Thank you, Mr. Speaker. Thank you, Ms. Bisaro.
4. Defined-Benefit versus Target-Benefit Model
Closely related to the proposal allowing the retroactive reduction of ancillary benefits is the issue of how Bill 12 would affect the nature of the NEBS plan. Presenters who spoke against Bill 12 expressed the view that the NEBS plan is a defined-benefit pension model and that the provision allowing the retroactive reduction of ancillary benefits, if and when put into effect, would effectively shift NEBS to a target-benefit pension model.
A defined-benefit pension plan is a type of plan which pays a guaranteed, predetermined benefit on retirement. The plan is 'defined' in the sense that the benefit formula is specified and known in advance. On the other hand, a target-benefit pension plan is one in which future benefits are based on affordability projections and may vary as a function of the funding status of the plan. Plan members, therefore, share a greater degree of plan risk through adjustments to their benefits.
Committee found the discussion around this point to be complicated by the fact that participants did not have a shared understanding of what constitutes a “defined- benefit” plan. Both the Department of Finance and NEBS representatives put forth the proposition that by continuing to protect “core” benefits from reduction, the nature of the NEBS Pension Plan under Bill 12 remained a “defined- benefits” plan.
The bill’s detractors expressed the view that giving the Pension Committee the authority to retroactively reduce any accrued benefits – core or otherwise – would have the effect of changing the NEBS plan from a defined-benefit to a target-benefit model. Participants referred to this as “sacrilege” and “breaking the pension
promise,” arguing that NEBS employers had entered into a covenant with employees to provide a set pension benefit based on their contributions, and that to reduce this retroactively is tantamount to reneging on this covenant.
In order to understand the significance of the shift from a defined- to a target-benefit model, committee found it important to look at trends in pension reform in the larger Canadian context. Committee’s research showed that, across Canada and in other industrialized nations, there has been a movement in recent years away from defined-benefit pension models to models in which the benefits are targeted. This shift has been precipitated by the challenges faced by both public and private sector employers in keeping their pension funds solvent. The movement to a target-benefit model is one approach being employed to address the problem of pension solvency. However, it is not without its critics. Views and perceptions around target-benefit pension models have the potential to be polarizing, depending upon one’s position.
The committee did not feel that it was necessary to reach agreement regarding what constitutes a “defined-benefit” pension. Regardless of the label used, it was clear to the committee that the retroactive reduction of any accrued benefits, whether considered to be “ancillary” or “core,” was something that pension beneficiaries did not want to see happen. At the same time, the standing committee is cognizant of the need for the NEBS Board and Pension Committee to have tools that allow them to maintain a solvent plan otherwise all beneficiaries are ultimately at risk of receiving little or no pension whatsoever.
To address these concerns, the committee moved Motion 6, which has the effect of ensuring that the NEBS pension remains a defined-benefit plan. For further certainty, the term “defined-benefit” is incorporated into the bill through Motion 1.
5. Pension Committee Governance Model
Section 11 of Bill 12, as originally drafted, authorizes the composition of the NEBS Board to be set out in the NEBS bylaws. It also gives the board the exclusive authority to appoint members or set the rules for their election to the Pension Committee, in addition to determining their numbers and length of term. Section 12 specifies that there must be at least two members on the Pension Committee who are independent to the extent that neither is a member of the board or an employee of a participating employer. Sections 11 and 12 also establish the authorities of the NEBS Board and Pension Committee respectively.
A good deal of the input heard by the committee pertained to this governance model established for the NEBS Pension Plan by Bill 12. The committee was told that the legislation “fails to establish good governance;” that “the governance model is seriously flawed;” that it “imposes a flawed administrative process with no effective voice for the parties that bear the risk;” and that it “leaves all major decisions in the hands of the NEBS Board and Pension Committee, which are dominated by employers.”
In illustrating this point, presenters made specific note of Section 15(3), which effectively gives employers, represented by the NEBS Board, the power to opt out of contribution increases, thereby placing the burden for an under-funded plan fully on employees.
These submissions called for the implementation of a joint-governance pension- plan model. The standing committee considered the implications of this and determined that such an approach would likely necessitate a rewrite of the bill, which would delay the implementation of pension legislation for NEBS possibly beyond the life of the 17th Assembly. The standing committee opted to focus its efforts on making amendments to the existing bill, with the hope and expectation that it could be amended to address the major concerns raised, without unduly delaying the bill’s passage.
One submission expressed the opinion that it is unnecessary to change the governance structure of the plan to ensure that the needs of pension beneficiaries are considered, because the fiduciary duty of the Pension Committee members requires them to act on behalf of beneficiaries. The Minister’s staff and NEBS representatives also made this assertion that NEBS pension committee members will act in the interests of pension beneficiaries because they have a fiduciary obligation to do so.
The standing committee gave a great deal of consideration to this view. While standing committee members acknowledge the importance of the fiduciary obligations of Pension Committee members, the existence of this obligation alone cannot overcome the biases inherent in a governance design that favours employer over employee interests. If that were the case, observed the standing committee, then fiduciary duty would have resulted in a more meaningful consultation with employee pension beneficiaries during the development of Bill 12.
In response to concerns heard, the standing committee moved Motion 5 to mandate in the legislation the composition of the Pension Committee. Motions 3 and 4 are also related to
the powers of the Pension Committee and are discussed in further detail below.
6. GNWT Powers Under Bill 12
A number of presenters raised concerns about sections of the bill that they viewed as giving the GNWT too much power and influence over the NEBS plan and/or the NEBS Board and Pension Committee.
Section 9(1)
Some presenters expressed a concern that Section 9(1) of the bill, for example, “invests enormous and far-reaching powers to the Minister, with no recourse except to the courts,” thereby giving the GNWT too much power to override decisions.
The committee considered these concerns but recognized that the removal of this provision from the bill would leave the Minister unable to act in the event that there was a failure to manage the NEBS plan in compliance with the act.
The committee looked to other pieces of legislation providing similar powers to the Minister to step in and act in the event of a problem. One example is offered by Section 156 of the Cities, Towns and Villages Act, which allows the Minister to intervene in the affairs of a municipal corporation. In this case, the Minister may only act in unusual circumstances to address problems that have arisen. Similar powers are contained in Section 17 of the Hospital Insurance and Health and Social Services Administration Act which allows the Minister to appoint a person to act as a public administrator of a health or social services facility under specific circumstances where care is jeopardized.
Having reviewed similar provisions in other legislation, the committee is of the view that the powers provided to the Minister in Section 9(1) of Bill 12 reasonably afford the government the authority to enforce its legislation, and only in the event that specified problems arise.
Section 10(2)
Similar concerns were raised regarding Section 10(2) of Bill 12. This clause specifies that in the event that the GNWT becomes a member of NEBS, then the GNWT must adhere to the requirements of a participating member. Some presenters felt that this clause allows the GNWT to become a plan member, with too much power under Section 15(2) and (3).
The committee considered this concern but determined that it was based on a lack of understanding about the purpose of the clause. The intent of the clause is to give greater certainty that if the GNWT were to join NEBS, it
would enjoy no special privileges as an employer member. This clause was described by a member of the Department of Finance delegation as a comfort clause included at the request of the NEBS Board.
The existence of clause 10(2) does not “permit” the GNWT to join NEBS. In fact it is Section 22, which defines a “public sector employer” as including “a territorial government,” that permits the GNWT to join NEBS. Therefore, the removal of clause 10(2) does not prevent the GNWT from joining NEBS. Its removal does, however, eliminate the certainty provided by the clause that the GNWT must follow the rules in the same manner as any other member employer. For this reason, the committee determined that the clause should remain in the bill.
Through you, Mr. Speaker, I would like to pass this to my colleague Mr. Moses. Thank you.