agreement last year with the Nova Scotia Teachers' Union, for example. The Teachers' Pension Plan had dipped down to unacceptable coverage levels, and therefore required a provincial bailout. The minister at the time was the trustee and is therefore required to do so. Part of the agreement included a provision where the provincial government would pay into the pension fund $142 million. Obviously you're familiar with that. However, within the same agreement, there was also a clause where on April 1, 2006 - a couple of months from now - there will be a new trustee created, which will be called Teachers' Pension Plan Inc. The trustee will be responsible for the administration of the pension fund, as well as the funds investment portfolio.

Why this is important is that in the Act which governs the Teachers' Pension Plan it clearly states that if the trustee is changed and removed out of the hands of the Minister of Finance, then the minister is no longer liable to make any supplementary payments for the purpose of meeting any underfunding in the pension plan. This simply means that as of April 1, 2006, the province will no longer be a guarantor for the Teachers' Pension Plan. That's correct?

MS. MACNEILL SMITH: That's my understanding.

MR. MANNING MACDONALD: If it goes dry, then it goes dry. The province is not obligated to finance the underfunded pension at all. Now, as of April 1, 2006, this pension fund will fall under your jurisdiction. Is that correct?

[Page 13]

MS. MACNEILL SMITH: It's my understanding that the Teachers' Pension Act will continue to exist, and that that Act will apply, not the Pension Benefits Act.

MR. MANNING MACDONALD: It will still be considered a public pension fund.

MS. MACNEILL SMITH: It will be under the Teachers' Pension Act.

MR. MANNING MACDONALD: But is it a publicly funded pension?

MS. MACNEILL SMITH: One of the partners is the government, the Department of Education, so yes.

MR. MANNING MACDONALD: Okay, so they're a partner, but not required to put any supplementary payments into the plan as of April 1, 2006, to keep it buoyant or fluid?

MS. MACNEILL SMITH: As I'm not responsible for the Teachers' Pension Act or the Teachers' Pension Plan, I'm really not comfortable answering the questions on that . . .

MR. MANNING MACDONALD: Nobody seems to be comfortable . . .

MR. CHAIRMAN: Manning, your time has long since expired, as well, but we will come back to you, if you would like, a little later on.


MR. CHAIRMAN: We'll move to Mr. Steele.

MR. GRAHAM STEELE: The first thing I wanted to ask about was your annual reports. In the binder of materials that we got for today's session the most recent one is dated April 15, 2004, and is for the fiscal year 2002-03, but that's not your most recent report, is it?

MS. MACNEILL SMITH: No, unfortunately there was some confusion when our Web site was updated, and the most recent report had not been posted. I've since made sure that it's on there.

MR. STEELE: So your most recent report is for the 2003-04 fiscal year?


MR. STEELE: Why does it take your office more than a year to issue an annual report?

[Page 14]

MS. MACNEILL SMITH: The contents of the report are based on information that's provided to us by pension plan sponsors. They're required to provide an annual information return six months after a plan year-end. So say a plan year-end of December 31, 2005, they don't file the information on that until June 30, 2005. We also provide information to Statistics Canada, and the statistics from our report are obtained from Statistics Canada. So there are those factors that enter into the delay of the report.

MR. STEELE: I'm sure you can appreciate that for members of the Legislature it's not as useful as it could be when we get a report more than a year after the end of the year that's being reported on, because then the picture we get of the state of, in this case, pensions in Nova Scotia is already more than a year out of date by the time we even get the report. This morning, for example, you've said, well, here are the statistics based on the official reports but here's the real situation. Presumably there is a way we can deal with this, where we could get more timely information than more than a year after the fiscal year in question.

MS. MACNEILL SMITH: It is my duty, my staff's duty, to review each valuation report as it comes in. We review it to make sure that the actuary is clearly identified of the funding responsibilities. With the annual reports that come in from the plan administrator every year, we review those to make sure that the contributions are being made.

MR. STEELE: I appreciate all that. I'm talking about the timing of your report, though. MLAs get swamped by annual reports, we get dozens and dozens, every year. I just happen to have noticed, partly because it's my critic area, that this is one of the reports that's routinely more than a year out of date at the time that it's delivered. There are a few others like that, but only a few. I just want to bring it to your attention that your office is one of the very few in the entire Government of Nova Scotia that routinely issues annual reports more than a year after the fiscal year in question.

MS. MACNEILL SMITH: I wasn't aware of that, I'm sorry.

MR. STEELE: So let me ask you the next question, which is related to that, which is, does your office have the resources that it needs to do the job that you're given by the Pension Benefits Act?

MS. MACNEILL SMITH: I believe that it does. We monitor every plan to make sure that the terms are in compliance with the pension legislation, and we monitor to make sure that the funding is appropriate.

MR. STEELE: Do you have all the people you need to do the job? It's a highly technical job, and there are many hundreds of plans, many hundreds of reports every year for your office to review.

MS. MACNEILL SMITH: Yes, 160 valuation reports, 500 annual reports.

[Page 15]

MR. STEELE: And that's a lot of work. Do you have the staff you need to do that?

MS. MACNEILL SMITH: I believe so, yes.

MR. STEELE: Do you believe the legislation gives you all the compliance tools that you need to enforce compliance with the provisions of the Act?


MR. STEELE: What do you do if a plan doesn't comply? Do you ask them nicely to comply, or do you actually have sanctions that are tougher than that?

MS. MACNEILL SMITH: The Pension Benefits Act has outlined the process for ensuring compliance where the administrator is not complying with an Act. In the past I've issued orders, proposed orders to companies. If they want to provide me with additional information, they request a hearing. At the hearing, they present their additional information. After the hearing, I issue either my proposed order or a modified order. Then if the employer does not comply with that order, they can appeal it to the courts. I can enforce an order.

MR. STEELE: How many orders did you issue last year?

MS. MACNEILL SMITH: Probably just one. In the analysis of plans provided by employers, generally it's only the more stable employers, the long-term employers that actually will implement a pension plan. So of the broad base of employers that operate in Nova Scotia, you're generally dealing with a certain select subset of employers. Generally their interests are there for the protection of their members.

MR. STEELE: Which plans are in the worst shape? Which one or two or three plans are in the worst shape, in your opinion?

MS. MACNEILL SMITH: I can't identify a specific plan. The information filed with me is confidential.

MR. STEELE: One of the things about members of the Legislature, certainly including me, is it tends to sharpen our perspective of things when we descend from the very abstract level to the much more concrete level. Just around this table today we have people from Cape Breton, from southwest Nova Scotia and many points in between. We know there are a number of plans that aren't fully funded. Even after the grow-in amendments, there's still some that are significantly underfunded.

This affects, potentially, thousands, even tens of thousands of plan members, but we don't know where they are. We don't know who they are. We don't know what to worry about. Is it people who live in my constituency? Is it people who live in Manning

[Page 16]

MacDonald's constituency, people who live in Wayne Gaudet's constituency? We don't know what to worry about, because it's all so ethereal.

MS. MACNEILL SMITH: The only time you would have to worry would be if an employer has gone bankrupt in your area.

MR. STEELE: Well, of course, but by that time it's too late. I guess what we're trying to get is some kind of an advance signal about where the problems are, where precisely the problems are.

MS. MACNEILL SMITH: The Pension Benefits Act outlines the steps necessary to bring plans into full funding. It works. As you can see from the slides I presented earlier, plans that were underfunded three years ago are, for the most part, now fully funded. Those that did not reach full funding, in some cases they had improved pension benefits, in some cases they had also made their assumptions more conservative. I have not seen evidence of any actions that work to the detriment of these plan members.

MR. STEELE: But it is your position today that you are not permitted by law to identify to a committee of the Legislature which plans are in the worst shape? Is that your position?


MR. STEELE: So, for the plans that aren't fully funded, the euphemism was interesting, instead of calling them underfunded, we called them plans having a strategy. We either have fully-funded plans or plans with a strategy to get back to full funding. Who reviews these plans for reasonableness? Presumably anybody can come up with a plan, but is it a reasonable plan? Is it going to work, in the opinion of professional experts? Does your office do that?

MS. MACNEILL SMITH: Do you mean as far as the benefits provided or funding?

MR. STEELE: The word strategy is a word that you've used this morning, so whatever you mean by strategy is what I mean by strategy.

MS. MACNEILL SMITH: An independent actuary is hired by the plan's sponsor or the plan's administrator to review the pension plan. The actuary determines what the assets are of the plan, what the liabilities are, and if there's a shortfall, the payments that are required to bring the plan to full funding. Those requirements are established under the pension legislation and under the regulations, as to what types of payments must be made and how soon they must be made. My staff and I review those reports to make sure that they are reasonable and that they meet the requirements of the legislation.

[Page 17]

[9:45 a.m.]

MR. STEELE: So it's your view and the view of your office that every single pension plan in Nova Scotia is either fully funded or has a reasonable plan to become fully funded?

MS. MACNEILL SMITH: There is one plan where the employers have refused to make the required special payments. I have issued a proposed order to those employers and we are having a hearing on that matter at the end of this month.

MR. STEELE: And your orders are public, is that right?


MR. STEELE: And the fact that you're having a hearing is public?


MR. STEELE: Which employer is it?

MS. MACNEILL SMITH: It's the Police Association of Nova Scotia Pension Plan and it's the towns that are refusing to pay the contributions with respect to their policemen.

MR. STEELE: Tell us a bit more about that - if I have time, Mr. Chairman?

MR. CHAIRMAN: You have about a minute left.

MR. STEELE: Well, maybe I'll leave it with that and ask you - this is not one that I personally am aware of, although others around the table may be. Can you tell the committee a bit more about that situation with the Police Association?

[9:46 a.m. Mr. Gary Hines took the Chair.]

MS. MACNEILL SMITH: I believe it relates to an issue between the administrator of the plan, being the Police Association of Nova Scotia, and the towns. The towns are saying that they do not have appropriate representation on the administration of the pension plan and their argument is, because they don't have representation and they don't have any control over the plan, they should not be required to make the special payments for solvency. They are making the payments for the general current benefits that are being earned, but we'll hear more at the hearing.

MR. CHAIRMAN: Thank you, Mr. Steele. Mr. Gaudet.

[Page 18]

MR. WAYNE GAUDET: Madam Superintendent, you've indicated there has been a significant improvement to private pension plans in our province. I want to focus especially on the plans that are not fully funded. You've indicated there are approximately 480 private pension plans in the province, could you tell us how many are not fully funded out of those 480?

MS. MACNEILL SMITH: Because the valuation reports are prepared every three years, some of the statistics I have would be for plans that were valued as of December 2002, some are December 2003, some are December 2004. The ones that were valued as of December 2004, for the most part, are fully funded. The ones for 2002 and 2003, if they are underfunded, will be making the special payments. Because of the recent turnaround in investments, over what had happened in 2002, if a plan had experienced a significant gain in investments, if they were making special payments previously and they said, oh no, our plan has sufficient assets now, we want to stop those payments, they would do another valuation.

MR. GAUDET: Looking at 2004, most of them are funded. What do you mean by most?

MS. MACNEILL SMITH: I would have to do further analysis of the statistics that I have in the office.

MR. GAUDET: So is it 90 per cent that are funded? I'm just trying to get an understanding of . . .

MS. MACNEILL SMITH: If you look at these most recent plans that I had looked at, the valuations that were filed in 2005, these were the plans that were underfunded and this is their status now. So if they're a representative sample then I would say that the majority are fully funded.

MR. GAUDET: I guess my next question would be, are you confident that those that are trailing will eventually be fully funded?

MS. MACNEILL SMITH: They have to be fully funded within five years of the last valuation date.

MR. GAUDET: So that's a guarantee, there's no other choice?

MS. MACNEILL SMITH: Any deficiency that existed as of the last valuation date must be eliminated within five years of that date.

MR. GAUDET: As a responsibility of the role of superintendent, what happens if after five years there are still private pension funds that are not fully funded?

[Page 19]

MS. MACNEILL SMITH: If they've had a new deficiency? The old deficiency will be eliminated within five years. They are required to make the payments, we review it to make sure the payments are made.

MR. GAUDET: I'm just trying to get a better understanding to make sure there is an absolute guarantee that the company or the fund is still in existence for the protection of those workers down the road. With the so-called strategic plan, after five years, what kind of guarantee . . .

MS. MACNEILL SMITH: It's not a plan, it's a requirement. It's like if you have a bank loan and you have five years to pay it off, you have to make those monthly payments and then within the five years you have fully paid the deficiency, paid back your loan. These plans have five years to make their deficiencies fully funded so at the end of that five-year period, the debt they had owed to the plan previously is eliminated.

MR. GAUDET: So jumping to next year, at the end of 2005, I guess, are we safe to say that more of the private pension funds will be fully paid up?

MS. MACNEILL SMITH: Most likely. The plans themselves can make changes that affect those factors. We've had plans that have improved benefits, so they've increased their liabilities. If those plans are fully funded as of December 31, 2004, they make a benefit improvement at that time, they're not going to be underfunded at the next three-year period because they have a certain amount of time to make the plan fully funded again. So there are actions taken by the plan administrator, the plan sponsor, that affect the funding of the plan, but it all operates within the structure of the pension legislation.

MR. GAUDET: I'll wrap up with this question. I want to go back to locked-in RRSPs. I have a young man at home who contacted Community Services - he has less than $20,000 in RRSPs - for assistance - he is actually studying at the Burridge Campus - and was told that unfortunately they could not help him out, he had to basically cash in those RRSPs. Am I correct to understand that Community Services does not have the right to force an individual to cash in their RRSPs?

MS. MACNEILL SMITH: There's a distinction between a regular RRSP and a locked-in RRSP that arises from money transferred out of a pension plan. It's only pension plan money that has that special protection. Even in the event of bankruptcy the federal trustee in bankruptcy cannot seize a locked-in pension fund.

MR. GAUDET: Thank you.

MR. CHAIRMAN: Mr. Theriault.

[Page 20]

MR. HAROLD THERIAULT: Sorry I was a little late when you first came here but it was hard driving this morning. I'd like to touch on the teachers' plan, I've had a lot of questions on that from teachers in my area of Digby-Annapolis over the past couple of years. You said to Mr. Steele that you didn't have to be responsible to this committee. That kind of bothers me, we are the people of Nova Scotia here.

MS. MACNEILL SMITH: The Teachers' Pension Plan is not subject to the Pension Benefits Act, it's subject to its own Teachers' Pension Act, so it's not in the area of my responsibility.

MR. THERIAULT: The teachers' plan is not under your responsibility?

MS. MACNEILL SMITH: No, it's an exemption. There are a number of plans exempted from the application of the Pension Benefits Act. That includes the Public Service plan, the teachers' plan, the MLAs' plan, the judges' plan and the Sydney Steel plan.

MR. THERIAULT: Who is responsible for investing the money of the premiums that are paid into the pensions?

MS. MACNEILL SMITH: For pension plans in general?

MR. THERIAULT: Yes, who's responsible for that?

MS. MACNEILL SMITH: The pension plan administrator. Most often smaller plans are invested with insurance companies. The administrator - primarily, the employer - chooses the investments.

For the larger plans, any plan that is jointly trusteed, like the trades associations' plans - plumbers, pipefitters, carpenters - those plans are jointly trusteed, so their boards are made up of both union representatives and employers. They choose who to hire to manage the investments for them.

MR. THERIAULT: Has it been taken into account in the next 10 years, the baby boomers who are going to be retiring, and what is the strategy? You talk of a strategy that is in place, could you give us the information on that strategy of the investment funding that is going to take care of the increase of baby boomers coming on?

MS. MACNEILL SMITH: That is considered by the actuary in his or her analysis of the pension plan whether there will be enough funds there to provide for the pensions.

MR. THERIAULT: So there is a strategy in place?

[Page 21]

MS. MACNEILL SMITH: It may vary by plan. Some plans may have an average age where the membership is 40, another plan may have a much older workforce and may have an average age of 48. You would have different investment strategies for the plan, depending upon how close they are to retirement and how soon you're going to have to start making significant pension payments.

MR. THERIAULT: I think there's a lot of concern out there. The Workers' Compensation Board is another big concern. Every Winter at the first of December, I'm bombarded with fishermen from all around the coast, from my own fishermen and others; Workers' Compensation is another plan that has gotten out of hand. I think it's going to drive small business out of business and a load is going to come onto the taxpayer. I believe taxpayers are concerned about this Civil Service pension plan. We've already bailed the teachers' plan out with a $265 million loan in 2002. From 1999 to 2003, the teachers' plan and the Public Service Superannuation Plan, two of the largest public pensions, lost roughly $1.4 billion. I would like to know the plan, you keep talking about this strategic plan.

MS. MACNEILL SMITH: For the Public Service Superannuation Plan, that's the responsibility of the Department of Finance.

MR. THERIAULT: But it's all in the pension plans. I would like to see their strategic plan too. Anyway, thank you.


MS. MARILYN MORE: I'm not very familiar with the role of your office and I'm just curious to know, besides the information provided today, do you have any kind of monitoring role of trends across Canada and what impact different pension legislation has on the citizens?

MS. MACNEILL SMITH: Every jurisdiction in the country, except for P.E.I., provides information to Statistics Canada on the types of pension plans, coverage and contributions going in, so we have access to that as a regulator. Also, we meet nationally twice a year, in person, we have two conference call meetings where we discuss issues of concern to regulators as a whole.

MS. MORE: Do you make any policy recommendations to departments or Cabinet regarding needed changes to lessen the risk for Nova Scotians enrolled in those plans?

MS. MACNEILL SMITH: Yes, that is part of my responsibility.

MS. MORE: Can you think of an example of something within the last two or three years that you might have recommended?

[Page 22]

MS. MACNEILL SMITH: We made significant revisions to the Pension Benefits Act effective January 1, 2003, and that was on the basis of the recommendations coming from my office.

MS. MORE: I'm curious to know if you do any sort of gender analysis. Do you have any idea of the breakdown between men and women enrolled in the private plans in terms of payouts, or any information like that?

MS. MACNEILL SMITH: We do have some reports from Statistics Canada that have some of that type of analysis. I could provide that to you if you contact my office.

MS. MORE: Do you have it with you today?


MS. MORE: But you could make it available?


MS. MORE: That would be excellent. I guess I'm a little concerned because I think we all realize that women, because of their interrupted work records and because of their caregiving roles, even at the same educational levels, there seems to be a wage gap. There are many factors impacting on women, and so they don't seem to benefit as much from public and private pensions as men do. Many more women live in poverty when they retire. I'm just wondering, are there any considerations or safeguards that could be considered to lessen that risk for women?

MS. MACNEILL SMITH: Interestingly enough the coverage of women in pensions has gone up and there was a decline in coverage for men, related primarily to the change in the workplace. There's less manufacturing, less primary industry meant that there was lower coverage for men in the workforce. There's also a decline in the number of unionized members. Generally the coverage for women had risen considerably, to where it's pretty much the same as men.

I think the biggest concern for women, and for men as well, is the change in the nature of the employment that's offered. The service industry, generally, does not provide for pension coverage. Wages are low. Anyone who's earning less than $10 an hour should not really be saving for retirement, because if they do save for retirement it has a negative impact on their lifestyle now to the point where they would be better off retired than working, and that's an inequity. There's such a large proportion of the workforce that really is not earning sufficient funds. To me that's the biggest concern, the nature of employment.

[Page 23]

MS. MORE: I agree with you on that. I guess what concerns me, the information I'm getting suggests that more women are going into part-time work, contract work, seasonal work . . .

MS. MACNEILL SMITH: That's all that's available.

MS. MORE: Yes. So they don't even have the ability to have a private pension plan. It just increases the likelihood that those women are going to live in poverty when they're no longer working.

MS. MACNEILL SMITH: We have the working poor. They're living in poverty now, and that will continue.

MS. MORE: That's going to continue. What kind of working relationship does your office have with the Advisory Council on the Status of Women? I know they've been involved in doing research and support of initiatives around women and public pensions in Nova Scotia. Are you involved in any of those initiatives at all?

MS. MACNEILL SMITH: No, I have not been contacted by them.

MS. MORE: Have you seen any of the information, the reports?

MS. MACNEILL SMITH: I've seen some of the reports that came out, yes.

MS. MORE: Thank you very much.

MR. CHAIRMAN: Thank you, Ms. More. That concludes the first round of questioning. Mr. Epstein, we'll start with you for the second round.

MR. EPSTEIN: Superintendent, can we go back to the numbers, again, of employees? I just wanted to ask again about that 132,000 employee figure that you gave us before. Is that employees in Nova Scotia covered by plans registered with you?


MR. EPSTEIN: Would that include some of the employees who are in plans that are registered in other provinces?


MR. EPSTEIN: Fine, that clarifies that. I wonder if you have any stats on changes in numbers of plans or numbers of employees covered by plans that are defined contribution compared with defined benefit? Is that in your report, or is that somewhere that you could

[Page 24]

either direct us to or provide for us? Is there a snapshot over the last five or 10 years? And again I'm talking in Nova Scotia. I know the national picture.

MS. MACNEILL SMITH: The plans registered in Nova Scotia, there is a chart showing the coverage of membership in pension plans that are defined benefit and membership in plans that are defined contribution. Defined contribution coverage has gone up a little bit, down a little bit, up, down a bit. Defined contribution coverage, kind of the same trend.

What we do see with large defined benefit pension plans, some of them have moved to close the plans to new employees and implement only a defined contribution plan for new employees. We have seen that with some of the larger defined benefit plans.

MR. EPSTEIN: Do you get the chance to do any cross-linkage of the individual companies that you have identified as being not 100 per cent solvent in their pension plans with their overall solvency in the marketplace? That is, do you look at any of these companies and look at their general positioning in the marketplace, and try to identify the ones that might be most at risk of going bankrupt?

MS. MACNEILL SMITH: Yes. We're fortunate in Nova Scotia in that it is a small province, so we do pay attention to what's happening in the news with respect to employers. We don't have access to board meetings or the profit and loss statements, but we certainly do pay attention to what's happening and monitor those plans more closely.

MR. EPSTEIN: Okay, you would only have access, say, to official financial statements for the publicly-traded companies, is that right? So what I'm wondering is whether any of the companies where the plans are underfunded, are you particularly worried that some of them might be in danger of going bankrupt?



MS. MACNEILL SMITH: There are some worries, not of bankruptcy but of closures.

MR. EPSTEIN: Sure, closure would amount to the same thing, of course, wouldn't it, in terms of the impact on the employees.

MS. MACNEILL SMITH: Yes, in fact Michelin has closed a plant in Ontario, affecting a large number of workers, and that pension plan is registered here. So I will have to administer the partial windup of that plan with respect to the Ontario members. I'll have to make sure that the Ontario laws are applied to the Ontario members with respect to them.

[Page 25]

MR. EPSTEIN: But you're telling us that there are some of those companies where the plans are underfunded where there is maybe some chance that they might either go bankrupt or close up their operations?

MS. MACNEILL SMITH: I would know no more about the financial stability of those employers than you would.

MR. EPSTEIN: Okay, but you would know whether they have pension plans and I don't, so you've got an extra piece of information.

MS. MACNEILL SMITH: Yes, and we act upon that. We make sure that the reports come in as required, and in some instances we can ask for additional information, if we have reason to believe that money is not going into the fund.

MR. EPSTEIN: So acting on it would mean a particular focus on those companies?


MR. EPSTEIN: Can you tell us how many employees might be covered in those circumstances? How many people are we looking at, where your attention is particularly focused on some of these companies?

MS. MACNEILL SMITH: Currently, we might be looking at a couple of pension plans that might have a few hundred employees.

MR. EPSTEIN: Total or each?


MR. EPSTEIN: A few hundred each, okay. Thank you. Can we also focus now on the tables you gave us this morning. I want to draw your attention to three of the companies in particular. These are Company No. 26, Company No. 5 and Company No. 29. When I look at those three companies, those are three companies which were originally, under your stats, underfunded and which still seem to be underfunded in the change, when you looked at their updated actuarial statements.

When I look at those three companies, Nos. 26, 5 and 29, I see that Company No. 26 improved its position a little bit from about 77 per cent funded to being about 80 per cent funded, but Company No. 5 and Company No. 29 moved from being, in the case of Company No. 5, 83 per cent funded down slightly to about 82 per cent funded, and for Company No. 29, they moved from being 92 per cent funded down to being 84 per cent funded, which I find quite astonishing given how people have been making money hand over

[Page 26]

fist in the stock market in the last year or two. Can you tell us what's going on with these three companies?

MS. MACNEILL SMITH: Company No. 29, for example, they have a more aggressive long-term valuation rate. They're assuming they're going to earn 7 per cent long term. Many of the pension plans that are under my supervision have lowered their interest assumption from 7 per cent to 6 per cent. Right now the solvency valuations are based on interest assumptions of 4.5 per cent. So there's that gap in between the solvency valuation rate and the ongoing valuation rate. The lower the interest rate, the greater your liability, right? So a solvency valuation assuming a 4.5 per cent rate of return is going to have much higher liabilities than a valuation assuming a 7 per cent return.

This particular plan, Company No. 29, has actually implemented changes to their pension plan to reduce benefits prospectively, to bring their solvency into a better position.

MR. CHAIRMAN: Mr. Epstein, I'm going to have to stop you and move on to Mr. MacDonald, so that everybody can get some time in this round.

MR. EPSTEIN: Well, that's not an ideal way to improve your solvency, I have to say.

MS. MACNEILL SMITH: That plan in particular is a jointly-trusteed plan. It was a decision of the employers and employees to do that.

MR. MANNING MACDONALD: Mr. Chairman, I would just like to pick up a little bit on a statement that Junior made in regard to the Teachers' Pension Plan, and the fact the Teachers' Pension Plan doesn't come under your jurisdiction. I think there's obviously some confusion as to whose jurisdiction it does come under, and who is responsible for it. We've seen in the past that government has bailed out this plan on more than one occasion. So obviously government has a role to play there.

I would suggest, perhaps, that this plan is some kind of a hybrid, that it's there but it's not there in terms of who is responsible for this particular plan. The figure that Junior gave about the two pensions, the Public Service Superannuation Plan and the Teachers' Pension Plan lost $1.4 billion between 1999 and 2003.

I guess my first question would be - and then I'll have a follow-up one - given that fact, are you concerned about the future viability of both of these plans? Would you offer an opinion on that, as to if the government continues in its plan, the April 1st plan, in terms of the teachers' pension and also the public service superannuation - can you give me an opinion - as to your concerns about these two plans and where they're heading in the future?

MS. MACNEILL SMITH: As a member of the Public Service Superannuation Plan, I'm not concerned. The losses experienced during that period - everyone experienced losses.

[Page 27]

My own personal RRSPs were badly trounced. The investment earnings since that period - it's my understanding, based on the reports sent to every plan member - are improved. Our contribution rate has gone up, actually, as well to pay for those benefits. With respect to the teachers' plan, it's my understanding that they made changes to their pension plan provisions to make the plan more affordable, for the plan members, the teachers, and the government.

So my concern as a person interested in pensions would be if the government and the plan members did nothing to improve their situation. What I see all around me are actions taken for proper governance of these plans to ensure that the benefits are secured for the members.

MR. MANNING MACDONALD: Which leads me to a couple of comments and then perhaps a statement which you may or may not want to react to. I think when people move towards retirement, they want to experience some certainty, so that they know that when they retire there's going to be adequate funds there so that they can support themselves in perhaps a similar way that they were able to support themselves when they were working. I think that's the Utopian concept that everybody employs. Nobody likes changing rules in the middle of the game. It seems to me that there's a great deal of uncertainty around this whole business of certainty in pensions when people have to access these pensions.

[10:15 a.m.]

I just want to go to another statement that was made, that you're not responsible for the Teachers' Pension Plan - it doesn't come under your jurisdiction. The government has demonstrated that in the past it has been responsible for the Teachers' Pension Plan, and you're an extension, a government department. If another downturn happens in the coming years, as happened before, and I'm talking about both of these pension plans - they're huge pension plans, the Public Service Superannuation Plan and the Teachers' Pension Plan. The province is setting itself up where it's under no obligation to bail these plans out, particularly the teachers' plan, and would probably balk at bailing the other plan out if it was necessary to do so.

My observation is that because the rules aren't tight on that it becomes a judgment call of the minister and the government of the day as to whether or not they want to bail out a particular pension plan in Nova Scotia, and that's troubling to me. That leaves it in the hands of the political masters of the day who may or may not want to bail a pension plan out for political expediency. I don't, for one minute, expect you to make a comment on that. It's just an observation that it then becomes a political determination in the future as to whether or not it's in the best interests of a particular government, this one, the next one or one way down the road - I'm not picking on any particular government now. What I'm saying is that the way this is being set up, it then becomes a judgment call of the minister or the government in power as to whether or not they want to bail these plans out. I leave that, Mr. Chairman, as an observation. I certainly would not expect a civil servant to react to that.

[Page 28]

MR. CHAIRMAN: Thank you, Mr. MacDonald. We'll move on now to Mr. Steele for the second round.

MR. STEELE: I just wanted to start where we left off, talking about the Police Association of Nova Scotia. How many members are affected by that particular plan?

MS. MACNEILL SMITH: I'm afraid I can't recall that number.

MR. STEELE: Okay, but presumably it would be any member of a police department represented by PANS.

MS. MACNEILL SMITH: Yes, working for a town.

MR. STEELE: Working for a town and a member of PANS?


MR. STEELE: Turning to municipal employees who do fall within your jurisdiction, how many different municipal plans do we have in Nova Scotia?

MS. MACNEILL SMITH: There's a requirement under the Towns Act and the municipalities Act that each town and municipality must have a pension plan for its employees. That was brought into legislation, I think in 1993. So there is a pension plan for each and every municipality.

MR. STEELE: We have 55 municipalities in Nova Scotia, so therefore there are 55 different pension plans. Is that right?

MS. MACNEILL SMITH: There may be some that are participating under an amalgamated plan for municipalities, for example.

MR. STEELE: Do some of them have such a plan?

MS. MACNEILL SMITH: There is such a plan, yes.

MR. STEELE: That includes more than one - which one is it?

MS. MACNEILL SMITH: There's a Union of Nova Scotia Municipalities pension plan, which has different municipalities and towns participating.

MR. STEELE: You know the information I'm looking for, I don't. How many different plans do we have?

[Page 29]

MS. MACNEILL SMITH: Off the top of my head - I have 480 plans registered with me. Of those, I don't know how many of those represent municipalities.

MR. STEELE: What I'm looking for, it's not meant to be a complicated question, it's just how many municipal plans do we have? First you said there's one for every municipality, and then you said, well, there's an amalgamated plan. I'm just trying to get a handle on how many different plans we have, that's all. It's not meant to be a complicated question.

MS. MACNEILL SMITH: My apologies. I meant that all employees of municipalities are covered under pension plans. If you're looking specifically at defined benefit plans . . .

MR. STEELE: No, I'm just looking for the number of different municipal plans we have. I'm still not clear whether we have one plan or 55 or something in between.

MS. MACNEILL SMITH: I can count those. I can go back to my office and count them for you.

MR. STEELE: What I am really interested in getting at, of course, is not the number, it's what is the state of funding of the municipal employee pension plans in Nova Scotia?

MS. MACNEILL SMITH: Then you would have to go to the municipalities and ask that question.

MR. STEELE: Why can't I get the answer from you?

MS. MACNEILL SMITH: Because the information filed with me is done on a confidential basis.

MR. STEELE: But I'm talking generally. You don't have to name the municipality, I'm just asking generally, what's the state of funding?

MS. MACNEILL SMITH: Generally, the large municipalities, the last reports filed with me, they were very well funded.

MR. STEELE: Each and every municipal plan is very well funded?

MS. MACNEILL SMITH: No, I said the large municipalities, at the last valuation report filed with me, were well funded.

MR. STEELE: Okay. That's not what I asked you. I'm not meaning to ask difficult questions, but what I asked you is the state of funding of municipal plans.

[Page 30]

MS. MACNEILL SMITH: The reports that have been filed with me, in December 2004, that I analyzed, a few municipalities that were in there had shown some considerable improvement in their funding. Other municipalities have reports that were done two, three years ago. I don't know what their current funding status is. I know the status of what they were in December 2001.

MR. STEELE: Okay, so if I ask you today the state of municipal pension plans, the answer that I think I'm hearing is that you're not sure. Some, you can say, yes, they're fine; others, the valuations are so old that you can't really say where they're at today. Is that correct?

MS. MACNEILL SMITH: No, I'm saying that the valuations might have been done two or three years ago, and if there was any deficiency at that time, they would have five years to make the payments to bring them up to full funding. What I don't have is a current valuation on each and every municipal pension plan.

MR. STEELE: I guess what concerns me more than anything is the difficulty in getting a clear answer. I didn't mean it to be a difficult question.

MS. MACNEILL SMITH: Perhaps you could rephrase the question.

MR. STEELE: I don't know how much simpler it could be than to ask how well funded are municipal pension plans. The answer I'm getting is not at all clear to me.

MS. MACNEILL SMITH: Each pension plan has its own particular funding status. The large municipal pension plans that are in effect have been very well funded as of the most recent valuation reports filed with me.

MR. STEELE: The large ones. What about the small ones?

MS. MACNEILL SMITH: The small ones as well, as of the most recent reports. There may be changes or further analyses that have not yet been filed with me. As of the current data that I have, they're very well funded. If there are any deficiencies, they're making the payments to fully fund them.

[10:22 a.m. Mr. Brooke Taylor resumed the Chair.]

MR. STEELE: Somehow I feel that we got into some kind of a verbal game here where I ask you how are they funded, and you say the large ones are fine. Then I say, well, what about the small ones, and you say, oh, they're fine, too. Anyway, I'm going to move on, because I'm not quite sure why it's so difficult to get an answer to a question that I thought, when I first asked it . . .

[Page 31]

MR. CHAIRMAN: Order, please. Order. I think that in the interest of fairness to our guest, she has said that the information filed specific to individual plans is confidential. I think we'll have to respect the witness' position on that, Graham. I would ask you to move to another line of questioning.

MR. STEELE: I'm not asking for a specific municipality. Anyway, I've heard your answers.

MS. MACNEILL SMITH: Perhaps if I may respond, in my thought processes I break down plans in groups between the smaller employers and the larger employers. That's my thought process.

MR. STEELE: Presumably you can divide the Nova Scotia workforce into four different kinds of people: people who are members of a registered defined benefit plan, a registered defined contribution plan, somebody who is in an unregistered plan of some kind, and then people who have no plan at all. Can you give us even rough numbers of how the Nova Scotia workforce divides into those four categories?

MS. MACNEILL SMITH: Yes, it's in the annual report that I provided. The updated report doesn't show much of a difference. Currently, 34.3 per cent of the total labour force in Nova Scotia participate in pension plans, but that includes the unemployed and the self-employed, and they cannot participate in a pension plan. So of those employees, the employed paid workers who are eligible to participate in plans, the coverage rate is 41.8 per cent.

MR. STEELE: Does your office - I mean this is the Economic Development Committee - do any analysis of the impact on economic development of Nova Scotia pension plans?


MR. STEELE: You mentioned that because the Michelin plant is registered in Nova Scotia, you will in fact be the one who is administering the partial windup of the plan made necessary by the closure of the BF Goodrich plant in Ontario. Presumably that's going to be a lot of work for your office.


MR. STEELE: Is this going to interfere with the resources that you have to administer other plans that affect the Nova Scotia workforce?

[Page 32]

MS. MACNEILL SMITH: It will certainly have an impact on the time that we take to review material, just as any special reports or operations that go on do affect your current workload.

MR. STEELE: Is the Michelin plant fully funded?

MS. MACNEILL SMITH: I'd prefer not to answer that. That is a private question with respect to the Michelin plant.

MR. STEELE: My final question has to do with universities. By regulation, the period that they were given to get back to being fully funded was extended from the normal five years to 15 years. I'm just wondering, could you explain for us, again, why universities were felt to be different, that a different rule would apply to them?

MS. MACNEILL SMITH: It was my understanding that universities are primarily funded by governments. Their funding is perhaps more stable than a company pension plan, where contributions come out of profits.

MR. STEELE: You say it's your understanding, but this is a regulation change that you recommended, is it not?

MS. MACNEILL SMITH: It did not originate from my office, no.

MR. STEELE: Where did it originate?

MS. MACNEILL SMITH: It originated from the government.

MR. STEELE: Is it a regulation change that you think is financially sound?

MS. MACNEILL SMITH: The protection is there for the plan members, that if there's any partial windup or full windup of a university pension plan and there's any shortfall, then the university is required to fund those benefits immediately. That's a strong protection that exists for other pension plan windups. While on the one hand they got an extension to the funding, on the other hand they have much stronger and stricter requirements on windup.

MR. STEELE: Thank you.


[Page 33]

MS. MORE: In round one questions we were talking a bit about how the nature of work has changed. I'm just wondering, are you seeing any changes in the evolving pension plans that are registered with your office to accommodate the evolving workforce in Nova Scotia?

MS. MACNEILL SMITH: Whether or not an employer establishes a pension plan is purely financial, whether or not they can afford it, whether they want to retain and attract employees. After talking to employers over the years - I've been working with the government for 19 years - what it really comes down to, whether or not an employer establishes a pension plan, is whether or not they have the funds to do it and whether the desire is there to provide that security for their employees at retirement.

MS. MORE: I'm just wondering, though, with the plans that are already registered, are you seeing any changes to benefits to accommodate the part-time, seasonal, contract-type of work with those companies?

MS. MACNEILL SMITH: We made a change to the pension legislation in 1988 that for the first time, if an employer has a pension plan, that its employees with less than full-time employment must be permitted to join. If you have a contract employee, a term employee, a casual employee, we don't care what they are called, if they meet certain earnings and hour requirements, they're eligible to participate in the pension plan.

MS. MORE: Is that a set standard for the earnings, or does it depend on each company and the number of hours they put in?

MS. MACNEILL SMITH: It's a set standard, it doesn't vary by company. In the changes that were introduced, effective January 1, 2003, we added the condition that if an employee has worked for 700 hours in each of two consecutive years, then they're eligible to participate in the plan. So it's either an earnings requirement or an hours requirement.

MS. MORE: Do you get any complaints that this isn't happening with companies?

MS. MACNEILL SMITH: Occasionally, and we address the complaint with the administrator of the plan to make sure that coverage is extended.

MS. MORE: And what's your success rate in getting . . .

MS. MACNEILL SMITH: Well, they have to comply.

[10:30 a.m.]

MS. MORE: I have some information from Stats Canada to show that there are several trends across Canada, and I'm just wondering if you're seeing any of these trends in

[Page 34]

Nova Scotia. One is that an increasing number of employers are not providing pension plans to their employees, it's especially true for the defined benefit plans. Many employers seem to be switching to defined contribution pension plans because it shifts the investment risk to the employees. I'm just wondering, are you seeing any of those trends impacting on the caseload that you're administering?

MS. MACNEILL SMITH: We do see trends where large defined benefit pension plans are not offering defined benefits to their new employees but are offering them the defined contribution plans.

MS. MORE: But there's a date deadline as to new employees?

MS. MACNEILL SMITH: Yes. There are trends historically as far as what types of plans are established, whether it's defined benefit or defined contribution. Defined benefit plans are a very useful tool for employers to manage their workforce. They can provide early retirement windows, they can improve benefits under the defined benefit plan with much greater ease than they can under a defined contribution plan. Under a defined contribution plan, under the Income Tax Act, contributions are quite limited. In that type of plan the earlier you start to save the more beneficial it is.

If you have an employee who is age 60 and you decide that you really would like him to retire but he doesn't have sufficient defined contribution benefits to retire, you're limited in what you can do for him within the terms of the pension plan. If it was a defined benefit plan you'd have much more flexibility. Whether or not the trend will swing back, I don't know. There have been changes to the accounting rules under the Canadian Institute of Chartered Accountants which have impacted pension plans as far as disclosure of liabilities. All of those things impact on whether or not an employer maintains its defined benefit pension plan.

MS. MORE: I'm just wondering and I don't know anything about this aspect of my question so I'll leave it to you to inform me, is there any such thing as portability of plans among private pension plans? We don't have the same scenario where people tend to stay with one company for their full work career. People seem to be changing companies fairly frequently and I'm just wondering, is there such a thing?

MS. MACNEILL SMITH: The Pension Benefits Act certainly permits portability between plans but there's no requirement that the pension plan of your new employer - except you transfer over from the other plan - to provide you with accredited service under your new plan.

MS. MORE: So is it solely the decision of the employer as to whether or not it can be taken out and added on?

[Page 35]


MS. MORE: Roughly, can you tell me how many of the private pension plans registered with your office might have that portability?

MS. MACNEILL SMITH: Only the municipal plans and maybe university plans, that would be it.

MS. MORE: Thank you.

MR. CHAIRMAN: Are there any members of the other caucuses who have any questions before we go back to the NDP? Howard, we'll give you another kick at the can.

MR. EPSTEIN: In fact, just on portability, isn't it the case that when credits are taken from one plan to the other they may not be accepted on a one-for-one basis, they indeed may be valued at a little less or more depending on what the relative funding and benefits are?

MS. MACNEILL SMITH: Yes, you can have a plan that provides very generous benefits and ancillary early retirement benefits and you move into a plan that doesn't provide any of those benefits and in effect, you have too much money, or if the transfer goes the other way, you don't have enough to buy the service.

MR. EPSTEIN: I'd like to ask the superintendent, if I may, about this. In 2005, the Certified General Accountants Association of Canada put out a report and it's called The State of Defined Pension Plans in Canada: an Update. The reason it's called an update is that in 2004, the preceding year, they had actually put out a report called Addressing the Pensions Dilemma in Canada, and I'm sure you're familiar with this report, we have it in our materials.

One of the things they did when they sounded the alarm in these two reports about private defined benefit plans, and I'm looking here at Pages 32 to 33 of their report - I don't know if you have it with you or if you have the same materials we do - at a section called Legislation and Public Policy Update and they're making some suggestions here in their two plans. They're really repeating in the second report what they said in their first report. They list about six items that they think are appropriate for action and I'll just read them into the record.

One, requiring more frequent actuarial valuations where conditions warrant. Two, placing constraints on the level of investment risks taken by the pension fund. Three, adding plan requirements for sponsors who wish to improve benefits of plans which are already in deficit. Four, an untainted enforcing of regulation. Five, requiring targeted communications to plan members. Six, ensuring that pension plans attract strong vigilance by boards of directors.

[Page 36]

I'm sure you're familiar with these and I'm wondering if you have any advice to us about these six recommendations or any of them. Do you think this is the kind of measure that we could usefully consider for legislative change in Nova Scotia, or policy change here?

MS. MACNEILL SMITH: We have, as I had mentioned, the Canadian Association of Pension Supervisory Authorities which are the superintendents nationally. We developed what is known as the Governance Guidelines for Pension Plan Administrators outlining the factors that the administrators must consider for the proper governance of their plans.

As I've indicated, we are looking at revising the funding requirements to provide for greater security of the benefits for the members. We're also looking at revising the pension legislation itself, so we're working nationally on a lot of those items that are listed there.

MR. EPSTEIN: So you have similar recommendations arising out of your own group of pension superintendents?

MS. MACNEILL SMITH: Yes, and we certainly look at what the CICA has recommended.

MR. EPSTEIN: So would requiring more frequent actuarial valuations make sense?


MR. EPSTEIN: That is a power you have now, isn't it? Isn't that something you can do now?

MS. MACNEILL SMITH: Yes, and I actually do that for one particular plan.

MR. EPSTEIN: Can you deal with the level of investment risk? Is that something you have a power to influence or control right now?

MS. MACNEILL SMITH: Well, we control it actually through the investment regulations under the legislation, the requirement that the assets of the pension fund must be invested prudently.

MR. EPSTEIN: But could you, for example, constrain a plan as to the percentage of bonds over stocks, or what kinds of stocks and so on?

MS. MACNEILL SMITH: That is prescribed in the regulations.

MR. EPSTEIN: You could do that?


[Page 37]

MR. EPSTEIN: You'd have to do it by regulation, is that right?


MR. EPSTEIN: And these regulations are structured to apply to all plans right now, isn't that right?


MR. EPSTEIN: So you couldn't target it to a particular plan?


MR. EPSTEIN: I'm not sure what No. 3 means, adding plan requirements for sponsors who wish to improve benefits of plans which are already in deficit.

MS. MACNEILL SMITH: It's a plan that has a solvency deficiency. Say the employer and the union have negotiated benefit improvements that will negatively affect the funding of the plan, the superintendents would not permit such benefit improvements to be made, they would not accept the improvement, they could not improve the plan until it reached a higher level of funding.

MR. EPSTEIN: They couldn't improve the benefits at the expense of the solvency?


MR. EPSTEIN: An untainted enforcing of regulations, I found that one odd, it seemed a peculiar kind of item. Do you have any idea what that meant?

MS. MACNEILL SMITH: Can you repeat that one?

MR. EPSTEIN: Their No. 4 was an untainted enforcing of regulations, they seem to suggest there must be some problem, I don't know what they're referring to.


MR. EPSTEIN: Targeted communications to plan members, are we adequate in terms of communications to plan members at this point do you think?

MS. MACNEILL SMITH: We can always improve upon that. There has been a big change in the education of plan members as far as awareness of their benefits, but there's always room for improvement.

[Page 38]

MR. EPSTEIN: Can I just follow one little scenario with you? Can we just think about a company that is perhaps 60 per cent funded and you identify this plan because of the reports that have to come to you. You then tell it it has five years to bring itself into a position of being completely solvent.

MS. MACNEILL SMITH: That's actually identified in the actuary's report as well. If the actuary doesn't identify that, then we tell them they have to revise the report.

MR. EPSTEIN: Sure, but anyway it comes to your notice?


MR. EPSTEIN: So you're saying, you're 40 per cent short and you have five years to get yourselves into shape, rough arithmetic says about 8 per cent benefit per year. Comes the end of the first year into your five-year plan, they have not reached their 8 per cent target, what happens?

MS. MACNEILL SMITH: Then I order them to make the payments they're required to make.

MR. EPSTEIN: So the company is then ordered to take cash out of somewhere else in their cash flow and put it into the plan.


MR. EPSTEIN: You have the legislative authority to do that?


MR. EPSTEIN: Have you exercised that authority at some point in the past?

MS. MACNEILL SMITH: I have only ever reached the stage of making the proposed order and then the company complied.

MR EPSTEIN: So you've had compliance . . .

MS. MACNEILL SMITH: Like I said, the group of employers that provide pension plans are generally conscientious, well-managed, well-run employers, they do not tend to ignore their legal liabilities.

MR. EPSTEIN: I think my colleague, the member for Halifax Fairview asked about hearings. Are you obliged to have a hearing when you move to that stage?

[Page 39]

MS. MACNEILL-SMITH: Yes. Only if requested by the company or the people that I made the order to.

MR. EPSTEIN: All right, I think that covers my questions. Thank you very much for your help today.

MR. CHAIRMAN: Are there any questions from other members before we conclude? Thank you, very much.

I would like to thank our guests for coming in this morning, Ms. Nancy MacNeill Smith and Mr. Turpin. Mr. Turpin told me he was one of those faceless bureaucrats, well, we have put a face to him. Thanks again for coming in, it is appreciated.

The next meeting dates are included in our agenda. The next date is February 21st, we have Immigration Strategy, that has been confirmed. Representatives from the Nova Scotia Office of Immigration and Metropolitan Immigrant Settlement Association, and then, of course, the next two meetings are scheduled as well, pointing out that the one with Aerospace and Defence is tentative at this point. If there is nothing further, the motion to adjourn is accepted.

The meeting is adjourned.

[The committee adjourned at 10:42 a.m.]