Bill 3 the issue
Special city council meeting tackles Gatineau’s pension plans
City council met for a special meeting, January 13, to discuss the pension plan for city employees. With negotiations coming and the pension plan restructuring process beginning as early as February, the city, according to the controversial Bill 3, had to unveil the pension plan’s financial situation.
Introduced by Pierre Moreau, Minister of Municipal Affairs, Bill 3 forces municipalities to restructure their pension plans to improve their financial health and sustainability. Bill 3 amends pension plans to provide for an equal sharing of costs -- and the sharing of future losses – and it sets up a stabilization fund for the future.
Presently, covering the plan’s service costs the city $23 million annually, versus $11 million from its employees. When Gatineau set up the pension plan in 2007, the city contributed $1.60 for every dollar contributed by employees; today, city contributions have increased to $4 for every employee dollar.
With Bill 3, the maximum cost of the plan, including the current service contribution and the stabilization contribution, must not exceed 18% of the overall payroll, or 20% for police officers and firefighters. Current service costs in Gatineau are 22% of the municipal payroll -- 7% for employees and 15% for the city, a 70/30 split. Gatineau presently funds five defined-benefit pension plans with assets over $700 million, benefiting more than 2,500 employees and 1,300 retirees.
As of December 31, 2013, the funds’ actuarial deficit was $65 million, down from $200 million in 2012. “We did not want to leave it to chance. A $200 million deficit for an annual $550 million municipal budget is enormous. We will need to stay alert because if we have another financial crisis like 2008, we’ll return to a $200 million deficit and that would be bad news for taxpayers and employees,” said Mayor Maxime Pedneaud-Jobin.
Healthier investment returns, plus a $20 million annual injection from the city since 2008, helped reduce the pension plan’s $200 million deficit, wholly assumed by the city.
Five pension plans
The deficit is spread out between retired and active police officers, firefighters, white collar workers, blue collar workers and managers and professionals.
Almost half of the $65 million debt is carried by the managers’ and professionals’ plan. The employees are responsible for $13.7 million and the retired group for $16.5. “The plan is not more generous; it’s the same plan but our managerial staff is getting older,” explained the mayor. The plan generated extra debt because of job promotions.
A similar situation could occur with the white collar plan; it is the second-most indebted plan, with a $7.8 million deficit for active employees and $7.1 million for retirees. The plan for police is the third-most indebted, with a deficit reaching $5.3 million for employees and $6.9 for retirees. The pension plan for firefighters is less indebted, with a deficit of only $3 million for active members and $2.5 million for retirees. The least worrisome pension plan is the blue-collar workers’ plan, with a $1.2 million deficit for active members and $1 million for retirees.
As the debt for the municipal plan grew, the plan’s deficit was wholly guaranteed by the city, but this will change with Bill 3. Any future deficiency with new pension plans will be assumed in equal parts by the city and its employees. Until new pension plans are in place, the risk with the old plans will remain in the hands of the city council. A stabilization fund will protect the plan from adverse deviation likely to affect the plan.
Moreau’s bill also establishes a restructuring process with a one-year negotiation period, which can be extended for three-months, renewable only once. The parties may also resort to conciliation, and if negotiations fail, the minister may appoint an arbitrator to settle the dispute. “Presently, we have a good dialogue with our unions, but difficult negotiations lie ahead,” said the mayor.