Applying pension lessons learned from paper mill closures
On May 17, 2012, Nova Scotia adopted Bill 86, the NewPage Port Hawkesbury Pension Plans Act in response to a request by members of Local 972 of the Communications, Energy, and Paperworkers Union of Canada. The Act extends the life of four underfunded defined pension plans for the employees of the former NewPage Port Hawkesbury pulp and paper mill. A similar pension plan extension was granted in New Brunswick after the Fraser Papers mill went bankrupt in 2009.
The members, former members and other persons entitled to benefits under the four pension plans may elect to participate in the pension plans during an extended wind-up period that runs until July 1, 2023, or such other date as may be prescribed, or elect to participate in the wind-up of the pension plans without extension of the wind-up period. Plan members who are facing a 35 to 40 percent loss in benefits have the option to hold on until 2023 in the hope that the markets and interest rates will go up or an annual annuity. The legislation allows the plans to hold up to 40 percent in equities, better than the typical mix of about 30 percent in equities and 70 percent in long-term bonds.
According to media reports, the proposed buyer of the mill, Pacific West Commercial Corp. wanted nothing to do with the pension liability. However, it has negotiated a 10-year collective agreement with the existing workforce of 1,500 unionized employees (hence the 11-year pension plan wind-up extension). It would appear that the union is well aware of the risks involved and is supporting an opportunity for its members to choose for themselves what they think is the best of two alternatives, a guaranteed 65 percent pension now, or a pension which could be 72 percent or less depending on the markets and interest rates.
Pacific West intends to establish a new defined contribution plan with matching contributions of five percent. According to the Superintendent of Pensions, only 43 percent of the 131,439 Nova Scotians enrolled in defined pension benefit plans have fully funded plans.