$1.6B hole in N.S. teachers' pension plan

The Nova Scotia Teachers' Pension Plan had a terrible year in 2011 and is now in the worst shape it's ever been in.

Last year, the fund had a return on investment  of 0.83 per cent and the plan's unfunded liability reached $1.655 billion — the deepest hole it has ever recorded.

It is now just 71 per cent funded, down from 76 per cent funded in 2009.

The figures were released Friday in the plan's annual review.

Tough 'investment environment' blamed

"This year’s results, while disappointing, certainly reflect the very challenging investment environment that the plan is faced with," said John Carter, chairman of the Nova Scotia Teachers’ Pension Plan Trustee Inc.

"We continue to see unprecedented levels of market volatility, similar to the last three years, which continue to impact the plan’s returns. Meanwhile, diminished investment returns along with record low interest rates have reduced the plan’s funded ratio. That said, the plan performed in line with other Canadian pension plans."

The report said that despite the hole, it has enough money to continue to pay pensioners now and into the future.

"The trustee has been diligent and proactive in managing investments during the current economic situation," the report says.

"The problems that face the plan’s financial health are complex and require thoughtful and forward‐thinking solutions."

Three options to fix shortfall

It says there are three options for addressing the shortfall:

• Increasing investment returns
• Increasing contribution rates
• Reducing benefits.

"The trustee has no current direction from the plan sponsors to increase contributions; however, this may be necessary in the future," the report says.

The shortfall means that teachers who retired after Aug. 1, 2006 will not have their pension benefits indexed this year. Teachers who retired before that date do get the cost of living adjustments.

Under pension regulations, teachers who started drawing their pensions after Aug. 1, 2006 lose their cost-of-living indexing if the fund is more than 10 per cent in deficit. In that event, the province is responsible for paying half the value of the cost-of-living increase.

In 2011, a Nova Scotia pension expert warned taxpayers will be on the hook for hundreds of millions of dollars if major changes are not made to the province's pension funds.