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Pension fund told to keep inflation indexing

Posted by on Sep 27, 2011 in Moneyville, Retirement | 0 comments

By Sheryl Smolkin

Read this article and comments at Moneyville.ca 

A New Brunswick decision that a public sector pension plan cannot eliminate inflation indexing for retirees  is good news for members of  similar plans.

The Pension Plan for Certain Bargaining Employees of New Brunswick Hospitals is a plan that is not covered by provincial pension legislation. Members vest in the plan after five years and at the end of 2008 it had a deficit of $345.7 million. To get back on course, the actuary recommended benefit reductions or contribution increases.

The pension administrator has the power to amend the Plan, but was unclear whether that power included eliminating pension indexing for those paying into the plan or retirees. So, an application was made to the New Brunswick Court of Queen’s Bench for a ruling .

Justice William T. Grant decided that even though active members were vested in their pension benefits they did not become entitled to indexing until they terminate, retire or die. Therefore, the Pension Committee has the power to eliminate future indexing for these people.

However, Justice Grant accepted a submission that pensions formed part of the retirees’ contract of employment. Therefore he ruled that once a member has retired, a cost-of-living clause becomes a fully earned benefit and is untouchable. The net result is that the Pension Committee can’t reduce or remove future COLA adjustments for retirees.

While the decision is based on the provisions of a specific plan, Koskie Minsky partner Ari Kaplan who represented the retirees, says it is widely applicable.

He also notes that the same issues apply when public or private sector organizations try to eliminate post-retirement health benefits for retirees. “As we have seen over the last decade, pensioners will not sit on their hands when attempts are made to increase their post-retirement health contributions or lower their benefits.”

Nevertheless, these principles do not apply when a private sector employer like Nortel goes bankrupt with an underfunded plan. Public sector plans created by legislation may also be amended in certain circumstances.

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