Public pensions take a hit from COVID-19 concerns

Estimates are difficult to obtain, but New Brunswick public sector pension plans have likely lost more than $1 billion in the stock markets over the last four weeks.

It's the first major test for shared risk pension plans since they became ineligible for provincial government bailouts.

New Brunswick finance department officials are hopeful recent losses will not become an issue and other plan investments outside of stock markets will help offset the current decline.

"Falling stock markets will negatively affect pension plans in the short-term," said the finance department's Vicky Deschenes in a statement Tuesday.

"The diversified nature of the plans' investments will moderate the impact. Government continues to monitor markets."

Multiple New Brunswick public pension plans serving tens of thousands of retirees and current employees had close to $17 billion under management at the end of 2019.   

About $6 billion (35 per cent) of those holdings are invested in stock market equities and indexes and have been caught up in the crushing financial turmoil unleashed by the COVID-19 virus. 

Beginning in late February, the Standard & Poors / Toronto Stock Exchange Composite Index fell 5,259 points up to the close of trading Tuesday - a stunning 29.3 per cent in 26 days. Other stock indexes worldwide have dropped similar amounts, with losses steep and widespread.

It's the worst decline to hit markets since the New Brunswick government switched to so–called "shared risk" pension plans, beginning in 2013, and removed itself as a financial guarantor of pension plan benefits.   

Short-term issue?

Larry Jamieson is executive director of the New Brunswick Teachers Association and also chair of the New Brunswick Teachers' Pension Plan.  He does not have figures on how the last month has affected plan investments but believes it is a short term issue that will resolve itself in time.

"I'm sure there's nervousness out there," said Jamieson

"As far as the teacher's pension plan goes, the investment plan is very well diversified  It's designed to weather these kinds of downturn in the market.  I'm sure the market will rebound and the plan will move forward."

The teacher's plan is the second largest in the province.  

The fund serves 19,167 members, including retired and current educators, and at the end of June 2019 had $6.1 billion of their pension money placed in a wide range of investments.  

About $2.4 billion (40 per cent) was in higher risk, publicly–traded equities

The largest pension plan, covering 39,000 current and former civil servants, NB Power employees and others is the Public Service Pension Plan.   It had $8.1 billion invested as of June 30, 2019, with $2.9 billion exposed to stock markets.

An overall 25 per cent decline in stock market equities and indexes would cost those two plans alone about  $1.3 billion.

Both the teachers and public service plans were fully funded at the end of 2019 with hundreds of millions of dollars extra in reserve to meet long term obligations and do have a cushion to absorb losses.  The teachers' plan alone gained $2 billion in its first five years of operation under the shared risk model and Jamieson said markets would have to get much worse for benefits to members to be affected.

"The plans have done well since reform," said Jamieson.

"I can't give you dollar numbers, but we would have to have a long term significant - much more significant than what we're seeing - downturn in the market to impact any of those benefits."

Other New Brunswick pension plans with money exposed to the recent stock market decline include hospital workers, school bus drivers, judges, school district managers and MLAs.