HANSARD

Printed and Published by Nova Scotia Hansard Reporting Services

Ms. Maureen MacDonald (Chair)

Mr.Chuck Porter (Vice-Chairman)

Mr. Patrick Dunn

Mr. Keith Bain

Mr. Graham Steele

Mr. David Wilson (Sackville-Cobequid)

Mr. Keith Colwell

Mr. Leo Glavine

Ms. Diana Whalen

WITNESSES

Department of Finance

Ms. Vicki Harnish, Deputy Minister

Nova Scotia Pension Agency

Mr. Steven Wolff, Chief Executive Officer

Ms. Elizabeth Vandenberg, Director of Investments

Mr. John Ross, Manager, Financial Reporting & Actuarial Services

In Attendance:

Mrs. Darlene Henry

Legislative Committee Clerk

Mr. Jacques Lapointe

Auditor General

Ms. Ann McDonald

Assistant Auditor General

Mr. Gordon Hebb

Chief Legislative Counsel

HALIFAX, WEDNESDAY, DECEMBER 10, 2008

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. Chuck Porter

MR. CHAIRMAN (Keith Colwell): Good morning. First we will have everyone introduce themselves.

[The members introduced themselves.]

[Mr. Chuck Porter took the Chair.]

MR. CHAIRMAN: I'm sorry I'm a little late, a little bit of traffic this morning. We have our guests, please introduce yourselves.

[The witnesses introduced themselves.]

MR. STEVEN WOLFF: Mr. Chairman, committee members, thank you for inviting me to speak with your committee this morning. The colleagues joining me from Nova Scotia Pension Agency are Mr. John Ross, manager of financial reporting and actuarial services; Ms. Elizabeth Vandenberg, director of investments; and Ms. Kim Blinn, behind us, director of pension services. The deputy minister will make a few comments following me.

I think it would be helpful for me to provide an overview of what the Pension Agency does with particular reference to investment management activities. The Nova Scotia Pension Agency is the administrative agent for four Nova Scotia public sector pension plans - the Public Service Superannuation Plan, the Teachers' Pension Plan, the Sysco plans and the MLA plans. These four plans represent more than 60,000 current and former Nova Scotia public sector employees, with assets of $7.3 billion.

The most fundamental role of the Nova Scotia Pension Agency is to serve the members themselves and we do this in a variety of ways - everything from pension education, pre-retirement planning, pension benefits and death benefits. We have a strong commitment to client service and we are very proud of that focus.

On the other end of the spectrum, we administer investments that support the two major plans. We do so under the direction of plan trustees and sponsors, as outlined in legislation. It is part of the agency's charter to apply the best public and, where appropriate, private sector practices in the pursuit of its mandate and overall value for money. To the greatest extent possible, the agency benchmarks all areas of its performance against transparent, independent and relevant industry measures. The Public Service and Teachers' Plans have similar investment objectives and investment beliefs that have been mandated by their respective trustees.

Both plans are conservatively managed. We apply prudent investment practices with the goal of maintaining the ongoing solvency of each plan and meeting each plan's long-term liabilities. The investment policy and portfolio structures are based on a long-term investment horizon and a high level of diversification, weighted towards equity investing with a value-bias strategy.

We have been careful to minimize risk in our strategies. For example, we manage currency risk, use derivatives only to achieve efficiencies, minimize the use of alternative investment strategies and techniques such as short selling. The plans have a balanced investment strategy with approximately 55 per cent in equities, equally divided between Canadian, U.S. and international; 35 per cent in fixed income investments, primarily Canadian; and 10 per cent in inflation-linked investments, primarily real estate.

The short-term, fixed income holdings and the majority of real estate assets are managed internally by the agency with oversight by plan trustees. Four external investment managers perform the management of specific investment mandates, with ongoing monitoring by the agency and oversight of the trustees.

The Public Service Superannuation Plan and the Teachers' Pension Plan have both been affected by the problems in the financial markets, which have caused equity markets to drop by nearly 40 per cent. The agency and plan trustees have worked diligently to ensure that the plans are prudently managed during this very challenging time. Under the direction of the plan trustees, the agency has increased the diversification of the investment portfolios, strengthened risk management and risk monitoring procedures and practices, enhanced the monitoring of external asset managers and emphasized preserving liquidity.

Despite these efforts, we have seen a decline in both investment performance and funded status in recent months. At the direction of plan trustees, the agency is diligently analyzing the most appropriate way to position the investment portfolios for when markets

stabilize. We are committed to achieving the long-term sustainability of the plans and we will continue to provide high quality services to plan members and employers. Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Wolff. Ms. Harnish, opening comments?

MS. VICKI HARNISH: Just a few brief remarks, Mr. Chairman. Committee members, advisors and staff, good morning. Part of my role as Deputy Minister of Finance is to support the Minister of Finance in his oversight role for the four public sector pension plans. The Minister of Finance is joint trustee of the Teachers' Pension Plan and sole trustee of the Public Service Superannuation Plan, both of which have significant assets and investments.

I believe the committee would like to focus today on the investment side, so I will provide a few comments related to that topic to elaborate on what Mr. Wolff has said. I will limit my comments primarily to the Public Service Superannuation Plan, as I believe the trustees of the Teachers Plan should speak to their own issues.

As Mr. Wolff has outlined, the Nova Scotia Pension Agency performs the administrative and investment management functions for the pension plans. The Department of Finance provides policy advice to the minister related to pensions. The Pension Agency and the department work closely to keep trustees informed about the pension plans and help them set strategies to promote the long-term viability of the plans.

The teachers' plan has a board of trustees. The Minister of Finance is the sole trustee for the Public Service plan and also has an advisory board in that capacity. It's a fact that all pension plans have been facing significant challenges in recent months and years - this is true for both private and public sector plans. The market is one challenge but so are the demographics. Most public sector plans in Canada have a large number of baby boomer members who are due to move into retirement and there are fewer particularly younger employees behind them to cover this added cost.

In July 2008, the minister asked the Nova Scotia Pension Agency to look at options to improve the Public Service Superannuation Plan's funded status. It had declined from 89.5 per cent at March 31, 2007, to 79.6 per cent at June 30, 2008. Actuaries calculated that the plan's funding levels were on track to decline 33 per cent over 29 years and that was before the recent turmoil in the financial markets. All pension plans everywhere are now looking at ways to improve the funded ratios and the choices are limited. You can improve performance on the plans' investments, which isn't likely to happen in the current climate. The minister believes the government may need to consider changes to contribution rates or benefits - the other two ways one can enhance a plan.

The agency and the Pension Advisory Committee are studying these options now. In the meantime, the minister wanted to reassure valued employees who are concerned about the current status of the pension plan. He has made a commitment that pension benefits won't be changed for members of the Public Service plan who are eligible for an unreduced pension before March 31, 2014. He also said there will be no change to the benefits received by current retired employees. We expect the ongoing review process to continue over the next few months. The minister wants to ensure the plan is well funded so that pension benefits will be there as expected throughout the retirement of all employees.

With that, thank you.

MR. CHAIRMAN: Thank you, Ms. Harnish. We'll begin with the NDP caucus. You have 20 minutes until 9:31 a.m. Ms. MacDonald.

MS. MAUREEN MACDONALD: Good morning and welcome. It's great to have this opportunity to talk to you about an issue that I think is important to many, many Nova Scotians. I recognize this is your first opportunity to meet with the Public Accounts Committee, Mr. Wolff, so we're all very anxious to get to know you better and the work of your agency.

Pension management is not for the faint of heart these days to say the least and I think that, to the extent that we have information and we understand what's going on with the various plans, it's safe to say that there is some concern - not panic, but certainly some concern - and it's in that vein that I want to pursue questions with you arising from the material we've been given.

In the annual report in March of 2008 from the Pubic Service Superannuation Plan, the unfunded liability of the plan at that time was $732.7 million and it was projected that if things continued in the same vein, that by March 31, 2008, the unfunded liability would be $912.2 million. So my first question to you is, where are we today in terms of the unfunded liability of the plan both in terms of the funding ratio and the dollar amount?

MR. WOLFF: As of September 30, 2008, the plan had an unfunded liability of approximately $1.3 billion and a funded ratio of approximately, estimated at, 72 per cent. So in terms of the funded ratio, the plan does a full and complete actuarial evaluation at December 31^st of each year and that is conducted by the plan's independent actuary. So any numbers I give you this morning, with respect to funded status other than December 31^st, are estimates.

MS. MAUREEN MACDONALD: So the trajectory continues to be downward and I'm sure it's a source of great concern to you. An unfunded liability of $1.3 billion is quite significant, I would think - 72 per cent ratio.

I'm wondering then if you can tell me what precise strategies you are pursuing to turn that trend around.

MR. WOLFF: Certainly, $1.3 billion is a lot of money and it is a significant deficit, but I think the first point to make is that in relative terms, pension plans throughout the country, throughout North America, throughout the globe, have sustained very significant investment losses. In relative terms, the 72 per cent ratio at September 30^this not within the range of how similar plans are funded.

[9:15 a.m.]

Specifically to your question, Ms. MacDonald, even prior to the market correction that really began most violently in August, the investments team within the agency, working at the direction of the trustees, really began to take steps that we thought were prudent and defensive in an effort to minimize investment losses. Those steps relate to several enhancements to our risk management practices: very close monitoring of our counter-parties, those would be investment managers, brokers, dealers, entities of that nature; increased frequency of information received from our custodian that enabled us really to follow trends within the portfolio; increased contact with our investment managers, speaking to them very frequently to understand where the risk points were in the portfolio; and I think perhaps two themes that are absolutely imperative to emphasize - a move to greater diversification across the portfolio as a key risk management theme and a move most recently, in the past few months, to what we call preserving liquidity.

If you think about what has been happening in the markets, those plans that have the greatest problems today were in investments that were not of a liquid nature. That is not the case for the superannuation plan and in recent months the investment team has taken steps to ensure there is even a greater level of liquidity for the plan.

What that means is that the plan will be able to meet its benefit payments in almost, sort of, worst-case events. If markets improve, then the plan has the flexibility to respond to those markets in an opportunistic way.

MS. MAUREEN MACDONALD: Can you expand a little bit on worst-case event scenarios? I'm thinking specifically in terms of the percentage of current contributors, members of the plan who are contributing, who would be eligible to become pensioners in the near future. What does that look like?

MR. WOLFF: Well, when I say worst-case scenario, I'm talking about market conditions. I think we're living through somewhat unprecedented market conditions in terms of how quickly markets have changed and how volatile they have become. But, I think in terms of worst case, what I need to emphasize for you is that there is no risk that the plan will be unable to meet benefit payments to retired members over the short, the medium or even

long term. But, over the longer term, the health of the plan is of concern. By longer term, I'm talking beyond 30 years. So, it's not an immediate issue today.

MS. MAUREEN MACDONALD: Thank you. In what way have you adjusted the assumptions that were in your business plan with respect to return on investments? What was the assumption and what is it now?

MR. WOLFF: The first thing I would say Ms. MacDonald is in the agency and with the trustees, we talk in terms of moving from investment management to risk management. So we are in a mode today of wanting to preserve the capital of the plan. We talk to our investment managers and industry experts all the time. Quite frankly, no one knows where the bottom of the market is; no one can give us, nor can we derive, ourselves, reliable estimates, assumptions, to use in terms of performance at the moment. So, again, that's why the theme of risk management and preserving liquidity is really so important at this time.

MS. MAUREEN MACDONALD: Now, the minister indicated in October that he's doing a review and that he's contemplating making changes to the plan - if no one knows really what's going to occur around investments, is this a good time to be making decisions about the features of the plan in terms of contributions and benefits and these kinds of things, in your view? How would you be able to reasonably predict if we really don't know?

MR. WOLFF: The first point that I really want to emphasize is that the minister began to look at the funded health of the plan in July before the markets really began this violent correction, so in my personal opinion he was being very diligent and prudent as trustee to begin that exercise. I think to your point, the minister recognizes the volatility of the markets and is being somewhat patient in terms of making final recommendations in terms of plan changes, waiting to see if the market stabilizes.

MS. MAUREEN MACDONALD: The minister in his statement said that members who retire in a five-year window will not be affected by any changes, so they have the security of knowing that the current situation will continue, but I'm wondering why not seven years, or why not three years - how was five years arrived at exactly, Miss Harnish?

MS. HARNISH: I'll take that question. The minister has been very concerned about the potential of a large exodus of public servants. When it became apparent that we needed to look at the plan and when it was made very public that we were looking at options, we started to receive a large number of calls from those members of the plan. We have over 2,000 employees right now who are eligible to retire, and we add another 600 every year. I think we were very concerned that we didn't see a mass exodus, certainly because when people's pensions are threatened they become very concerned, as you can well imagine. At that point the minister needed to consider that.

He also has expressed his desire to be very fair to employees. Five years, maybe you would consider it arbitrary, we thought it was a good planning period. So if in fact we had to make, at a future time, some changes to the plan in order to ensure its ongoing health, we wanted to provide individual members of the plan sufficient planning time in which to make their decisions about their future. So five may be arbitrary, but we thought that five was a fair number for us to base this decision on at this point.

MS. MAUREEN MACDONALD: Well, in keeping with this theme of the review, I'm wondering if you can outline for us what changes are being considered to the superannuation plan?

MS. HARNISH: There are a variety of options being looked at. Other than enhancing your investment returns, which at this point doesn't seem highly probable in the short term, you can either look at increasing contributions or reducing benefits, or a combination of both. We are looking at all three - contribution rates, benefits changes, and combinations to assess the impact of those changes on the plan over the long term. Benefits changes could be changes to employment eligibility. For retirement, for example, we have a rule of 80. Everyone is well aware, I think, that the super has a rule of 80 and it's one of the only pensions that does so. So with a minimum age of 50 and 30 years of service, one can retire. Most of the other public sector plans have a rule of 85.

We would have to look at what kind of impact changing that eligibility rule might have - but that's not the only thing that would be considered. Spousal benefits would be another option for change; indexation would be another. There are a range of pretty typical kinds of benefit changes that one would look at to assess whether or not they would have an impact and then, of course, one has to overlay your thoughts about the fairness of the various types of changes to employees.

MS. MAUREEN MACDONALD: I note in the special bulletin of October 14^th, that went out from the agency, there is this line that says that the plan has some of the "most generous benefits provisions of any public service pension plan in Canada". I'm wondering what specifically is being referred to here - is it the rule of 80 or is it more than the rule of 80?

MS. HARNISH: It would be all of the items that I just mentioned. If you look at public sector plans in the province, but also across Canada and other levels of government, the rule of 80 is somewhat unique. The rate of indexation isn't guaranteed in many plans. For example, the teachers' plan, as you're aware, has conditional indexing. The spousal benefits are 66.66 per cent; that also is somewhat higher than in many other plans. So I think that you would look at all of these and conclude that the super is very good and, somewhat maybe, better than many pension plans.

MS. MAUREEN MACDONALD: To, let's say, address what you see as being overly generous . . .

MS. HARNISH: Well, I didn't say overly generous, but I am saying as a comparator . . .

MS. MAUREEN MACDONALD: Most generous.

MS. HARNISH: . . . many other plans wouldn't have quite the same provisions.

MS. MAUREEN MACDONALD: To address some of these things, would legislation be required or regulations through Order in Council?

MS. HARNISH: It would vary, depending on the type of change that would be implemented. In many cases you can see many things are set out in the Act itself. The Public Service Superannuation Plan Act specifies many of these things, including contribution rates by the way, are specified in legislation, and I think you would have probably been in the House when the last round of changes were made and you know that had to be done through amendment to the legislation. Indexation I believe can be accommodated through regulation.

MS. MAUREEN MACDONALD: Have you had any independent advice with respect to what the options might be and the implications of the options from an actuary such as Mercer or others?

MS. HARNISH: The Pension Advisory Committee was asked by the minister to take a look at the various options and make recommendations. The advisory committee stipulated a number of options, set out a number of options that they would like to see looked at, and asked the Pension Agency to use the actuary that we have for the plan to do an actuarial evaluation of the various options.

MS. MAUREEN MACDONALD: Has that been done?

MS. HARNISH: Some options have been looked at. We will probably be looking at additional options.

MS. MAUREEN MACDONALD: So what exactly has that report, or those reports, recommended in terms of options?

MS. HARNISH: There are no recommendations. They were asked to look at options and determine the actuarial impact of the various options. The advisory committee itself took a look at the analysis and did not make recommendations either.

MS. MAUREEN MACDONALD: And so the options that are being examined as a result of this study are the ones that you've indicated - the indexation, looking at indexation, looking at contributions . . .

MS. HARNISH: Yes.

MS. MAUREEN MACDONALD: . . . looking at the rule of 80, looking at spousal benefits?

MS. HARNISH: Those would be the kinds of options looked at and they would have been looked at under a variety of scenarios in terms of phase-in periods, whom it would apply to, and so on.

MS. MAUREEN MACDONALD: Is it possible for that report to be made available to this committee?

MS. HARNISH: I will seek the advice of the minister on that.

MS. MAUREEN MACDONALD: I note that I have very little time left for my questions. I'm wondering if the size of the plan, the number of people who are covered by the plan is something that makes a difference in terms of the go-forward basis of the plan and if that's something that has been looked at at all, Mr. Wolff?

[9:30 a.m.]

MR. CHAIRMAN: Mr. Wolff, go ahead.

MR. WOLFF: This is a question that we have spent a fair amount of time looking at. The challenge is really the demographic for the Province of Nova Scotia. So if you add new members to the plan, you essentially are adding members with the same age profile of members in the province and ultimately essentially existing in the plan today. So the benefit is really quite minimal in terms of funded status and the impact that that can provide.

MS. MAUREEN MACDONALD: Even for, let's say, a group like the paramedics who have no - I mean at the present time I don't think they have a plan or it's certainly not a defined benefit plan . . .

MR. WOLFF: Yes, it really comes down to the demographics of each specific group, so essentially really the age profile and the sex of the group.

MR. CHAIRMAN: Order, please. The time has expired for the NDP caucus. I'll recognize Ms. Whalen from the Liberal caucus, and you have 20 minutes.

MS. DIANA WHALEN: Thank you very much and welcome this morning. It's certainly a complex and broad subject that we're looking at today. I think what's important is that it has a huge impact on the many people who are members of this plan - possibly I think it is around 28,000 that you're looking at, and also on Nova Scotians in terms of the impact on our financial situation in the province as taxpayers. So it's very important to everybody, really, that we get an understanding of the situation we're in and how grave it is and, again, how we can move forward.

I wanted to look first- I think you've touched on the idea of the demographics and the importance of the age of the plan and so on - one of my concerns is the number of people who could potentially retire immediately, and I believe you said 2,100 people are eligible today who are still working that, if they chose, could get retirement. Would that be fully funded retirement?

MR. WOLFF: That's correct - 2,100 members can retire today at an unreduced pension.

MS. WHALEN: At an unreduced pension - how many if we added in the people who could choose to leave today if they wanted to take an early retirement?

MR. WOLFF: Approximately 500 or so.

MS. WHALEN: And that's out of the active members which are only about 16,000 - am I right?

MR. WOLFF: That's correct.

MS. WHALEN: So that's still quite a significant number you're getting. You're approaching 3,000 that could leave today?

MR. WOLFF: Yes.

MS. WHALEN: And I think it's important we look at both because, if there's a change to some of the benefits, people may choose to leave even with the reduced amount and leave early - I think we saw that to some extent with the Teachers Union when changes were made to their indexing and some of their benefits. So I think that is important. Now, the government had, just at the end of October, made an announcement that there would be no change to the indexing or benefits up to 2014 - was that all the benefits or simply the indexing?

MS. HARNISH: That was benefits, but it didn't include contributions. Contribution rates, we have not specified a commitment about protection at existing rates, but the benefits were basically frozen.

MS. WHALEN: Okay. So there is some flexibility for government to change or for it to be agreed upon by the committee if it's joint trusteeship, that sort of thing. We're really talking I think specifically and I think it should be said today that we're really focusing on the public service pension plan because the Teachers Pension Plan is in a different position. Maybe just for comparison purposes we could look at- we've been told now with the public service plan, you're roughly 72 per cent funded with a $1.3 billion liability at the end of September. Could you compare that for me, the same figures for the teachers' plan?

MR. WOLFF: Yes. The teachers' plan, as of September 30^th, had an estimated funded ratio of just below 80 per cent.

MS. WHALEN: And the dollar amount?

MR. WOLFF: The dollar amount was just below $1.1 billion.

MS. WHALEN: So it has also felt the same stresses, I guess, from the market because that was quite a bit better just months ago, wasn't it?

MR. WOLFF: It has been impacted by the market.

MS. WHALEN: Yes.

MR. WOLFF: But I think in relative terms the impact to this plan versus - and similar to the superannuation plan - the impact of the markets in relative terms is less than for a number of plans across Canada.

MS. WHALEN: You're saying that both plans have decreased less than some of their comparable plans in other provinces?

MR. WOLFF: So the data that we have shows that, and this is tentative data, but the data that we have shows that for the quarter ended September 30^th, both plans performed quite well relative to their peer groups, and what I mean by "quite well" is that the loss was less.

MS. WHALEN: Yes, that it was mitigated. On the same vein then, can you tell me how the performance has been over last ten years relative to those other plans?

MR. WOLFF: Yes, relative to those other plans - well, firstly, both plans exceeded their benchmark and then relative to other plans they were somewhere in the third quartile, looking at a ten-year range.

MS. WHALEN: I think I need that explained a little bit differently, if you could. First of all, what's their benchmark? What was the aim? What kind of rate of return were they aiming for?

MR. WOLFF: Sure. For the ten-year period ended September 30^th, the approximate benchmark was 6.3 per cent, per year, and both plans achieved approximately 6.55 per cent over the ten-year period, per year.

MS. WHALEN: And other plans had done - we were in the bottom third. Were we in the bottom third?

MR. WOLFF: We were in the bottom third, but we were at the upper end of the bottom third, which means we were just below the median.

MS. WHALEN: But it does mean that across Canada the other public service plans were outperforming ours?

MR. WOLFF: It means that some. Unfortunately, this is not a science because these numbers, when you talk about medians, are very much dependent on the universe of inputs, the universe of plans that have agreed to provide their data. So, you know, it's not exact.

MS. WHALEN: So even comparison is not exact, you're saying.

MR. WOLFF: Right, and the other point to recognize is that this is a point in time, this is as of September 30^th. So this will change constantly.

MS. WHALEN: That is an interesting point and certainly when you take that snapshot, that's not the way we fund our plan though, is it? You fund it as a go-forward, not as a wrap-up plan. So solvency isn't an issue. You don't value the plan based on solvency, do you?

MR. WOLFF: We do not value the plan based on solvency, though that is a calculation that the independent actuary does provide in the annual actuarial evaluation, but the plan is valued on a "going concern basis" because the province essentially stands behind the plan.

MS. WHALEN: So it is a different measure though than private sector plans or municipalities and that sort of thing?

MR. WOLFF: Correct, yes.

MS. WHALEN: In fact it's a more generous measure, right? It helps the plan to be better funded, or appear better funded?

MR. WOLFF: I would say, first of all, that it recognizes the strength of the province as essentially guarantor of the plan and of any funded deficit, and then it provides for greater flexibility in terms of managing the deficit.

MS. WHALEN: Can I ask you - when you were talking about the other public service plans across the country, do you work closely with them? I realize you're a really new agency in many respects, but . . .

MR. WOLFF: Yes, and one of the great things about the pension industry and the public pension industry in particular, is that it's not a competitive environment. So there's a very healthy sharing of information across similar plans.

MS. WHALEN: Would you be looking at their investment strategies? Would that be part of - I mean to look for best practices?

MR. WOLFF: Yes.

MS. WHALEN: As such a new agency - you know, I'm not sure how you would have come into this. Mr. Wolff, you've been here more than a year, or just a year?

MR. WOLFF: I think it's between seven and eight months at this point.

MS. WHALEN: So when you arrived and the agency, as I said, the charter I believe is just from this year, isn't it, the Spring of this year, so the charter for the Pension Agency is very recently put together. I'm wondering how you would have seen the health of the plans that you're managing at that time because you inherited the plans and their past returns. Can you characterize how you felt about it as you arrived in?

MR. WOLFF: Yes. Prior to starting, my view was that both these plans, in particular the superannuation plan, were of a very mature nature. So that did certainly provide some challenges for the long term but, quite frankly, one of the reasons I find this job so interesting are these challenges.

MS. WHALEN: So when you say they are of a mature nature, that takes us back to the demographics and the people who make up that plan and I should say particularly the Public Service Superannuation Plan. Now, that means we've got many of them headed to retirement and not enough younger people, is that right, entering the workforce or entering the plan?

MR. WOLFF: It means that the average age of active members is relatively high. It means that there is a high percentage of members who can retire over the next 10 years. Those are probably the two most basic challenges.

MS. WHALEN: I would like to just explore with you one of the points that has been raised with me and that was that in the mid-1990s when we created the health boards across the province, we created a separate pension plan. I believe it was brand new for all of the health workers to join, the multi-employer plan, NSAHO, and at that time some of the members who had been members of the Public Service Superannuation Plan migrated to the new plan and were taken out of this Public Service pension plan. There's the feeling that that diminished I guess the replenishment of younger workers coming into it and also maybe diminished the pool of people who contribute to make sure the plan is strong. Can you comment on that first of all?

MR. WOLFF: The comment that I will make is that we have analyzed this question and the impact of what you're describing on the funded status of the plan is quite minimal.

MS. WHALEN: Can you define the impact as, you know, your analysis has shown?

MR. WOLFF: Based on our internal analysis it's between a 1 per cent to 2 per cent impact of funded status.

MS. WHALEN: So rather than being 72 per cent funded, we might be 74 per cent funded?

MR. WOLFF: Right. It's far from the miracle cure that has been suggested by some.

MS. WHALEN: At the same time, when we're talking billions of dollars and an unfunded amount of $1.3 billion as of September, so we know it's worse than that today, that 1 per cent to 2 per cent is pretty significant, you know, it's difficult to just brush it off as a tiny percentage.

MR. WOLFF: I live my life on basis points, so I completely agree.

MS. WHALEN: Yes, I think it is important that we say that it sounds small in percentage impacts but large in dollars. At the same time, and maybe you can explain to me how this worked, but I understood there were 3,800 people who were impacted by that. I don't quite know how this works, whether those 3,800 all left, because the union had said 1,800 are still there, still working. I don't know if that means that 2,000 went to another agency. Can you explain that? I've got these numbers and I'm not quite sure how they tie in because 3,800 people would be a lot of people relative to your 16,000 active members.

MR. WOLFF: Yes. From recall we are not working with numbers of that magnitude. So I would be pleased to come back to you on that precise question when we have the data in front of us.

MS. WHALEN: Yes, perhaps that's something we could get after the fact, if I could ask the chair if we could just get some understanding of how many were impacted. Certainly in earlier discussions we talked about the employees at the VG being among the ones who were offered, or actually moved to the NSAHO. I would like to know the number of people because 16,000 active members, although it's a large number, could be very highly impacted by even 1,000 people going into another plan.

So, you know, I think it's important for us to know whether or not there's another strategy to replenish this current plan. I mean in some way can they be managed together? Is there a way to increase the pool? Perhaps, Mr. Wolff, you would just talk about the fact that, or give me your impression of how we could do it if the monies were pooled, if they could be managed together? Right now you've got the teachers' plan and the Public Service pension plan with separate rules and benefits and so on but are you making maximum use of pooling the resources so that you get that benefit of a larger pool of money to be invested? All of the pension people say that's the best way to go.

MR. WOLFF: We look to take the opportunity to minimize cost wherever possible and maximize return for both plans, but that needs to be done with the greatest respect for the segregated obligations of both plans and the fact that each plan has its own trustee that determines the investment principles of the plan.

Examples of areas where there are cost savings for the plan are in the pension services that the agency provides that's done across a team of approximately 45 colleagues for both plans. Independent studies have shown that we're a highly cost-effective entity in terms of delivering those services.

[9:45 a.m.]

With respect to investment management, we do negotiate with investment managers, where there is commonality of mandate, as if it were one plan in terms of getting the best price from investment managers. Most of these investment management mandates are structured on a tiered basis so that if you have more assets, you pay lower fees.

But again, I want to emphasize, from a fiduciary perspective, in every respect, the plans are segregated. There is no pooling of assets. It is absolutely central that the assets be set aside for the specific liabilities of plan members.

MS. WHALEN: Understood. But, are your investment advisers, your 14 outside investment advisers, treating them as a large pool, like double the size in terms of the costs they would charge you for transactions and management fees?

MR. WOLFF: Absolutely correct. In fact, as well, on an ongoing basis we are quite aggressive in reviewing the financial arrangements with our investment managers and other

service providers and we are constantly reviewing industry data to ensure that we're receiving the best prices in the market.

MS. WHALEN: I wanted, if I could, to go back to the investment returns that have been the norm across the country and other public service plans and where we are here in Nova Scotia. It would appear that today, being prudent and cautious looks good and your losses have been less, but we didn't achieve the returns that other plans were getting across Canada. Some of them may be at the very high end, but we weren't above the pack in terms of returns. Can you tell me who would have been making the investment decisions during the 1990s, or the last 10 years, just over the last 10 years? You inherited this, the agency's a new agency. How was it being managed before? Because it doesn't seem that we took advantage of the good years in the market when some funds were making 12 per cent.

MS. HARNISH: I'm not going to tell you about investment strategy as much as describe the actual oversight mechanism for both plans in those years. The investment policies of both plans were determined and approved by what we called the Investment Advisory Committee. That has been in effect for several years. The Investment Advisory Committee pre the teachers becoming joint trustees of the teachers' plan, acted as one investment committee for both of the large plans. We had members of the Teachers' Union, the NSGEU, the Department of Finance as well as staff who met regularly and it was that advisory committee that set the investment strategies for both of the plans.

The pension division resided in the Department of Finance at that point in time. We had professional investment people, the former director was Peter Van Loon, and they invested the assets of both plans in accordance with the investment policies established by that investment advisory committee.

[Ms. Maureen MacDonald took the Chair.]

MS. WHALEN: Would you characterize it as being very conservative?

MS. HARNISH: It was conservative, I would suggest. Certainly the folks from both the union and internal staff took their obligations very seriously in terms of the prudent person kind of rule that one would like to have in play when investing pensioners' money.

MS. WHALEN: With the NSAHO can you tell me who is managing that plan right now, who administers it?

MR. WOLFF: That is administered by the NSAHO pension trustee.

MS. WHALEN: Is there any plan whatsoever that whole pension plan could be managed by the Nova Scotia Pension Agency? Would that be allowed by legislation or by the mandate of the organization?

MS. HARNISH: I could say there is no plan at the present time. The NSAHO plan is run by its own board of trustees. When the Pension Agency was established, the minister never ruled out taking on management of other plans. If you look at the charter, it says that the Pension Agency will manage - and it names the four plans - and any others.

It wouldn't be outside the realm of possibility but there has been no approach by the trustees of the NSAHO plan to the Pension Agency, or to the minister that I'm aware of, to ask could the agency assume responsibility for the pension administration and investment.

MS. WHALEN: If I could just speculate, or ask you to speculate for a moment, if that plan were administered by the Pension Agency, would that be a benefit to all of the plans? Again, your pool of assets would increase, would it be big enough to make a difference in terms of your operating costs and benefits back to all of the pensioners and active members?

MR. WOLFF: We would need to do a comprehensive analysis to answer that question. But I would suggest that a question of this nature would certainly not be the right priority for the agency at the present time. Our priority is, as I mentioned earlier, to maximize the returns within a good risk framework and to service our members during this very challenging time.

MS. WHALEN: I'm not sure I even have a minute left.

MADAM CHAIR: You don't. Order, the time has expired now for the Liberal caucus. I recognize Mr. Porter for the PC caucus. You have until 10:11 a.m.

MR. CHUCK PORTER: Thank you Madam Chair, good morning as well, glad to have you here this morning to answer a few questions. It's a very interesting topic for each and every one of us as we watch the markets go up and down, unfortunately, more down these days than on the upside, due to a whole variety of reasons.

In the Public Service Superannuation Plan, obviously the current situation - the turmoil as some would maybe refer to it as - is based on these financial markets. Mr. Wolff, you've talked about living and dying by the numbers, you like the challenge, what do you see as the future here, any idea on the turnaround time on some of this stuff?

MR. WOLFF: No idea.

MR. PORTER: Tough question, I realize that, but just no idea. How are we looking at this? Obviously it affects these plans for these individuals - are we hoping in months, years, any idea? As a government, as a department, how are we preparing and what are we thinking about?

MR. WOLFF: We hope that, firstly, markets will stabilize. As an investment - the investment team obviously studies this question every day. I think that we are really living through very unique times and we're really living through a structural change in the global financial markets. I think anyone who can give you a finite period of time as an answer - you should be suspicious of that response.

MR. PORTER: That's basically why I brought the question up because there are people out there - as you probably know in your business - that will say, six months, eight months or 18 months, whatever it is, we're going to see things turn around. I spoke to a gentleman yesterday who said the markets have bottomed now, people should start to buy again. Is that a stockbroker thinking of his own?

People are looking at this seriously though and thinking about their pensions - maybe I should be reinvesting now. So it comes back to that question again, what are we doing? You talked about being fair, the minister, the department, wanting to be fair. What does that mean, being fair?

MR. WOLFF: I think that's exactly the right question. As I mentioned earlier, our primary focus at the moment is twofold: one is risk management, so we really want to minimize, to make sure, to the greatest extent possible, we don't make any huge mistakes. The second is ensuring that the fund has plenty of liquidity. That is achieved in terms of conservative investments and that essentially is a sound defensive strategy during these very volatile and uncertain times and begins to position the fund for opportunities whenever the markets stabilize.

MR. PORTER: I love math and I love numbers as well. It's something though that is very difficult to understand and to get your head around, even just figuring out simple things like the pension formulas. I've worked with lots of people over the years and said, okay, well, we pay into a pension. They really have no idea what that means. They don't know where the risk is. I mean, yes, somebody will come in and they'll give you a nice little presentation. Again, they're trying to sell you something. So you wonder sometimes about that risk management and I always find that an interesting term - risk management, wow. What's the definition of that? I'm interested to know your definition, as the person representing the superannuation, the people's money, their investments, what's risk management to you and to the government?

MR. WOLFF: At very basic terms, risk management to me is no surprises.

MR. PORTER: No surprises, great. I think it was last week there was some interesting discussion around the word prudence - maybe it was a couple of weeks ago when we had the Auditor General before us - and I asked the question and I really don't feel that I got a definitive answer but I'm going to ask you. The word prudence was brought up but

yet there was really no definition outlined and I'm wondering what your definition of prudence is?

MR. WOLFF: My definition of prudence, firstly, I think starts with our trustees and that is that it's really the role of the agency to make sure that the trustees are receiving timely and comprehensive information. As well, I think prudence relates to operational controls and best practice and it relates to strategic planning. So setting your priorities, as I mentioned earlier, and looking ahead and sort of building out different options for the future.

MR. PORTER: Just quickly on that, the trustees, let's talk about the trustees. Who are the trustees? I mean obviously the minister has some role with the trustees. Who else? Maybe, Ms. Harnish, this is a question for you to clarify for me?

MADAM CHAIR: Ms. Harnish.

MS. HARNISH: For the Public Service Superannuation Plan, the Minister of Finance is the trustee.

MR. PORTER: The sole trustee?

MS. HARNISH: Yes. He does have an advisory committee that we put in place three to four years, well, a couple of years ago when the teachers' plan became jointly trusteed, we had to relook the way we provided oversight for investment in total, for the two plans. So we formed an advisory committee to the minister for the Public Service Superannuation Plan and that advisory committee is comprised of members appointed by the NSGEU, a member appointed by CUPE, as the two significant unions whose membership are involved in the superannuation plan, members of government, members of one of the outside employers, and one individual from the Nova Scotia Government Retired Employees Association.

MR. PORTER: So there's a variety of stakeholders basically covering all aspects of risk here or . . .

MS. HARNISH: There are.

MR. PORTER:.... their valued interest, as we move along.

MS. HARNISH: That particular advisory committee is co-chaired by the NSGEU and a member of the Department of Finance.

MR. PORTER: Have they met recently or how often do they meet?

MS. HARNISH: Oh, gosh, they meet every two to three months.

MADAM CHAIR: Mr. Wolff.

MR. WOLFF: They meet five to six times a year. The next meeting is tomorrow.

MR. PORTER: So are they meeting more often now given the current financial situation to deliberate on, what may be the best prudence, for lack of a better word here, in investment strategies?

MR. WOLFF: Absolutely. They are a very engaged committee and, yes, the frequency of meetings has certainly increased since the summer.

MR. PORTER: You talked a little bit about strategic planning. In a former world I worked on the management side of things and we talked a lot about strategic planning, great words, what does it mean in this situation? Are we looking long term, short term, five years, three years? I heard a little bit I guess earlier, Ms. Harnish, you talked about five years but I'm interested to know where we're going and how we're getting there.

MR. WOLFF: Yes. So our priorities are really allocated around short term and then what we call medium term which would be three to five years.

MR. PORTER: So the short-term plan would consist of what right now?

MR. WOLFF: The short-term plan is about risk management and liquidity.

MR. PORTER: Day-to-day, month-to-month?

MR. WOLFF: Day-to-day, but coming back to my earlier comments, we began a process of enhancing our controls and processes really in June and thankfully we're much better prepared to sustain some of the day-to-day challenges.

MR. PORTER: What does that mean - much better prepared?

MR. WOLFF: Well, we had access to deeper and richer information faster. We could monitor things better. We could escalate issues to the trustees promptly and more comprehensively.

MR. PORTER: And what were some of those bigger issues that you've escalated?

MR. WOLFF: Issues around counter-parties, issues about liquidity of certain asset classes - things of that nature.

MR. PORTER: So just because there are probably people watching at home, or watching their pensions, who may not understand, can you tell me what you just said, in English?

MR. WOLFF: Yes.

MR. PORTER: And I don't mean to insult you, I just know from talking to people, they don't understand what you have just said.

MR. WOLFF: Yes, and I apologize for that.

MR. PORTER: No, that's fine, no, that's great.

[10:00 a.m.]

MR. WOLFF: The priority was to make sure that pension assets were not invested with somebody or in something that was going to violently blow up and that those assets would no longer be available. If you think about some of the press around the investment industry at the moment, that is one of the major themes - that folks have made investments in assets and even at lower values, they can't get their money back.

MR. PORTER: Any idea - well, I guess it comes back to that question about their money back and, again, we talked to all kinds of people about this. They've lost money, obviously, in some of their plans and in their pensions. What's the long term - and I guess I can't ask the question because you've already said there's no idea how soon this will recover, so I guess that's all based on the ability for them to recover their investments. When it comes right down to it, there's no guarantee that they will, in some circumstances, recover?

MR. WOLFF: Right and one of the extreme conditions of the market as well is that there is very tight liquidity. What that means is that there's not a lot of cash moving between different parties in the market and that constrained cash condition really creates a challenge in terms of broader investment management activities.

MR. PORTER: Do you agree that a lot of people who are involved in things like pensions really don't understand the terms that we're talking about here today?

MR. WOLFF: I do and I'm very proud to say that my colleagues in the agency, those folks in the Pension Services Division, do a great job speaking to plan members about these issues and they speak in a much better way than I do about these issues.

MR. PORTER: No, you're doing just fine, but I was going to ask - just building on that - are we out there talking to people? Are we sending them letters? How are we corresponding with John, Jill and Jane who have pensions and are now quite worried -

they're ready to retire, and all of these things. How are we getting a message of comfort, or if there is a message of comfort, how are we educating these folks?

MR. WOLFF: We're doing all the things that you just described. So we're doing education sessions and we are increasing the frequency of newsletters, special bulletins, and things of that nature, that are either posted on the agency Web site or mailed directly to plan members. Rightly so, the advisory committee is very interested in working with the agency to build out even more communication for the year ahead and so that's one of the projects that we're working on with them.

MR. PORTER: If I can build on that for just a second, Mr. Wolff. It is in fact going back to that trustee and the minister, obviously, and that advisory committee - certainly all the stakeholders are part of that advisory committee. Are they, too, going back to their people and holding meetings and things like that, or is that what you've just said and I misunderstood that?

MR. WOLFF: No, I believe they are, but within the agency as well, we are trying to get out in the field, get out and see members more, to do even more communication. I think that one of the things that we have learned is the value of education and to your point that there that in general people really don't have a full understanding of their pension plan. I think it's important, as well, for our members to recognize the strength of being in a defined benefit plan today that is ultimately backstopped by the province. In these very volatile times, there's a tremendous strength that comes from that structure of the plan and so we're trying to communicate that as well.

MR. PORTER: Are you taking many calls from people who are now retired or approaching that - the plan was to retire. Let's say they've met the 80, the magic number to put in place. I mean generally you just don't reach the magic number to put in place. Generally you just don't reach the magic number today and you retire tomorrow. People are planning this, from what I know - you start a couple of years, or at least one year in advance, and working with the right investment people and so on. Are any of these people calling or writing with suggestions or concerns or now stating that I think I'm going to hang around for a couple of more years just because.

MR. WOLFF: Throughout the late summer and into the Fall, we did take an increased volume of these kinds of calls and e-mails that either came into the agency, or came to myself, or came to the minister. We've tried very hard to respond to these questions.

MR. PORTER: When you're responding, what advice are you offering?

MR. WOLFF: We're communicating to members that the minister has not made any decisions yet and that we will do everything possible to provide transparent, timely communication.

MR. PORTER: Has that been somewhat comforting to any of them? Correct me if I'm wrong but if it were me, I'd be asking some pretty pointed questions about that risk - is my pension going to be there? Is that question coming at you?

MR. WOLFF: Yes, that question has come at me and the minister and a number of my colleagues many times. To the best that we can, we try to explain to our members that the plan is not in any immediate risk, that the minister's evaluating steps will improve the long-term health of the plan.

MR. PORTER: And again, that ongoing advisory and committee meetings, watching and overseeing, pretty much daily looking at numbers and seeing where we're at.

MR. WOLFF: That's right.

MR. PORTER: How many people are on the superannuation plan? You may have mentioned it earlier.

MR. WOLFF: There are approximately 28,000 active and retired members.

MR. PORTER: What's the split there? How many are retired? Any idea percentage wise even?

MR. WOLFF: Well, it's about 60/40.

MR. PORTER: Sixty working and 40 retired?

MR. WOLFF: Yes. That's approximate.

MR. PORTER: Are you hearing more from those who are working or more from those who are retired?

MR. WOLFF: More from those who are working and are concerned about how their retirement benefits may change.

MR. PORTER: I know we talked a little bit about it this morning, and I'm not sure I totally understood, it so I'm going to ask in a little different way. Of those numbers that are set to retire, who can retire or are meeting the magic number of 80, so many a year - Ms. Harnish, you had mentioned earlier there was a certain number that are able to retire every year.

MS. HARNISH: We have 2,100 employees right now who are working but can retire tomorrow, who are already eligible for an unreduced pension. We also add to that, on average, about 600 a year, but some go and some stay, so we run around 2,100 or

thereabouts. I believe earlier we indicated there were maybe another 500 who are eligible to retire with a reduced pension. That's quite a significant number of individuals who could pick up and leave very quickly.

MR. PORTER: There are 500 reduced, so what would reduced mean? They'd meet the magic number of something else - 75 or 70 or something like that? That's not a full pension. When you say reduced. you're saying retire on less benefits, is that it?

MR. JOHN ROSS: That means they would not qualify for an unreduced pension. The rules for an unreduced pension are at least age 60 with at least 2 years of service, or at least age 50, and age plus years of service, at least 80. So people who could retire with a reduced pension would be at least age 55 with at least 2 years of service.

MR. PORTER: So there are all kinds of different formulas that can take you to the pension, whether it be reduced or otherwise - okay. Of that number of pensioners, have there been any come forward - of that 2,100 or so that could retire, waiting to retire, or even that 500 number - have any of them come forward and said, I think we're going to hang around for a couple of more years? I'm asking that question, obviously, because that's a bit of a comfort for the department, for the people who run the pension and certainly for the workforce - we certainly want to maintain numbers. Have any of them come forward and, if so, any idea of how many?

MR. WOLFF: I think the best way we can answer your question is that there was clearly a high level of anxiety during the late summer, from a number of members who either could retire or could retire soon. That anxiety was measured in call volumes and e-mails that we were receiving, and we do monitor those statistics very closely. The numbers have come down considerably since that time.

MR. PORTER: When you say the numbers have come down considerably . . .

MR. WOLFF: The volumes of . . .

MR. PORTER: The anxiety level has come down you mean or the numbers of those with the anxiety have come down.

MR. WOLFF: The number of inquiries that we've been receiving have come down. I don't think people are any less anxious, based on where the markets are.

MR. PORTER: I appreciate that for sure. What about that number then? Let's say there were 500 about to retire at the end of 2008 - I'm just picking that number out of the air because I don't know, you may be able to clarify that - are 400 of those people saying my anxiety's come down, I'm at a level where I think maybe I can go or is the majority of those people going to hang on, to stay employed?

MR. WOLFF: I think it's very difficult to answer that question.

MR. PORTER: Too hard, everyone has their own anxieties, their own - I suppose that could change by the day if it really had to by somebody thinking, watching the markets, and so on.

MR. WOLFF: But, we did hear specifically from a number of members that the minister's announcement, with respect to no change to benefits with members who could retire within the five-year window, was very comforting. We did get that specific feedback.

MR. PORTER: There would be a percentage of those people, on the other hand, who would be comfortable, they think they're okay, they're going to say, I'm going to retire just the same and I think we're alright in the long term, we've invested appropriately throughout the plan, the number of years it's been managed by the government, by the department, we're okay, we're comfortable, we're going anyway.

MADAM CHAIR: Order. The time has expired now for the PC caucus. I'm going to come back to ask questions.

[Mr. Chuck Porter took the Chair.]

MR. DAVID WILSON (Sackville-Cobequid): Just while my colleague comes forward, I think if any good has come from the downfall, I think more and more Nova Scotians are paying attention to their investments and their pension plan. With that, when you hear about potential changes to the pension plan, I think it alarms many employees. With the sheer number, I think you stated 2,100 and potentially 600 over the next five years, we're looking at potentially 5,000 people in the next five years.

A quick question - with that sheer number and changes coming, employees are going to choose to say, I'm too leery on what the changes are going to mean, we're going to leave, and potentially there's a large number of employees who will leave. Would you say that potentially such a large number would have an impact, or harm the plan at that time, if these changes happen?

MR. ROSS: I'm not sure if I completely understand the question. If they decided to retire sooner than they were expected to, then the plan would take a hit. But if they were grandfathered, and could retire at a later point and still enable them to receive full indexing, for example, then the plan would not take a hit.

MR. DAVID WILSON (Sackville-Cobequid): But those employees still contribute, do they not, to the plan, while they work?

MR. ROSS: While they're working, they continue to contribute, yes.

MR. DAVID WILSON (Sackville-Cobequid): But if we have a large number of them all of a sudden say, let's leave, potentially you're going to have fewer people paying into that plan when changes come in five years.

MR. ROSS: Presumably, they will be replaced by younger employees, in that case there would be some offset. But if they retire sooner than they're expected, then, yes, there would be an experience loss to the plan.

MR. CHAIRMAN: I recognize Ms. MacDonald and you have until 10:24 a.m. We have about 12 minutes for third round.

MS. MAUREEN MACDONALD: Thank you. I just want to clarify a few things again because the language is more technical than maybe the public is used to in some ways. When we talk about risk management, that the strategy now is essentially risk management, would it be fair to say, in layperson's terms, that the strategy is to try to protect the existing asset base rather than to grow the asset base just given what's going on in the markets? Is that a fair assessment - we're just trying to make sure that the assets we have are protected rather than grow them?

MR. WOLFF: That's a very fair description.

MS. MAUREEN MACDONALD: And so the assets of the plan, when the annual report was done last year, was about $3.6 billion - is that what the assets of the plan are today?

MR. WOLFF: The assets of the plan, as of September 30^th,were approximately $3.3 billion.

MS. MAUREEN MACDONALD: So there has been a bit of erosion in terms of the actual asset base of the plan.

[10:15 a.m.]

I want to go back to the question around ratios. In December of 2006 the ratio was 89.6 per cent, so there was a shortfall of about $436 million, and in December of 2007 that ratio had grown to 83.5 per cent and the dollar value, the unfunded liability, went from $4.36 million to $732 million, and as of today the ratio is at 72 per cent and the dollar amount of unfunded liability is $1.3 billion - correct?

MR. WOLFF: Correct.

MS. MAUREEN MACDONALD: So my question then is about if the ratio continues to fall, at what ratio should we really be upset and concerned and expect the government to

really take some action? I'm sure your projecting ahead to that point. You've started by telling us there's no reason to panic because we do have the ability to pay the benefits out that we're obligated to pay right now and into the foreseeable future, but at some point we won't be. I'm not sure that it's the 29 years that is referred to in the annual report, so that's what I'm trying to understand - at what point?

MR. WOLFF: It's a difficult question to answer, but the reason that the minister began to look at the funded status of the plan was that, over a 30-year period, applying reasonable forecasted investment rates of return, the plan was not going to have an improving funded status, but a deteriorating funded status.

MS. MAUREEN MACDONALD: So the review is occurring and we've talked a bit about some of the options that are being looked at - indexation, spouse's allowance, rule of 80 - and I would assume that contributions as well as that, that's one of the options that is being considered. Ms. Harnish, could you elaborate a bit on what aspects of contributions are being looked at?

MS. HARNISH: Well, what we would be looking at is the actual contribution rates themselves, and we have a plan that is always 50/50 funded basically by the employer and the employees. Contributions rates are set equal for both, so as an employer we contribute to the plan at the same rate as employees contribute to the plan. That contribution rate is 7.6 per cent, I believe, up to the YMPE, which is your earnings set under the Canada Pension Plan and then I think it's 9.6 per cent beyond that. So one would look at what incremental contributions would do for the funded status of the plan.

MS. MAUREEN MACDONALD: Are you looking at varying the split between the employer and the employees in terms of that?

MS. HARNISH: No, 50/50 is the split and the policy has been, and still remains, that it is a 50/50 funded plan.

MS. MAUREEN MACDONALD: Can you give us a bit more information with respect to the timetable for these changes, because I note in the newsletter of October 14^th, which is essentially two months ago, that on the second page of that newsletter the statement is made: The longer we wait, the harder it will be to make up the gap. So I'm wondering, and I'm sure that given you've had a lot of calls and people are very interested in this - as an MLA I've certainly had a lot of calls from members of this plan as well - so what timetable can we reasonably anticipate some decisions and changes here, what are you looking at?

MS. HARNISH: The minister has not specified a timetable at this point. Given the current uncertainty and volatility in the market, I believe that he thinks it is wise to wait for another short while to see if some stability occurs, so that we have a new baseline for sure. As you're aware, many of the changes contemplated would require legislation, so nothing

would happen before the House sits and legislation could be brought forward on those changes at least. So I can say at this point we have no defined or definite timetable or decisions.

MS. MAUREEN MACDONALD: Again I'm wondering, with respect to consultation around changes, will there be broad-based consultation with plan members or essentially will the consultation be limited to involvement with working through the advisory committee?

MS. HARNISH: The minister has not made a decision at this point on how one might, or might not, bring about any changes. Certainly it's too early to say.

MS. MAUREEN MACDONALD: I want to turn briefly - we've pretty much focused on the superannuation plan, but I want to briefly turn to the teachers' plan before my time has expired. It has been pointed out that the unfunded liability of the plan is not nearly as significant as the superannuation plan, but I'm wondering - the annual report that was tabled in December indicated a funding level ratio of 91 per cent - where does that stand now, today?

MR. WOLFF: As at September 30^th the funded ratio was estimated to be just below 80 per cent.

MS. MAUREEN MACDONALD: Just below 80 per cent - so then that leads to the question of a cost-of- living increase for members of the plan this year. Because that plan was de-indexed or partially de-indexed, contingent on the performance of the plan, I would assume that teachers who are pensioners, members of that plan, will not be receiving any cost-of- living increase this year?

MR. WOLFF: That's correct for a subset of retired members.

MR. CHAIRMAN: Mr. Ross.

MR. ROSS: There are two indexing arrangements under the teachers' plan. There is an arrangement that was in effect prior to July 31, 2006, that is guaranteed to be equal to the increase in the Consumer Price Index, less 1 per cent, but any retiree post-July 31, 2006, receives indexing on a different basis that's called variable indexing. It's contingent indexing and it's contingent on the funding level of the plan - if the funding level is between 90 and 100 per cent, the trustee has the authority to grant indexing equal to 50 per cent of the increase in the Consumer Price Index; however if the funded ratio, as of December 31^st of the previous year, is below 90 per cent, then no indexing is granted to this group of pensioners.

MR. CHAIRMAN: Your time has about expired, Ms. MacDonald. I will now recognize for the Liberal caucus, Ms. Whalen.

MS. WHALEN: I see we all have so many questions for this round that 12 minutes isn't enough.

I want to go back to the historic returns on the plan that we're talking about, the Public Service Pension Plan. Just going back in time to the mid-1990s, so about ten years ago, the plan was over 100 per cent funded. I wonder if you could tell me what its maximum was when they enjoyed a contribution holiday at that time? It reached well over 100 per cent funding, can you tell me what percentage?

MR. ROSS: I think the maximum ratio from evaluation was around 105 per cent.

MS. WHALEN: So it was just a little bit over, not significantly. Nevertheless, being over 100 per cent funded did lead to a contribution holiday for all active members and government as well, I believe. How is it that we went, at that point in time, from over 100 per cent funding to the situation we're in today, which is not due just to the current volatility in the markets? We've had 10 years that were actually record-breaking years in the market - you might correct me but being somebody just watching, we hear of them hitting all time highs and stocks up and up. So how is it we got to today, to this situation?

MR. ROSS: There was a very bad period between 2000 and 2003 where the funded ratio did drop significantly as a result of poor returns in the market.

[Ms. Maureen MacDonald took the Chair.]

MS. WHALEN: The 10 year returns though for other plans are still significantly higher. Going back to the fact that we're talking about hundreds of millions of dollars, even a small percentage difference is very significant. I'm looking just at the Ontario public pension plan and their 10-year rate of return to December 2007 was 8.3 per cent.

MR. WOLFF: Yes, but it's important to note that would be December 2007. That does not take into effect the extreme decline in market values that has occurred between January 1^st through September 30^th - record declines.

MS. WHALEN: Certainly the last 12 months have been precipitous, no question, but it seems a travesty that we've gone from being so well-funded to being at a critical point in terms of making decisions and changing the direction of the plan, possibly, in order to recover the solvency.

MR. WOLFF: But I would like to highlight for you in terms of equity markets, we now talk about appreciation or gains in equity values being wiped out for more than a 20-year period now. So, I think the context needs to be correct in terms of some of your comments.

MS. WHALEN: But the high was reached 10 years ago. We definitely had some very strong performing years in the middle, yet our funding has gone down. I think the trend has been down in terms of this. It reached 105 per cent 10 years ago or more and it concerns me that we've come to this point today. Certainly the management has been changed dramatically in the last couple of years.

Perhaps the deputy minister could answer my question about the decision to create a Nova Scotia Pension Agency. Was this the result of the poor performance of the plan or concern about the direction of the plan as it was being managed internally within the Department of Finance?

MS. HARNISH: Not at all. The decision to create a pension agency was based on the upcoming transition in the governance structure of the teachers union plan. So the NSTU plan was to be on a go forward basis, jointly trusteed. Understandably, the teachers union was somewhat desirous of having some distance between the Department of Finance and their plan administrator - probably for optics, among other things. As that was occurring, we believed then the best option was to push the pension division outside of the Department of Finance and make it a special operating agency called the Nova Scotia Pension Agency.

MS. WHALEN: Can I ask another question about that? At the time when it was internally managed, would it have been managed along with the other large amounts of money that we have? We look at debt retirement and debt management within the department. I know you have other large blocks of money that you're managing.

MS. HARNISH: But the staff were separate. When I joined the department five years ago, we had two distinct divisions at that point in time - liability management and treasury services who looked after the consolidated fund, and the pension division with their own stand-alone investment staff who managed the pension plans.

MS. WHALEN: With the staff who were managing the pension funds at that time, were they all migrated over to the new agency?

MS. HARNISH: They were.

MS. WHALEN: In the 10 years prior, are there any points in time when you can say that there was a real change in the management of the plans? Was there a point at which we changed the way we were doing it or changed the people responsible?

MS. HARNISH: To my knowledge the director of investments, Peter, went back well before, you know, well in excess of 10 years I would suggest, Elizabeth. So Peter had been basically responsible for the oversight and the daily decisions of the management of the investments of the plan for an extended period of time.

[10:30 a.m.]

MS. WHALEN: So you're suggesting then that there was no major change in who was responsible and that it was a conservative investment plan or risk, shall we say risk plan. I still feel that the look of it is like a real precipitous drop, there's no question about it, going from a position of such strength to what is, as I say - I think we are at a critical point today in terms of having to make decisions. You have not given us a timeline yet, Ms. Harnish, and I wonder if there is an expectation that we'll see legislation in the Spring?

MS. HARNISH: That would be up to the minister to determine. I can't speak for that.

MS. WHALEN: Can I ask you if you could speak to a commitment, or make a commitment today, that there would be extensive consultation with all of the plan members prior to any legislation arriving here before us as members of the House?

MS. HARNISH: That would be a decision of the minister. I'm not in a position to commit on his behalf.

MS. WHALEN: So we couldn't say for sure that that would take place. You know, as members of the House, we certainly prefer that the consultation be done before it arrives here in the form of legislation and it will certainly make it more smooth in terms of making any changes if we know that the union members and the various unions and non-union members in the plan have been properly consulted. It's important to us in that way but I do hear you, you're not in a position to make that commitment today.

I wanted to ask you - I have just a couple of minutes left - and I want to ask about one strategy you haven't talked about and that is how do we make it more attractive for people to stay in the workforce longer because there have been in the past times when there have been incentives to leave early. We're certainly not in that point any more, particularly with our health care workers who we are all very well aware are in short supply. Have you looked at any bridging strategies, any ways to make it more attractive for people to stay and earn extra benefits by staying longer in the workforce?

MS. HARNISH: We haven't been looking at additional pension benefits as a mechanism to retain people. Certainly, across the system, we've been doing many other things. We have, as you're aware, looked at compensation rates. The health care professionals, for example, have compensation rates at this point that are quite competitive with many of their counterparts across Canada. Certainly within the Public Service alone, we have initiated many policies - healthy workplace policies, respectful workplace policies.

MS. WHALEN: We're talking though specifically around the pension and how we can keep people working and not drawing down on their pensions. As was said in one of the earlier questions, if people are in the plan, even if they go beyond their point at which they

could retire, if they stay on, they continue to contribute and those are years when they're not drawing down on their pension benefits. So I'm asking specifically about whether or not that would be one of the strategies that you will look at because it's another way - if you can actually make it more attractive in some way, a benefit or a bonus for people staying on, it's best, I think it helps everybody in the plan and it helps the province. So is that one of the tools you'll look at?

MS. HARNISH: There have been changes in federal legislation, as you would be aware, that do permit some sort of phased retirement. We have taken only a very preliminary look at that kind of initiative to determine whether or not it would be affordable. At this point, it's very early days. We haven't really determined that we want to initiate something of that nature - it appears to be quite costly - but no decision has been made and, like I said, it hasn't really been given a lot of consideration right now. Our primary focus has been basically the health of the plan in its current state.

MS. WHALEN: I understand that the NSAHO is looking at that exact idea of offering some kind of incentives and I do think that it's certainly meriting some extra attention. I would like to ask Ms. Harnish - and I think I only have a minute or two left - about the unfunded liability and its impact on the books of the province and the financial health of the province. Can you, in a quick way, let us know how this really, rapidly growing unfunded liability is going to affect the province because it is an obligation and it is a debt.

MS. HARNISH: It is. As you're aware, the entire unfunded obligation is carried on the books of the province inside the operating statement. We account for the pension costs in three separate areas of our operating statement. Our employer contributions would be one, there's another line called pension valuation allowance and that is adjusted annually to account for the changes in our obligations within the plan. Thirdly, inside our debt service cost analysis, there is a dollar figure associated with the calculated cost of interest on the unfunded liability.

That will impact next year. This increase this year, in the unfunded liability, will become a cost impact on the operating statement next year.

MS. WHALEN: Would you expect that to affect our bond ratings and our financial strength in that regard?

MS. HARNISH: The bond rating folks review a variety of factors - it's just one more expense. The bond rating agencies are far more interested in the overall sustainability of your financial situation.

MS. WHALEN: I guess, in short, I'd like to know whether Nova Scotians should be worried about this rapidly growing obligation.

MS. HARNISH: It will be an extra cost on an annual basis. Each year you do see the cost of pensions increasing, it does cut into government's ability to fund programs and services.

MS. WHALEN: I think that answers that.

MADAM CHAIR: Order. The time has expired. I recognize Mr. Porter for the PC caucus.

MR. PORTER: I want to pick up where I left off a little while ago and ask a few different questions on that.

We talked about the stakeholder groups and we've just heard a little bit more on that, about the consultation and it sounded to me, when we spoke earlier about that, Mr. Wolff, you named some of the groups - unions and so on on the advisory panel. Is that considered consultation in your opinion? Or, are we going out to somebody else here?

MS. HARNISH: Consultation can take many forms. At this point in time, we are working through the advisory committee with the members of that committee who represent the unions, other employers. We have a representative on that committee of the management group of employees as well. That would be the significant form of consultation right now. We're communicating and answering questions of members. The minister receives letters on a daily basis, and the agency receives many calls. It wouldn't be considered possibly a formal consultation, as such, but it is quite a communication effort.

MR. PORTER: It seems fairly significant to me when I thought about that, I guess that's why I asked the question a little bit earlier, to find out are we corresponding with the members, are they having a say. When it comes right down to it, Mr. Wolff, you had mentioned we're managing this thing daily, watching numbers and so on, realizing there's an Act in place, legislation by way of the Superannuation Pension Plan and so on. Would the minister have the ability to secure any other anxieties by making changes to that plan without coming back to the House and changing that legislation? Are there other means, I guess, is what I'm asking. The only reason I'm asking Ms. Harnish - and I will let you answer - is given the fluctuation and what we have seen by way of not being able to sometimes manage on our own that risk or our investment.

MS. HARNISH: The legislation sets out most of the parameters of the pension plan. It sets out contribution rates, the rate of accumulation of pension benefits. The only benefit portion that is not established through legislation but is set by regulation is the extent of indexation.

MR. PORTER: Which means what?

MS. HARNISH: That means it would be a regulation amendment as opposed to a legislated . . .

MR. PORTER: And through that regulation are we able to . . .

MS. HARNISH: One could revise the indexation rate.

MR. PORTER: I guess that's what I was getting at. If there were an opportunity, obviously, and there could be, in these fluctuations, to secure even better opportunities or investments that can be done through regulation, there can be changes and revisions made there then to help.

MS. HARNISH: Well, these would be changes to the benefits of the plan itself. Now, certainly investment policies are set solely by the minister, but with the advice of the advisory committee, and investment policies can be changed on an ongoing basis.

MR. PORTER: Regularly.

MS. HARNISH: And they are.

MR. PORTER: And they are, thank you. I was going to go there and say how often are these things changed. Again, we keep going back, we talk a lot about consultation, but it seems like every stakeholder of great importance - including the member holding the plan - has some involvement here?

MS. HARNISH: Well, they certainly are represented in the advisory committee and the advisory committee is the group that the pension agency works with on amendments to our investment policies. They receive the advice of the advisory committee and make those changes in consort and in consultation with that group.

MR. PORTER: When this legislation was put in place, was the advisory panel in place to help consult at that time, do you recall?

MS. HARNISH: That legislation goes back I think to the 1920s or 1930s. It's a very old piece of legislation.

MR. PORTER: And has that stayed intact or has that been amended over the years?

MS. HARNISH: The advisory committee is not required by legislation. That was put in place voluntarily by the minister of the day, several years ago, and at one point it was on investments only. It was called the Investment Advisory Committee and was comprised of both representatives from the Teachers' Union and the NSGEU. When the teachers' plan

became jointly trusteed, the Investment Advisory Committee was disbanded but this other Public Service Superannuation Plan Advisory Committee was established.

MR. PORTER: What kind of things are people invested in?

MS. HARNISH: Pardon me?

MR. PORTER: What kind of things in this pension plan are we invested in? Are we talking about, I don't know, stocks, bonds, I mean I don't know, what are we invested in?

MADAM CHAIR: Mr. Wolff.

MR. STEVEN WOLFF: As I mentioned in my opening comments, the plan is invested in a mix of Canadian, U.S. and international equities, high-quality equities, across a variety of sectors. The plan is invested in high-quality fixed income securities currently with a heavy emphasis towards government securities and then the plan has a small allocation to real estate, high-quality commercial real estate.

MR. PORTER: And those investments are all made through the advice of obviously the trustee - the minister - and the advisory committee, including the unions, and members, just so I'm clear.

MR. WOLFF: That's correct. I mean underpinning the investment strategy are the investment guidelines that have been vetted and ultimately approved by the advisory committee and then approved by the minister as trustee of the plan. We report the status of the portfolio against those guidelines on a monthly and quarterly basis to the minister and on a quarterly basis to the advisory committee.

MR. PORTER: How often does the average member receive some sort of statement or update? Are they more often, I think it's quarterly maybe, or twice yearly?

MR. WOLFF: There is a quarterly investment snapshot that is available to all members on the agency Web site.

MR. PORTER: Have we - I was going to say updated - but have we increased that at all given the little bit of turmoil or are we just saying it quarterly?

MR. WOLFF: Well, what we did do earlier this year is increase the quantity of information available in that update.

MR. PORTER: And we talked a little bit earlier about some anxiety that some people have. Should people be panicking?

MR. WOLFF: People should not be panicking because of the nature of the plan itself. It's a defined benefit plan backstopped by the province. So I think panic is not the right word. Interested and concerned are the right words.

MR. PORTER: Is there a comfort level in your opinion then, having said that, that the folks enrolled in the superannuation plan have a comfort level that the government is managing this plan adequately? Given the fact that it has an advisory panel that goes back to union members, et cetera, is there a comfort level there in your opinion?

MR. WOLFF: Yes, I believe that the minister as trustee, the advisory committee - everyone is being very engaged, acting very prudently. They have an expectation to receive timely and meaningful information and we're very pleased to be in a position to do that on a consistent level.

As a team, the four of us in front of you and all 54 of us as a team of colleagues, we really take a lot of pride in serving our members. We take a lot of pride in how we behave every day in terms of really ensuring the health and the safety of the plan.

MR. PORTER: Thank you very much and with that, I'll say that'll be it for me. Thank you very much for your questions.

MADAM CHAIR: Thank you. The opportunity for questions is now closed. I would invite Mr. Wolff and Ms. Harnish, if you wish to make some closing comments.

MS. HARNISH: No thank you.

[10:45 a.m.]

MADAM CHAIR: Thank you very much for being here today. I want to remind you that there was a request for some documents earlier; we were looking for any reports that you have looking at the various options of changes to the plan. I recognize that Ms. Harnish, you indicated that you would seek advice from the minister, whether this can be provided to the committee, and data on how many members were impacted when there was a move to health regionalization, health boards. I think Ms. Whalen requested that information.

MS. WHALEN: I did want to make a motion just before you wrap up the meeting, so you can continue until that point, thank you.

MADAM CHAIR: I just want to remind you of those requests and information can be provided to the clerk of the committee. So thank you very much again, all of you, for being here today and I wish you all the best of the season - I'm sure all members of the committee do that.

Now, we have one or two other items of business and Ms. Whalen has a motion she wants to put forth.

MS. WHALEN: Yes, if it's fine with you, Madam Chair, I think this is a good moment to do it, because it is related to the topic at hand today.

I'd like to make a motion that says that the Public Accounts Committee requests that the Minister of Finance consult widely with the Pension Advisory Committee, management of the unions involved, and the pension members, before introducing any changes to benefits or contribution levels for the Public Service Superannuation Plan. So it is following up on my question around wide consultation before we see either Order in Council or legislative changes.

MADAM CHAIR: Thank you. The motion is in order. Is there any discussion?

Mr. Porter.

MR. PORTER: I guess the only thing in that motion, not having it right in front of me but I think I heard it right, did we not just hear that there's a part in regulation where that can be changed? Ms. Harnish spoke to it, and maybe I misunderstood the motion, too, Diana, but the last part of that was with regard to - can you just read that again for me?

MS. WHALEN: The last part? The motion is that there be wide consultation with all the stakeholders, which I named, and then I said before introducing any changes to benefits or contribution levels for the Public Service Superannuation Plan - so on either side of the equation, either the benefits or the cost to the plan members. That's just to ensure that we have had that wide consultation before either we're faced with legislation here in the House, or members are hit with changes. That's it - regulation as well as legislation.

MADAM CHAIR: Thank you.

MR. PORTER: Thank you for the clarity and I can't see that being a problem, given that we're doing an outstanding amount of consultation by way of advisory panels and so on at this point.

MADAM CHAIR: I will speak for our caucus, we certainly support that motion.

So would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

The subcommittee has met and you have before you, I think, the report of the subcommittee. I just want to indicate that the subcommittee discussed - Ms. Whalen had a

motion some time ago with respect to having financial personnel available when our witnesses come to answer questions of a financial nature in the various departments - the subcommittee discussed this. We concur with this idea, unless for some reason it's inappropriate to tie somebody up in that way. But we will always be mindful that this is the Public Accounts Committee and that, generally speaking, this is what we're looking at is the financial expenditures of various programs and departments and the importance of having someone who can answer those financial questions. So we concur and we recommend that this be the practice of the committee when we're inviting witnesses.

The other thing that we discussed was with respect to the many documents that we've received with respect to the Nominee Program. We want to recommend to the committee that the staff of the Committees Office will, as they are able in terms of their workload in supporting this committee, go through those documents, remove all of the privacy information of individuals and commercial and business information, with the exception of Cornwallis who have given us the okay to release any documents with respect to them. Once the personal information is removed, that information can be released and filed in an appropriate fashion. So this is a recommendation to the committee.

Mr. Porter.

MR. PORTER: Just a comment on that with regard to the removing of information, covering information - whatever the right terminology is - we just want to stress that it is done appropriately and within the rules and regulations of the Freedom of Information and Protection of Privacy Act. So all those things should be followed by way of releasing them.

MADAM CHAIR: Mr. Steele.

MR. GRAHAM STEELE: Just a point of clarification. Is the suggestion being made that all of the documents should go through that vetting? That's an impossibly massive undertaking. I've looked at the documents - we're looking at 10,000-plus documents and our staff resources are so limited. If we're actually saying to our staff that we want them to go through every one of those 10,000 documents, page by page, they'll be doing nothing else from now until 2012. I mean we can't do it; we can't ask them to do it.

I thought what we had discussed was that if any caucus wanted certain documents to be released, we would bring it to the subcommittee - you know, like 10 or 12, or 15, or 20, or 50 - and then if we brought those documents forward they would be vetted. But to ask our staff to vet 10,000 documents is just absurd. We can't do that.

MADAM CHAIR: It is a lot of documents. I think our staff has already started to do this with some of the documents but - I don't know. It is a lot and I recognize the concern.

MR. STEELE: The other way we had talked about doing it was doable. This is just not doable, unless we want our staff to be devoted all day every day for a very long time to reviewing documents that maybe nobody is ever going to ask for. I don't understand why we've moved from the original idea to this idea of vetting every single document.

MADAM CHAIR: Well, if the committee wishes, we can take this back to the subcommittee for a discussion with our clerk about the time that that would take and the alternative of just looking at documents that the caucuses have brought forward. I would be quite happy to do that - are you okay with doing that? Okay, let's do that then.

So the final part of the report of the subcommittee is the list of witnesses. You have before you the recommended list of witnesses from the various caucuses. I want to indicate that under the first topic, it should read "financial statement" - and the financial statement of I think December 17^th or December 19^th, which has yet to be released. So this is the recommendation from the subcommittee.

Mr. Colwell, would you like to move that report of witnesses?

MR. COLWELL: Yes, I so move.

MADAM CHAIR: Thank you. Is there any discussion with respect to our lists?

I would just point out that the last three items on the witness list are all chapters in the Auditor General's Report that was released several weeks ago, not so long ago - is there any further discussion with respect to that list?

Would all those in favour of the motion please say Aye. Contrary minded, Nay.

I also want to indicate to the members that the subcommittee is recommending that the financial statement topic be given priority - so we will be attempting to schedule that for our first meeting in January.

Is there any other business?

We stand adjourned.

Merry Christmas, everyone.

[ The committee adjourned at 10:54 a.m.]