The Committee met at 9:30 a.m. in Room 5083.

CHAIR (J. Byrne): Order, please!

I would like to welcome everyone to this hearing on the government pensions. I see we have some members from the public. Welcome. What we are going to do is pretty well get right into it. Before we do that, though, we will adopt the minutes of the Public Accounts Committee hearing yesterday.

On motion, minutes adopted as circulated.

CHAIR: We have to swear the witnesses in. I believe the people from the Auditor General's office have been sworn in before. So can we have the witnesses sworn?

Mr. John Bennett

Mr. Philip Wall

Ms Maureen McCarthy

CHAIR: Thank you, Elizabeth.

For those of you who do not know me, my name is Jack Byrne. I am the MHA for Cape St. Francis and the Chairman of the Public Accounts Committee. To my right is Tom Lush, the MHA for Terra Nova and Vice-Chair of the Public Accounts Committee. What we will do is just go around the table and introduce ourselves. We will start to my left.

MS MURPHY: Elizabeth Murphy, Clerk.

MR. J. NOSEWORTHY: John Noseworthy, Deputy Auditor General.

MS MARSHALL: Elizabeth Marshall, Auditor General.

MR. JANES: Claude Janes, Audit Manager.

MR. BENNETT: John Bennett, Assistant Deputy Minister.

MR. WALL: Philip Wall, Deputy Minister of Finance.

MS McCARTHY: Maureen McCarthy, Director of Pensions.

MR. WHELAN: Donald Whelan, MHA for Harbour Main-Whitbourne.

MS THISTLE: Anna Thistle, MHA for Grand Falls-Buchans.

MR. SMITH: Gerald Smith, MHA for Port au Port.

MR. M. NOSEWORTHY: Mark Noseworthy, Executive Officer, Public Accounts Committee.

MS S. OSBORNE: Sheila Osborne, MHA for St. John's West.

CHAIR: Thank you. If the witnesses would like to make an opening statement we can hear that now if you so choose.

MR. WALL: Mr. Chairman, as I mentioned, I thought it would be useful to the Committee in particular to give you some information on the status of the individual plans we are talking about. We have some hand-outs there, just an overview of the various pension plans and where we are now with them, some of the changes. Some of (inaudible) relating to some of the issues that were brought up in the Auditor General's report.

To begin, I think I will just (inaudible) a little story with respect to the pension issue in the last few years, and a good news story. If you refer to the first table, I guess, the third page of the sheets I just passed out here now with the table of the financial status, the Public Service Pension Plan is the largest of the pension plans with approximately 24,000 employees, with 8,900 pensioners. The value of the fund is $1,070,000,000. The last official actuarial review done by the Province's actuaries was done in 1994, and the unfunded liability at that time was $1,068,000,000. The funded ratio as estimated by the actuaries since that time - we asked the actuary if they would give us a more up to date number that what was in the actuary report.

As of June 1997 the funds actuary estimated the funded ratio to be 46 per cent, as opposed to the 39 per cent in 1994. We are expecting a new actuary report to be presented to government in the very near term, maybe in the next month or so. We expect that the funded ratio of the Public Service Pension Plan will be even better than the 46 per cent when that report comes in.

The Teachers' Pension Plan has 6,900 active employees with 4,100 pensioners. The valued fund is $376 million, and the unfunded liability as of 1996 was $1,004,000,000. The funded ratio at that time was 19.4 per cent. The Uniformed Services Pension Plan has 675 members and 484 pensioners. It has no fund. All of the pensions are paid either from the contributions that are made by the members; plus a deficiency payment was made from the Province. The MHA plan with fifty active employees and ninety pensioners is in the same situation. The contributions from the members are supplemented by deficiency payments from the Province to pay those pensions. The last pension plan is the Money Purchase Plan. There are 16,000 members in that. That is for part-time employees of the Province and, of course, that is a money purchase plan. It does not have an unfunded liability and won't have an underfunded liability. The liabilities are basically what is in the fund, and the investments earned on the fund are used to determine what an individual pensioner will receive when they retire.

Overall, that is the status of the pension plans. I thought, if we just move onto the next line here, we could just go over the individual pension plans and some of the things that have been done in the last couple of years with respect to those plans.

First of all, the Teachers' Pension Plan. The government recently negotiated an arrangement with the Newfoundland and Labrador Teachers' Association, particularly with respect to the unfunded status of the Teachers' Pension Plan. As the Auditor General mentioned in her report, this was a very serious financial issue for the Province that needed to be dealt with. Without something being done the plan, I believe, would have run out of money in the year 2003-2004.

Anyway, we have had this negotiation with the NLTA. The government has agreed to pay $815 million plus interest at 8 per cent into the Teachers' Pension Plan over a thirteen year period. The first $166 million was paid a couple of months ago in September, another $166 million will be paid in 1999, and $76 million each year thereafter for the thirteen year period. That amount, to a large extent, represents the Province's obligations with respect to the pre-1980 period when we took all of the contributions from members et cetera, and used them for general requirements of the government, and did not have a plan set up. Also, like I say, it includes interest on that amount.

MS McCARTHY: There is also a portion of that $815 million that matches their deductions (inaudible).

MR. WALL: Yes. So in addition to some of the reductions that were made, which I will get into in a second, in terms of benefits in the plan, the $815 million includes a payment that matches the reductions that the teachers are taking in terms of benefits. That amount of money should bring the plan back into a reasonably funded position over the next number of years.

The teachers' benefits were integrated as part of this agreement with the Canada Pension Plan. I think most public service pension plans in the Province, in the country in fact, are integrated on a similar basis, whereby when you receive your Canada Pension Plan the pension that you will get from the Teachers' Pension Plan will be reduced on a formula so that it is not completed stacked. To date, the Teachers' Pension Plan has been stacked so that you will get your Teachers' Pension Plan. Also, when the Canada Pension Plan was (inaudible) Canada Pension Plan that that came in 100 per cent on top of your Teachers' Pension Plan income. Now they integrated, similar to the other plans in the Province, like the Public Service Pension Plan, and others across the country.

Contributions by both the teachers and the government were increased by half a percentage point. The other issue is that the Teachers' Ancillary Pension Plan - that is commonly referred to as the thirty-and-out plan - is now combined with the Teachers' Pension Plan, therefore eliminating the need for the Teachers' Ancillary Pension Plan to borrow from the Teachers' Pension Plan. Both of the plans, as I mentioned, are now combined, and the benefits from the Teachers' Ancillary Pension Plan are now forming part of the Teachers' Pension Plan.

All future purchases of services will be actuary-based. In the past the Teachers' Pension Plan had provision whereby there were very generous provisions for the purchase of past service by teachers that were not covered by the cost of purchase. These will be actuary-based such that the benefit they will receive will be fully paid for at the time of purchasing these service periods.

Legislation to enact these measures will be introduced during the fall session of the House of Assembly this year, hopefully, but these provisions have been included in an agreement between the NLTA and the Province. The teachers have already agreed to these measures. Based upon the actuaries' view, right now the measures that I've just reviewed here will extend the life of the Teachers' Pension Plan from 2003 to 2015.

I should say something on this point. Because maybe someone would have concerns like: Why are you only extending it out to 2015? This is a major commitment by the Province and by the teachers to make these changes. I will just point out that the actuary is very conservative in some people's view, in my view, in terms of doing their long-term projections for these plans. Just to give you an example, the actuary uses, on a long-term basis for interest earnings, 8 per cent. Since we have had the current investment program in place, in 1984, the long-term rate of return on the - well, (inaudible) rate of return over that period to date has been just over 12 per cent. We have been earning, for the last fourteen or fifteen years, over 4 per cent greater than what the actuary has bene using. We have what I would call an aggressive investment approach. I would anticipate we will continue to exceed the actuarial assumptions with respect to investment activities in the fund. The extra investment of returns on these funds should extend the life past 2015, but at this stage that is what we are dealing with, the actuaries' assessment to 2015.

I will not take as long on the other plans, Mr. Chairman. As to the Public Service Pension Plan, in 1997 government committed to pay $30 million in 1998, which has been done, in 1999 another $30 million, and then $40 million each year thereafter; I guess the pre-1980 debt. As I mentioned on the Teachers' Pension Plan, prior to 1980 the government had no fund and used the contributions for its own purposes. These funds will go against the pre-1980 debt that the Province has, I guess on an informal basis, in terms of debt at least against the Public Service Pension Plan.

Contributions to the Public Service Pension Plan have been increased by 1 per cent. That has been phased in over four years. We have already had an increase of (inaudible) per cent. In January of 1999 there will be another quarter, and January of 2000 another quarter, and in 2001 another quarter, such that the employers and the employees will have an extra per cent each, so 2 per cent extra going into the plan. That will also help the plan to grow over the number of years that those contributions will be coming in.

Even with what I called a minute ago conservative long-term assessments by the actuary, those measures will extend the life of the Public Service Pension Plan from what was 2019 before, out beyond 2030. Once you get out to that number of years it is very difficult to say whether it is 2030 (inaudible). The actuary said beyond 2030.

The MHA plan, the changes announced in the recent Budget in the House of Assembly, the contribution rate increase brought the contributions up to 8 per cent as of April of 1998 and 9 per cent as of April of 1999. Benefits under the MHA plan will now also be integrated with the Canada Pension Plan, similar to the Public Service Pension Plan and also the Teachers' Pension Plan that I just mentioned a minute ago. To date, the MHA plan has not been integrated. It has been stacked as well.

Some changes in the service accrual rates were made to the MHA plan such that the members will take twenty years to get their maximum pension of 75 per cent, instead of seventeen years that was said in the plan prior to the announcement of these changes.

There are no funds in the plan at this time and, based upon the number of members verses the number of pensioners, it is most unlikely that the fund will ever grow to a point where the contributions will ever exceed the payments out of the fund. So there will always be deficiency payments - or most likely always be deficiency payments - on this plan. In the current year it is about $2.5 million and it will probably grow by about 3 per cent a year.

A similar situation exists on the Uniformed Services Pension Plan which saw some benefits reduced in 1991, so that plan is now very similar to the Public Service Pension Plan. The only difference is the uniformed services members can retire after twenty-five years of service, regardless of age. That is a special provision for them but, of course, they take a reduced pension then because they do not have the number of years in, say for instance, that someone in the Public Service would have.

The employee contribution rate under that plan averages about 7.2 per cent; so, matched by the employer, that is 14.4 per cent. That is an extra contribution of about 3.3 per cent that goes towards the past service liability. The benefit costs are about 11.1 per cent so, like I said, there is over 3 per cent going towards the unfunded liability. There are no assets in that plan. Government makes deficiency payments of about $7.5 million a year, and rates are expected to grow at about 2 per cent per year.

To summarize the status of those plans, on the next sheet, the funded projections: The actuaries expect, with respect to the Public Service Plan, that it will grow in 2015 to about 59 per cent funded, and the teachers will peak at about 34 per cent in 2005 and then start to decline so that by about 2015, as I mentioned earlier, it will start maybe to run out of money - unless the returns continue to exceed the actuaries projections. Uniformed services and MHAs will never get to a point where there will be a fund in the assessment of the actuary based on current indications.

On that point, I will just say how quickly a plan can grow with a few minor changes and that sort of stuff. I think that John or Maureen can correct me if I am wrong. When we really started looking at the Public Service Pension Plan in the late 1980s, very closely, my recollection was that funded ratio in that plan was probably in the 25 per cent to 30 per cent range. Now we are looking already at a funded ratio that is probably in the 45 per cent to 50 per cent range.

It does not take very much in terms of - over a long period, you do not need to put in big chunks of money. If you are prepared to put in money over a period of time, and increase contributions so that you have an extra 1 per cent or 2 per cent going in every year, if you get reasonable returns in the marketplace it does not take long for those plans to pick up and to get into a position where you have some reasonable confidence that in the future there is going to be money there to pay the pensions.

In the case of the MHAs and the uniformed services the amounts involved are not at a level that, I believe, would cause severe financial difficulty for the Province to meet in terms of deficiency payments over the next number of years. I do not really have a very serious concern about the fact that those are not funded. The amounts involved, I think, can be adequately dealt with in terms of the budgetary position of the Province.

I do not know if you wanted me to stop on those or maybe just move on. There are three other sheets here that will address, to some extent, some of the issues that were made in the Auditor General's report. Maybe I will just skip over them if you want to, for a second.

On the reemployment of pensioners, I just stated the government's policy. This is not in legislation, but it is a policy that the government put in place in 1993 where a preference will be given in hiring persons other than those who receive a pension under one of the government's four main plans, unless there are no other persons qualified to fill the position, with exceptions to this policy subject to Cabinet approval.

The Auditor General identified 149 pensioners who would receive payments in 1996. We reviewed each of these pensioners and, just to give you the information as outlined here: three of them were contractual employees, hired for term contracts; fourteen were retired police officers who were hired before the policy was put in place; fourteen were redundancy pensioners, hired before the policy was put in place; five were heart pensioners - that is that special heart pension plan for employees of the Waterford Hospital who retired from the Waterford Hospital and were hired before the policy as student assistants; fifty-three received single payments for exam supervision, EI rebates, retro service and other services. Very minimal amounts were paid to them but still, I guess, I have to admit that maybe those should have been cleared by the government departments with Cabinet. They would have been very small payments, probably less than $1,000 in most cases.

The remaining sixty received multiple payments for exam supervision and substitute teaching pursuant to the NLTA collective agreement, where there is an arrangement between government and the NLTA to hire people back just for exam supervision et cetera.

To be fair, government is reviewing all options on this issue. It has been a very difficult issue for us, as officials, to deal with. I guess they are trying to bring in a policy that is fair to existing employees as well as pensioners out there who, for whatever reason, attempt to take employment again in the public service. There has been no final decision made at this point in time. I would suggest to you that it may be a decision of government to bring some legislation in at some point in time to deal with this issue, a more formalized (inaudible).

On the issue of disability pensions, prior to 1994 we had a system in place in government whereby if someone was looking for a disability pension, they would get their medical evaluation from their own doctor, and sometimes from a specialist. It would be then reviewed by the pension division and sent to a staff physician in the Department of Health for review, and then recommendation back to the department.

There was a lot of weakness in this process, as you can imagine with disabilities, and the evaluation of whether someone is disabled can be very difficult. We recognize that, and we recognize the fact there were a lot of pressures being brought to bear on family doctors and the like by, I am sure, long-term patients of those doctors, et cetera.

We recognize that there were some deficiencies and there were criticisms from a number of sources about the way we dealt with disability pensions, so in 1994 we went out and hired Atlantic Offshore Medical Services. I believe we did a kind of tender on that and Atlantic Offshore Medical Services were hired, as a result of that tender, to adjudicate medical aspects of the applications. So it is an outside, independent, medical operation. All of the medical or disability pension applications now are sent out to Atlantic Offshore, and they come back with an independent recommendation to government and a decision is made.

Since that time, as noted here, disability applications have reduced by almost 40 per cent per year. So people are aware, in the system now, that it is much more difficult and the requirements for disability are much more stringent, and that they do go out to outside medical advisors. It is a much more difficult pension now to access.

We believe that this system of using an outside consultant is largely responsible for the reduction in the applications that are coming forward. Also in that regard, the Atlantic Offshore Medical Services will use occupational therapists and the like to determine whether people are in fact able to return to work, et cetera.

The last item that I will just deal with, and to some extent would like to talk about, is the Teachers' Ancillary Pension Plan. That is the thirty-and-out plan that I mentioned in the Teachers' Pension Plan. There were various particulars raised in the Auditor General's report with respect to the fact that we were borrowing money from the main Teachers' Pension Plan to fund the pensions that were provided under the Teachers' Ancillary Pension Plan because that fund had run out of money a couple of years ago.

I guess we had to make a decision to some extent on whether we were going to stop paying these pensions for teachers who were out there under this plan or to put something in place. We discussed it with the teachers, the Newfoundland and Labrador Teachers' Association, and had an agreement with them to borrow. Of course it was, I admit, in contravention of the legislation which did not provide for that. So in recognition of that we amended the teachers' pension act in 1997, retroactively, to provide for this borrowing. Now the agreement with the teachers this year provides for the two plans to be merged. The legislation that will be coming forward on the Teachers' Pension Plan will have provision in it to merge officially, in legislation, the two plans.

That is my opening statement.

CHAIR: Thank you, Mr. Wall.

MR. WALL: I hope those notes are helpful to you. Like I said at the beginning, I think the progress that has been made on pensions in the last number of years has been quite substantial. Speaking from the Department of Finance's perspective, I deal with the credit rating agencies, each of them every year, and one of the things that has been a problem for the credit rating agencies over the last number of years has been the concern about the various pension plans and the fact that in a short period of time, within five or ten years in some cases, there are going to be very substantial financial requirements from government if they were to meet the pension requirements or the pension amounts that have to be paid to pensioners. The credit rating agencies, in particular, are very receptive to what we have done. Some of these changes that are now being implemented I have been telling the credit rating agencies for a number of years that we were working towards. I think it is a great relief, from my perspective in the Department of Finance and Treasury Board to be able to confirm to credit rating agencies in particular that - and of course to the pensioners, particularly the teacher pensioners who obviously have been very concerned about the fact that their fund is going to run out just after the turn of the century.

CHAIR: Thank you, Mr. Wall.

We have been having hearings all week, Monday, Tuesday, Wednesday, today, and we have some on Monday, and possibly Tuesday of next week. One of the comments I made - I think it was the day before yesterday - when the witnesses gave their opening statement was that it was a pre-emptive strike, nothing like this one.

A lot of the points that you covered in your presentation hit a lot of the points and questions that I had highlighted from the Auditor General's report. I am going to open it up for questions now from the Committee members. If the Auditor General feels she might want to ask a question there along the line, feel free.

Mr. Lush.

MR. LUSH: I wanted to ask a question, Mr. Wall, about the changes made to the Teachers' Pension Plan in terms of it being integrated with the Canada Pension Plan, which says in the statement it is similar to the Public Service Pension Plan. I think you went on to say that it is similar to what is happening in the rest of the country with respect to public pensions. The question I wanted to ask, probably rather naive, is to whose benefit is integration? Is it the employer or the pensioner?

MR. WALL: I think, to some extent, to both. Because as you know, there has not been and there is right now not enough money in the plan to pay for the benefits that are being received. The amount of contributions that the teachers have been paying have not met the cost of the plan. If the cost of the plan, for instance, was - John can help me out if he can tell me (inaudible) what the cost is. Let's say it is 13 per cent. The teachers have been contributing 11 per cent. Probably a per cent or two of that cost related to the fact that the Canada Pension Plan was not integrated with the Teachers' Pension Plan, so that when we integrated it we brought the cost of the plan down from, just for argument's sake, 13 per cent down to 11 per cent, which comes to the amount that they are paying.

So, to some extent it is a benefit to both of them. One, it brings the cost of the plan more in line with the contributions that are being made, so it is a benefit to both the government and the employees who are making the contributions. To some extent, it could be another benefit to the employees because it gives them more confidence that there will be money there when they retire to pay the pensions, and to some extent, from the government's perspective, which would eventually have to meet the shortfalls, the shortfalls will not be there to the same extent as they would have been had they not integrated the plan.

I do not know if that is a roundabout way of getting to your question. It is a benefit to both, to some extent, because both of them contribute. The employees contribute and the employers contribute. If the contributions can be kept down to a lower amount, then both of them can benefit because they do not have to pay as much money in the beginning. The purpose of all this is to ensure that there were no benefits in the plan that were not being paid for. The costs of having a stacked plan are quite high, and similarly with the MHA plan as well. That was a stacked plan to date as well.

On that point, just so I can give you a better feel for where the integration comes from: Actuaries will tell you that when you retire, in order to maintain the same standard of living that you have when you were working you should have a pension or some kind of an annuity or whatever, your RSPs to a certain extent, to be able to pay you about 70 per cent of your income prior to retiring. They say that once you retire you do not have the same expenses et cetera, as when you were working, and that sort of stuff. So if you can get yourself in a situation where you can get 70 per cent of your pre-retirement income, then you should be able to maintain the same standard of living.

For instance, if you work in the public sector and you build up pension credits, traditionally in the government sector the traditional pension you would build up would be about 70 per cent. In the case of the teachers it was mostly 66.66 per cent, close to 70 per cent. When you then receive the Canada Pension Plan, which was in the area of 25 per cent of your benefit, then in the case of a public servant if they were not integrated - for instance, who is getting 70 per cent - you would get 95 per cent of your income. In the case of teachers, you would be getting 25 per cent on top of your 66 per cent. You would be getting 91 per cent.

That was well in excess of what an actuary would suggest to you that you need in terms of post-retirement income. Should we be, as an employer, contributing to a plan that would provide someone with a better standard of living when they retire than they currently have while they are employed? On the other hand, do employees want to be paying out of their own pocket as well costs associated with getting a higher standard of living when they retire than they had when they were working?

I suppose everyone would like to have more money when they retire, but are you prepared to pay for that for thirty-five years in terms of extra contributions to a pension plan, and is the government or the employer prepared to match that? I would say unlikely. A pension plan is set up to try and give you a reasonable standard of living when you retire and not to be provided with excess funds (inaudible).

I believe that if we are going to bring the plan into line with the benefits that are being given under the plan, then I think that is a benefit, the stacking benefit, that I do not think you can justify either to the employer or to the employees in terms of paying for it.

CHAIR: I would just like to interrupt you for one minute. There are two points I would like to make. One is that I don't want to limit the time of your answers, really, but we have a lot of questions here. With answers like that each time we are going to be here quite a long time. With respect to the coffee, I do not know if we will have a coffee break this morning or if anybody just wants to get up and help themselves to a coffee and sit down again, that type of thing. The public also, you can have a cup of coffee if you so chose.

Mr Lush.

MR. LUSH: I want to take him back to the beginning. I think we said it was a benefit because the teachers had paid low rates in the beginning. They were paying low rates and this was a way of balancing, but also they paid maximum rates. Not only teachers, everybody. That is when we paid the maximum rate for the Canada Pension. When you put these two together, it seems to me that the pensioner comes out on the bottom in this. Even though there are two government pension plans, they are two separate plans. One was as a result of employment, the other was a pension plan that is afforded to all Canadians. They paid into it. I am just wondering whether the amount paid in on both pension plans really compensates for the low pension rate that they paid in their regular employment.

MR. WALL: I will just answer that by saying that everybody pays the maximum in the Canada Pension Plan. Contributions to the Canada Pension Plan are based on your income, so teachers did not pay any more than anyone else in this room.

MR. LUSH: No, but they did more than other citizens.

MR. WALL: No, I disagree with that. If someone has an income and it is subject to Canada Pension and they pay a rate, a contributions, and whether you are making $100,000 or $30,000 or $20,000, you are still subject to the same rates under the Canada Pension Plan.

MR. LUSH: I am not making the case for teachers only, I am making the case for all people. I imagine the reason that you gave with respect to low rates also applies to the Public Service Commission and all the others. I imagine they are all of the same, so I am not just making a case for teachers. I am making the case right across the board for all of those people who paid into their Canada Pension, because I find as a representative that this is very hard to justify.

People are asking me this all of the time, why they are having their Canada Pension taken from them, a pension that they have paid into in the same way they paid into their work related pension. I am trying to get clarification on this as to: What are the justifiable reasons for people not receiving their pension? I do not want to stay on it long. You see it as a benefit and they see it as a penalty.

The final question is: Is the stacking really not caused by the fact that we handled the pensions carelessly in the beginning - that is that they were not funded - and this is a way now of helping governments get over this underfunded pension?

MR. BENNETT: You only want a quick answer.

MR. LUSH: A quick answer, yes.

MR. BENNETT: It is probably as convoluted as anything you will ever see, which is the integration factor with the Canada Pension Plan.

The first thing which Bill alluded to is that the integration formula itself is tied to your particular CPP salary and benefit. If an individual is earning $20,000 a year, the integration formula they are going to have to apply will be far less than somebody who is earning $40,000 a year, so it is sensitive.

In most other pension plans in Canada, and the public service included, you cannot look at a clawback of the benefits because the contribution rate itself is also integrated. The individual is paying less throughout his working life because of the fact that he pays less on those amounts which are subject to CPP. Then, at the end of the particular day obviously, we get our own back by a reduction in benefit. The benefit formulas and the contribution formulas are structured in that way.

With the specific issue dealing with the teachers, you are absolutely right. One of the key points that we have always stressed with the NTA over a very long period of negotiation has been the fact that we are not going to saddle the younger teacher with the full brunt - the person getting the full brunt - of everything relating to the miseries of the past.

Back in 1967 and on, there were 3 per cent and 4 per cent contribution rates being paid into the pension fund, even when it started in 1980, or paid by teachers for benefits costing about 13.5 per cent. There were major shortfalls that were not being addressed. It was not being addressed by government and it was not being addressed by teachers.

One of the reasons we did not introduce or even entertain introducing an integrated contribution rate is that the present teacher, who is now going to contribute somewhere around 70 per cent, is making a contribution towards the past service liability. That is a key element in this whole negotiated settlement, including government making special payments and including government also making contributions in excess of what the current benefits are.

Your point is well taken. They look at it as a benefit clawback at the time of retirement, but one of the things they have to look at is that throughout their working life they also had reduced contributions. If you are going to stack benefits, you would then say: Fine, there is the CPP on your right hand and on your left you are paying your provincial pension.

MR. LUSH: Here is the final question, or general one. I am glad to hear you being so optimistic about the pension. I am not so sure that I am as optimistic about it as you.

Knowing very little about actuarial studies and this kind of thing, but just an observation particularly on the projections, the funded projections after changes, you mentioned how quickly one little factor can change the balance. I was looking at - to the years for the projections. For example, for the year 2005 the Public Service Pension Plan will be 56 per cent funded and up to 2015, 58 per cent.

You can use the same analogies for all of the funded pensions there. The best one we have, apparently, is the Public Service Commission which, at 2015, is going to be approximately 60 per cent funded. I am just wondering with these pensions, particularly the public service and the teachers' pensions, that we have had right now large infusions of money from the government for past indebtedness. My understanding is that the formula that we have entered into is going to continue until the government has met its pre-1980 indebtedness. I just forget the formula. We start off now with the teachers, paying $166 million in 1998, the next year $166 million, and then $76 million thereafter; and with the Public Service Commission, $40 million now - the formula for that.

Now, when we remove that contribution by government we certainly have no further obligation, it seems to me, to pay into these pensions. We have met our indebtedness for having spent the money up to that period in time. When that is done, what will be on the picture?

MR. WALL: There is a piece of legislation - John can correct me on this - called the Pension Funding Act under which the government guarantees that it will meet any shortfalls in the public sector plans as they come due. So in the event that these funds, as the uniformed services and the MHA plan, have run out of money in terms of contributions not being sufficient to cover the pensions, then the government, under the Pension Funding Act, has guaranteed that they will meet the shortfalls. The same thing would happen in the case of teachers or the public service plan. That is a different piece of legislation, called the Pension Funding Act, we are talking about.

CHAIR: Sheila.

MS S. OSBORNE: I would like to address the disability pensions. I find it interesting that there has been a reduction in applications by almost 40 per cent. Is that a reduction in people applying because they feel they are disabled, or is that a reduction in folks who have applied and have been deemed disabled?

MR. WALL: It is just a reduction in people who are actually applying. I can only speculate that they are aware that there has been a change made in how they are assessed. Many of these people are not bothering to apply for disability pension because they have talked to their physicians and talked to their unions, et cetera, and probably do not believe they would be successful in their application. I can only speculate on that.

MS S. OSBORNE: I am speaking now because I am somewhat familiar with dealing with people who have applied to Workers' Compensation and have been gruelled. I do not want to sound fiscally irresponsible by saying that we should make it very easy for people who think they may be disabled but I am wondering, have we gone too far the other way? I find a bit of a dichotomy between the third bullet, government hired, and the fifth bullet, the system is impartial.

MR. WALL: I think it is impartial because we have hired someone from outside of government.

MS S. OSBORNE: Okay.

MR. WALL: There had been speculation - speculation - that if you knew the right person then you could arrange to get some pressure brought to bear to get at the disability pension. There is no question about it now. It is out of this outside agency and -

MS S. OSBORNE: How often do you go to tender, or have they been hired permanently?

MR. WALL: Maureen advises me that they were hired for a period of five years.

MS S. OSBORNE: Then you will re-tender?

MS McCARTHY: Absolutely.

MS S. OSBORNE: So who pays Atlantic Offshore Medical Services?

WITNESS: The pension fund.

MS S. OSBORNE: The pension fund pays them?

I still find the impartiality... If they perform well in terms of not so many people deemed to be disabled - you are obviously proud of the fact that the disability applications have been reduced by 40 per cent. I am speaking now on behalf of folks as opposed to on behalf of the bottom line, I suppose. Maybe it does not sound fiscally responsible but in the critic area I deal with a lot of people who are suffering on the job because it is just too hard to apply, and what they have to go through.

I am wondering if word has probably gone through the system: Look, don't bother; they put you through too much. They have to go back into the workplace and see - if you were once something, now you can be deemed to be a taxi dispatcher or something like that. Does that occur?

MR. BENNETT: If I could just get in for a minute, I would like for you to understand what we have done here.

There were two basic problems, and Phil alluded to one. The second one, which is more important to us, is that uninformed, unintelligent - in the medical sense - people were doing final evaluations to recommend to the minister on very complex health problems. We wanted that completely removed. If somebody came in with a mechanical back, I really don't know what a mechanical back is, so I wanted an individual - and we did, obviously, as a department - who was qualified. It is impartial in that sense. We have hired this firm which is a professional adjudication firm in medical related illnesses, and they work for the Hibernia Management Group, they work on sick leave abuse, the EAP programs, et cetera.

They also have a wealth there of a network that they can pull to bear, any particular specialist that they want. The key to the whole thing is it isn't person to doctor, it is doctor to doctor. If you came in for a medical retirement tomorrow, with the medical evidence of a specialist - which would be required if you are going to be permanently disabled -, then my doctor, who is a specialist in a particular area, will talk to your doctor. It takes all that subjectivity out of the evaluation. The recommendation that would go to the minister would have the medical opinion of the people that he has hired to represent the plan. You obviously have your doctor and your specialist to represent you. In that sense it is impartial. It is slightly different than (inaudible) -

MS S. OSBORNE: So the assessment of my personal doctor would be factored in?

MR. BENNETT: Yes.

MS S. OSBORNE: Okay.

MR. BENNETT: What happens is you would fill out a form, your specialist has to fill out a form. It will go to our evaluation team. If yours was psychological then we would have obviously a psychologist or psychiatrist or whatever. We don't even hear about that. The discussions that would go on between those doctors are private and confidential. We would get the statement at the end of the day that would answer two questions: one, the person is incapable of doing their job, which is a criterion that Workers' Compensation does not have, which is not work but they cannot do their job; the second one is, it is likely to be permanent.

MS S. OSBORNE: Are we to assume by this that there was a lot of abuse prior to 1994?

MR. BENNETT: My opinion is there was, yes. It was not abuse in a directed or conscious sense. If you came to me with medical evidence, you bafflegabbed me to death - I would be the first one to admit it, that if I read fifteen reports, all summarized, that you should be retired, I would. In that sense your doctor, who is your agent, could build up a whole series of circumstances that would get it through the earlier system.

MS S. OSBORNE: So both sides are factored in now, my doctor and -

MR. BENNETT: Yes.

MS S. OSBORNE: Okay.

MR. BENNETT: The minister now has an intelligence on which he can base a medical decision that says: Here is what the client is purporting and here is what our advice is. Then we would tell the people exactly why it is not, which is something we have never (inaudible).

MS S. OSBORNE: Thank you.

CHAIR: Mr. Smith, do you have some questions?

MR. SMITH: Thank you, Mr. Chairman.

Again, with the disability issue, that is one area I guess most of us, as MHAs, perhaps do receive calls about from time to time, and are asked to intervene on behalf of constituents. One of the things for example that I've noted in a couple of cases is in terms of the Atlantic Offshore Medical Services. In terms of the response time, one of the things I get complaints from constituents on is about the delays in their being able to be seen by their physicians and the assessment being done. Is that a concern or is that something that is being addressed? These complaints are coming to me, and I am passing them on to people. Is it a concern with the department?

MS McCARTHY: It is a concern in a sense like this. What happens when the application goes to AOMS is then there are consultants to be seen, and there is another assessment to be done. We find that there is not much delay in actually getting the appointment set up, but in a lot of cases it does get sort of bogged down in getting the actual report back from the consultant, or even from the patient's own physician.

In a lot of cases we will get MHAs calling us saying: So-and-so is calling, and their report is delayed. A lot of times the reason why there is not a decision made by Atlantic Offshore is that they are waiting on someone else's report. There are a couple of psychiatrists who are in the network. I guess they are bogged down with work and it just takes a while to get the reports back.

Generally, I know AOMS keeps on top of the specialists to say: Look, we need these reports and so on, as do we. A lot of times we get the employee himself or herself and say: Look, call your doctor. In some cases it is the employee's own physician who will not send reports in on a timely basis or this kind of thing. That is where the delays are. We try and speed things along as much as possible and keep on top of these but there are delays, no question.

MR. SMITH: One of the things that surprised me, when I first got involved with this, is that there are costs inherent in this process to the constituent. One of the things that surprised me is this. If you send a constituent back and say: Get this report from the attending physician, your doctor, generally there is a charge that is assessed upfront that that person has to provide. Even if just to provide a report. I would assume it would be on file.

The thing that also surprised me, I would have assumed, from what little knowledge I do have of our system and the way it functions, that that procedure would have been purchased and paid for at some point in time already. I have been surprised to find out that when this person presents herself or himself to receive the report they are told: There is a fee attached to this. They are expected to pay that fee in order to provide a report.

Sometimes that produces delays. Even if the fee might not be too onerous, I mean a fee of $40 for a report to somebody who is currently on a disability - and maybe at that point in time, in a lot of cases, these are people who find themselves now on social assistance -, that is a lot of money for them to find. Do we have the wherewithal within that this can be addressed?

MS MCCARTHY: We (inaudible) the fees. What a lot of patients will send in is just their initial application from the doctor which the doctor fills out (inaudible). Some doctors charge to fill out that application, others do not. I am not sure what the standard practice is, but that is just the initial form. If there are any other reports to be gotten generally AOMS will request the reports, and the cost will be covered in that regard.

We have not had too many complaints. At least, they have not complained to us about having to pay the initial fee. There is not a consistent approach to filling out the application forms. Some physicians charge, others do not. The employee can seek reimbursement from us, but at least it has not come to light to us that that (inaudible) any problem.

MR. SMITH: I'm just following on with the disability as well. One of the things from the Auditor General's report is this. If I can just reference you to page 6 in the (inaudible) document that we have provided. The first paragraph about midway down through says: "Of the 54 disability pensions, the physician's assessment in 50 cases indicated that the disability was permanent; however, in the other 4 cases the physician indicated that the length of disability was unpredictable."

I am just wondering here in terms of where the disability is unpredictable. I assume that if a disability is determined at that point in time an award is made. What is the mechanism of accountability beyond that? For example, if the length or term of the disability cannot be predetermined is there an ongoing monitoring? Because this seems to suggest that this did not happen in these cases. Again, these particular cases may have preceded this intervention that happened in 1994, but I am just wondering what is the policy. What (inaudible) policy in cases like that, as to terms of an ongoing monitoring of these particular cases?

MR. BENNETT: If I can just quickly fill (inaudible). I think you are going to find that those cases predate the current policy. This is the most difficult part of any administrator's (inaudible). It has been a nightmare in most other jurisdictions. How do you take a person who has been on a pension for ten years, and then ask them to come back and do another evaluation, and then find because major criteria has changed a bit that the person really shouldn't be retired because he can now do his job again, and then say to that person: Your pension is suspended? I do not have a job for you in the system but your pension is suspended.

There is one difficulty. That is sort of one end of the spectrum. What we are doing now in the current situation is this. The doctor and our agent, who is also a doctor, have to both agree that the nature of the particular disability is permanent. For instance, one of the ones we get now is an individual who has had a serious accident or something, and is probably requiring surgery but is a bit reticent to get it, for obvious reasons. That is a big decision. If one of those doctors should say: If the person had surgery then we would look at them, but right now he should have the surgery because he would able to return to work, then we will not grant the particular pension, and we will refuse it on that basis.

In some of those earlier cases where there was maybe an intervention that the person, for whatever reason, was prepared to take, they were being put into pensions. To make this long answer short, we do not do follow-ups on our pensioners now to say: This individual should receive some sort of a statement (inaudible) requested (inaudible) full evaluation. We have not been doing that. What we have been doing is stemming the flow. Everybody who goes into pension now, both doctors and our people have agreed that the nature is permanent. Like you said, we are in a dichotomy one way or the other on that one, because I would not say any MHA would like to see one of his constituents turn around, who have been on pension for five or six years, and suddenly find that cut off for whatever reason. It is very difficult, and we have no easy answers.

MR. SMITH: Just one other thing with regard to staying with the disability again for just a minute. It has been indicated here, since 1994, you feel that we have a much improved system in terms of dealing fairly with the people who feel they do indeed qualify for disability pensions.

I am just wondering, under the present process, after they have gone through all of the procedures and the assessments have been completed, I assume what happens is that this independent group make a recommendation to the minister and I guess that is pretty well - but is there an appeal process beyond that?

MR. BENNETT: He can appeal back to the minister under our existing - there is no appeals board tribunal set up. What now has to happen is, he makes an appeal directly to the minister.

MR. SMITH: So, what would happen in the event that an appeal is made to the minister?

MR. BENNETT: We will do a re-evaluation of that particular individual.

MR. SMITH: So, the same people who did it initially are going to go back and look at it again?

MR. BENNETT: Absolutely.

MR. SMITH: Okay.

Does that seem like a fair system?

MR. BENNETT: Well, it is probably not as fair - it certainly is not perceived to be as fair - as if you had an independent tribunal set up, which is something that the workers' conferences have done, which is then independent again of this particular medical (inaudible).

All we are saying, I guess, in this sense it is far more than just us making, as officials, a determination. At least it goes back through the process again.

MR. WALL: The same thing, I guess, if the minister or any of his officials tell him that another agency would be helpful to assessing the particular position as to (inaudible) to take place, he is not forced to stay with AOMS. The minister can advise us to go to another physician or whatever to get outside advice.

MR. SMITH: The only thing I find strange, having had some experience, as most of us as MHAs do, in dealing with all of the various programs, and certainly the appeals process, most programs do provide for an independent appeal process whereby it seems strange - I have always had difficulty if, in an appeal process, all the appeal involves is for me to tell you: Well, go back and have another look at this. What are you going to do, come back to me and say, `No, I was wrong.' It is highly unlikely that is going to happen, from my experience.

I do see the merit of having an independent review that someone can look at this, coming at it with a fresh approach, just to make sure at the end of the day... I have no difficulty in terms of - I think we all have to be very aware that we are dealing with taxpayers' dollars here and we all want to be vigilant in making sure that the only people who access these pension funds are people who are deserving.

In the meantime, there is another side to this as well and I think we have to be conscious of that. Sometimes when you cast your net in terms of trying to weed out, or draw in people who are abusing the system, from my experience, invariably we do get caught up in that. There are individuals who feel they are being victimized by the system as a result of our efforts to try and tighten things up. In light of that, I just make the observation that I really think it is something that should be considered, the possibility of an independent review; because I go through it all the time with Canada Pension, I deal with it with workers' compensation. That possibility is there. It gives you an opportunity to sit down, and these people can put their case together and come in and make their pitch. At the end of the day, at least we have accorded them that. I just make that observation because I really see this as being a weakness right now in the way the system is set up.

Anyway, Mr. Chairman, I would like to move from that just into one or two observations or comments with regards to the - I was intrigued in looking at the report, the reference to the re-employed pensioners. I can remember some of the discussion we had as elected members in dealing with this. I think in your briefing notes you do make reference to government's policy as of January 20, 1993, that a preference be given in hiring persons other than those in receipt of a pension.

It seems to me that somewhere along the way, since 1993, was there not a court challenge of this? Did not someone challenge this in the courts?

WITNESS: There was a court case involving (inaudible) employee, the Liquor Corporation, I think, a former RCMP officer.

MR. SMITH: Was there ever a determination on that? Is that matter still before the courts, are you aware?

WITNESS: I am not sure. He was an RCMP officer on leave.

WITNESS: He was retired.

WITNESS: He was retired, yes.

MR. SMITH: I was just curious. When this was under discussion, I wondered what had happened there because personally it is something that I agree with. I think that if I reach a stage where, especially in the work that I am doing, in that particular field - I am not saying that people who retire from a particular field shouldn't have the right to go and seek employment elsewhere, but I think there seems to be, to me, something inherently wrong when people who accept a pension - from let's say teaching, for example, they retire as a teacher - I think the fact that you come back and accept employment again at full salary, obviously... I can see if it is a situation where there is nobody else around who can do the job; it is a different case entirely.

I think this particular policy, to my way of thinking, when it was brought in, made a lot of sense. Am I to assume that in terms of the cases that were referenced here - and you have responded to them in your recent documents this morning - the reality today pretty much reflects this policy as it was brought in, in 1993?

MR. WALL: Yes.

I think I alluded, as well, that the government may indeed bring this issue up in some legislation (inaudible) to have this legislated as opposed to a government policy, and to clarify it, because there are a lot of questions that come up. Obviously, you have a couple of court cases on this issue.

To be fair to pensioners - I guess government is concerned that you have pensioners, for instance, who are out there who may be getting a very minimal pension. Some of them may have worked for the government for five years and have built up a 10 per cent pension on maybe a $20,000 salary, so they are getting $2,000 a year. Do you want to exclude them for getting another job?

These are the sorts of things that government is looking at in trying to bring something in that would be fair to people who are looking for work, who are not getting a pension, but also fair to those who are out there who are getting minimal pensions who, to some extent, are almost excluded from getting a government job because of this policy. That is an issue that has come forward.

I believe that the policy will be amended to be more clear in terms of treating both sides more equitably, and may indeed come forward in the form of legislation.

CHAIR: Thank you.

I think someone else may have a few questions.

MR. SMITH: That is it for me.

Thank you, Mr. Chairman.

CHAIR: Anyone else? Anna Thistle.

MS THISTLE: I would like to switch gears a little, if I could. I am kind of interested in knowing the makeup of the investment portfolio of each pension. Could you give me some kind of indication of how each pension fund is invested, and where?

MR. WALL: I would ask John or Maureen to kind of supplement as I go through this.

Investment of the Teachers' Pension Plan and the Public Service Pension Plan assets are done on a combined basis. They are not separated out in terms of investment. They are accounted for, so we know how much of the investment fund relates to the public service and how much relates to the teachers. All the investment takes place on a combined basis so the funds are all added together; so there is a billion and five or something in combined assets.

We have nine or ten individual investment firms - is it nine or ten? I will just mention a few of them: Royal Trust Capital Management Incorporated; Connor, Clarke and Lunn Investment Management Ltd.; Beutel Goodman Incorporated Ltd; Independence Investment Associates; Baillie Gifford Overseas Ltd. You probably are not familiar with these. Some of these are Canadian, but some of them are international investment firms. They each have allocated to them a portion of the pension fund assets. For instance, the Royal Trust administers a fixed income portfolio whereby they invest in bonds and government securities, that sort of stuff. They have about 20 per cent of our portfolio in fixed income securities. Then there is another portion that goes out into large capitalized investments in the equity markets in Canada. We have three firms that do that: Connor, Clarke, and Lunn; Royal Trust has a portion of that as well, and Beutel Goodman. So there are three firms that invest in the stock market in large type investments, the blue chip type large investments, with capitalization. Those firms are generally in the range of $400 million to $500 million and up.

We also have a portion of our funds that are invested into small capitalized stocks in Canada, so those investments are made in firms that are on the TSE but have capitalization less than $400 million or $500 million. Usually the small cap portfolios perform quite differently than the large ones, so there are different types of movements.

We also have funds invested in the United States markets, in the United States equity markets. I am not sure of the percentage, but we have that with Royal Trust.

Can you tell me, was it about 10 per cent of the portfolio?

WITNESS: Yes, it was 10 per cent or so.

MR. WALL: In the United States markets, and there is another approximately 10 per cent split between two other firms that invest in international markets for us, whether it be Latin America, Europe, or Australia and Asia. I think I have covered them all off. I think that is about it.

I can tell you right now, there is absolutely no interference from the pension investment committee, which I chair, or from government on this. They get a fee for investing, and we monitor them on a quarterly basis. We have a firm of international consultants in the pension field, Frank Russell and Associates. They are probably the largest in the country. They monitor these companies for us and advise us on a quarterly basis in terms of their investment activities. We rate them against benchmarks that are set at the time that the funds are allocated to them, and if they don't perform up to the benchmarks over a period of time then they are replaced.

We recently replaced one of the large cap investment firms we had in Canada. We had Griffin Investments out of Montreal since 1984, and we replaced them earlier this year because they had not maintained in the last few years the returns that they indicated they could. We replaced them with the Royal Trust in terms of that portion of the portfolio, which was probably in excess of $100 million that they would have had. They have had good returns since 1994, except in the last few years, and we replaced them. We have replaced several other firms as we have monitored their performance.

That is why, I mentioned earlier, since 1984 we have gotten returns on an average basis, over that period, of over 12 per cent.

MS THISTLE: So you are saying that Frank Russell and Associates were the umbrella group that would advise you as to how much of the portfolio should be in different investments?

MR. WALL: Oh, certainly, they would give us advice. The pension investment committee makes the decision in - it advises or recommends to the minister, decisions on how the funds are to be invested in terms of how much is in stocks, how much is in bonds, and how much is in foreign; but yes, Frank Russell and Associates give us advice on the asset mix arrangements that we have in place. If they believe that the asset mix policy should be changed, then they will advise us.

There is a fairly diverse group of pension investment members, committee members, which I chair, and John and Maureen sit on. There are three or four members from different labour organizations. There is someone there from NAPE, someone from the NLTA, someone from the Allied Health Professionals, someone from the Retired Pensioners' Association, someone from the Government Managers' Association, and several other public servants, someone from the Department of Education, the ADM, the Secretary of Treasury Board and, like I said, John, Maureen, and the investment officer in the Department of Finance.

MS THISTLE: So what you are saying is that everybody who has an interest in these pensions are getting together as a committee and agreeing that this is the right place to invest their pension dollars, in simple terms, is that correct?

MR. BENNETT: If I could interrupt, as you understand, the pension promised to the employees is set by the formula, a percentage of your average salary, which is based on the years of work. So it is 2 per cent times... As far as, like a group RRSP where you, individually, are tracking your own investments, that is not necessary. We don't identify every particular employee and say that amount of money is allocated to that employee. Basically what happens is that there is a pot and it is all supports the total (inaudible) pension promise. That is what really (inaudible).

MS THISTLE: The bond rating agencies that make ratings on this government's performance from time to time, do they take into account where the pension funds are invested? Are they currently (inaudible)?

MR. WALL: Not necessarily returns. They discuss with us the activities in the pension fund. The fact that they have not been fully funded is obviously a detriment to our credit rating, but obviously in the last couple of years there has been an improvement in terms of our funding. They take that into account but they don't look at the individual investments. As a matter of (inaudible) with them, we will provide them with copies of the actuarial reports. We advise them on the rates of return that the fund has been able to achieve over the last number of years, giving some comfort that it is invested properly.

We could be taking funds, for instance, in-house and investing them in-house, or Maureen's staff could be investing them, but I would strongly suggest that we would not be getting the pension returns we are getting from hiring these professionals. Of course, if some of Maureen's staff could do that they would be hired away by the Royal Trust (inaudible) and paid a lot more than we are paying them.

MS THISTLE: Are all of these investments held outside the Province?

MR. WALL: The physical location is in Toronto, I believe, for investments, yes.

MS THISTLE: I'm just wondering now, where there has been quite a rocky road recently with mutual funds, about the predictions that you are making to bring back the health of the pensions, particularly the teachers' pension in the coming years. What has been your experience in the past twenty-four months in actually realizing the return you are predicting?

MR. WALL: In the past twenty-four months there has been a small return on our pension fund, because you are talking about going back to last September. There are quite significant positive returns in the last quarter of 1997 and the first quarter of 1998. Since, I guess, the peaks in the spring, of course, mutual funds and pension funds and anything else that was invested, particularly in the stock market, have seen significant declines in the value of those funds, but in terms of the past year we are up about 1 per cent. We are diversified, we are not 100 per cent stock market or anything. We are into international markets, we are into fixed income. That diversification gives us some shield against major declines in the stock market that may occur from time to time.

We had money in the stock market back in 1987 when you had Black Monday and the market declined quite substantially, and we have money in the markets right now. In fact, the returns that we are getting are starting to come back. We have had positive returns in the last month or two on the funds that we have in the stock market. I am just trying to recall when we had one of our pension managers in a couple of weeks ago. He was indicating, particularly in the United States, that the stock market was back to within 2 per cent of where it was at the beginning of this year, say back in January. In Canada my recollection is - correct me if I am wrong - that the Canadian market at that point was back to within 6 per cent of where it was at the beginning of the year.

Markets are up and down, and particularly on the pension side we are investing for a long period of time. You cannot get too upset over short-term declines. I guess that is the type of advice that anyone would give you if you have mutual funds: Do not panic, the markets over a long period of time will come back and will perform.

As I said, we have gone through ups and downs, and there have been years when the return on the pension fund had been down around 1 per cent or 2 per cent. That is pretty discouraging in that year, but then in the next year we may have had - we have had returns in the last few years that have been up around 24 per cent. Over the period of time since 1984, 12 per cent is a very good return in my opinion, and in the opinion of our consultants.

MS THISTLE: The only part I am looking at is that you are giving your projections five year spacings, and I do not know what the demographic are for people that will be retiring. We have an influx of people retiring in the next five years.

MR. WALL: The actuary does a pretty complex review of existing employees, their age groups and that sort of stuff, and he or she and their formulas work out the normal retirement age for the existing population, and does his assessment on that, does his numbers on that basis: how many people are going to retire next year, how many people are going to retire the following year, based upon the age groups (inaudible). Every individual employee is in his computer program, and that all is factored in.

MS THISTLE: What rate of return are you projecting to achieve on those (inaudible)?

MR. WALL: Those returns are from the actuary. The rate of return that the actuary will be using there, the long-term rate, would be 8 per cent.

MS THISTLE: Eight per cent. Good. I hope (inaudible).

MR. WALL: The answer is conservative. The answer is very conservative.

MS THISTLE: If I do not get what I'm getting on my benefits. I hope you are right.

MR. WALL: Some people, like I say, would be concerned that the actuary is being too conservative in light of our returns, but we have never tried or attempted to influence the actuary to bump up those numbers so that you chose 65 per cent or 70 per cent in twenty years' time. That type of return would mean that amount of difference in terms of - if you get an extra 1 per cent or 2 per cent return over a twenty year period on $1 billion, that is a lot of money. Because you are regenerating money again and getting returns on your extra returns. There has never been any concern about that, and the actuary's numbers as they are coming forward have always been accepted by the government in that regard.

MS THISTLE: Thank you.

CHAIR: Would you like to take a ten-minute break, or do you want to go on through and pick up your coffee at the table if you want? What do you want to do? I am easy.

AN HON. MEMBER: Keep on going.

CHAIR: Keep her going, okay.

Don, do you have any questions?

MR. WHELAN: Mr. Chairman, I had a question there. (Inaudible) touched on it at the very end of (inaudible) period of inquisition. I was just wondering, with regard to the sizable cutbacks and layoffs and the sale of appendages to various departments over the past several years, what type of an affect that will have on the pension plans, and has that particular thing been taken into account by the actuaries? I think you probably answered it (inaudible).

MR. WALL: Maybe I could add a bit more to it to add another bit of conservatism to the numbers the actuary puts forward. The actuary, yes, is aware and he takes account of government layoffs and the like. I should mention as well that the actuary also builds in an amount for a yearly increase in wages which is 3 or 4 per cent, I am not sure. Anyway, it is in that range, it is over 3 per cent I believe. (Inaudible)?

WITNESS: Three per cent.

MR. WALL: Three per cent. So when the actuary does an assessment on future activity in the plan to determine the liability, the actuary, on a conservative basis, builds in a 3 per cent wage increase, for want of a better term, for employees in terms of their numbers. Because that obviously makes a difference when you retire if you get a wage increase of 3 per cent out to 2015. It is quite a much larger salary that you are talking about, and the pension you are going to get is going to be much larger and it will come from the funds. These numbers, on a very conservative basis, build in an 8 per cent interest rate in terms of the return, and also build in a wage increase over that period which is in the 3 per cent range, which is in excess of what we negotiate. That is built into the numbers -

MR. WHELAN: (Inaudible) sort of a built-in contingency fund. (Inaudible).

MR. WALL: Yes, a built-in contingency. Because over the long period of time, looking back, the actuary looks at past practices and that sort of stuff going back twenty or thirty years. Of course, if you go back thirty or forty years or whatever the wage increases probably would have been larger than the 2 per cent we are getting for the next few years, even considering the fact that we have had no wage increases for the 1990 period up to the current year. Prior to that and going back into the 1970s, wage increases would have been much larger.

For the actuary, this is kind of a standard practice. I do not think, for instance, that if you had an actuary doing the accounts and an evaluation of Newfoundland it would be much different than an actuary doing an evaluation in Ontario, British Columbia, or Nova Scotia. They will look at past history and they will look at the parameters that are acceptable within the actuarial industry.

For instance, I know a few years ago, just for an example, when we did the Teachers' Pension Plan a few times, the teachers hired their own actuary to have a look at our actuary work. They came back and said: We cannot quarrel with that, (inaudible) the same view. That was back when the teachers were at odds with the (inaudible) and concerns with the plan and that sort of stuff.

There is not a lot of leeway that they have as actuaries, but they are, as I said, extremely conservative in these numbers. It gives me some reason to be optimistic that we will (inaudible) the numbers they are estimating now. I am not about to suggest to them that they change the numbers.

MR. BENNETT: This is a brief follow-up on that. What you basically do is you come up with an average retirement age of the plan for a long period of time. Your average working life is thirty-five years, and as long as that number remains fixed in the long run essentially you really have no impasse.

Since they are both conservative, the fact that (inaudible) they are saying that it should go like that in retirements, and it goes like this, it is really relevant. It picks itself up. The other thing they do for us is every time they do an actuarial review they also do an experience deficiency or an experience status which shows: Here are our assumptions on the major factors, and this is what has actually happened over the last measurement peak, which is three to four years. We have a chance to monitor. We find out exactly why that is. Then we visit the policy again to see if we should make a change in the assumption. If we make a change, which we did in a couple of cases with the teachers' plan, then we will modify the structures accordingly.

It is not as if you are sort of ducking until ground zero. You have time throughout this piece to make modifications and make changes (inaudible).

MR. WALL: If I could add one more thing with respect to these plans. Government will be reviewing these plans on a regular basis so if, in five years' time, for instance, we looked at the bulk of the plans and they are not performing to their level we were expecting, then government will have to look at whether they are going to change the formula, and maybe increase the contributions even further, or reduce benefits.

If, for instance, we have a five-year period where the stock market and the bond market are falling out of the sky and there are no returns, negative returns, on the portfolio, then we are going to have to revisit that. Of course, we have already revisited our own pension arrangement as well.

CHAIR: I have a few questions now. It is my turn. With respect to your presentation I am going to ask you a few questions I just highlighted. Some of them have been addressed already.

Further to what Don Whalen was saying with respect to your financial status in the public sector pension plans, you have the public service with 23,983 employees, and the pensioners number 8,916. Because you are talking about planning and what have you and you see your humps or whatever or depressions. If government decides to lay off 1,500, 2,000 or 3,000 people, it has to have a pretty quick impact upon the situation. Or am I wrong in that assumption?

MR. WALL: I would think yes, it would. The actuary would have to take that into consideration, because then you are reducing the number of contributors to the plan.

CHAIR: Exactly.

MR. WALL: But it is not like almost dollar for dollar, because also those contributors are not going to be factored in, in terms of getting a pension twenty years or ten years or whatever their age is down the road.

CHAIR: I have a question regarding the Teachers' Pension Plan. You said there is $166 million in 1998 and $166 million in 1999. Is that actual cash into the pension?

MR. BENNETT: The $166 million in 1998 was an act of cash injection to the plan. The way we have stuck to this with the teachers - if anyone has looked at (inaudible) they would see it - is in the event that our borrowing costs outside are higher than 8 per cent, we would put in a 8 per cent bond, because that is what the plan requires in the form of its return. In the event that our borrowing costs outside are less than 8 per cent, then we will most likely (inaudible).

CHAIR: Another bullet under the Teachers' Pension Plan is the Teachers' Ancillary Pension Plan combined with TPP. You have already touched on that. You are saying in your comments further down, I think, that it was a conscious decision to circumvent the legislation, it said.

MR. WALL: We decided to go along with the agreement we had under the collective agreement with the teachers, yes.

CHAIR: The collective agreement outweighed the legislation.

MR. BENNETT: The collective agreement was an article signed under the Teachers' Collective Bargaining Act so, in one sense, we had some statutory authority, but certainly not the statutory authority that (inaudible).

MS McCARTHY: We did amend the Teachers' Pensions Act to allow (inaudible).

CHAIR: Retroactivity, after. Under the Public Service Pension Plan it says that in 1997 the government committed to pay $30 million in 1998, $40 million in 1999, and $40 million each year thereafter.

MR. WALL: It was $30 million in 1999, $40 million (inaudible).

CHAIR: Thirty million dollars, okay, and $40 million.

MR. WALL: There were two $30 million payments and the rest were $40 million.

CHAIR: How long is that going to go on for?

MR. WALL: There is no sunset clause on that at this time. It will go on until such time as the government looks at the plan to determine whether it is still needed, basically. Forty million dollars should maintain the status whereby the fund will not continue to go into a worse situation because of the pre-1980 debt. It carries all the interest on it.

CHAIR: If you have $166 million going into the Teachers' Pension Plan, and $30 million and $40 million going into the Public Service Pension Plan, at around $200 million each year, I am just thinking about the impact it is having on the budget itself.

MR. WALL: The impact it is having on the budget is that right now we have been borrowing that money, and the interest cost associated with that is impacting on the budget. If we borrowed, for instance, or put in - we did put in - $196 million this year into the two pension plans, then the cost of that would be in the 6 per cent range. So 6 per cent of that would be $11.5 million to $12 million (inaudible) interest.

CHAIR: That $166 million or that (inaudible) million, was that in this year's Budget.

MR. WALL: Yes, it was (inaudible) in the budget and it was outlined in the schedule. It showed our borrowing requirements for this year.

MR. BENNETT: (Inaudible) non-budgetary (inaudible).

MR. WALL: The interest cost goes right through the budget. The concept behind that is that government had - (inaudible) and rating agencies have been taking a view that this is a debt of the government. Not necessarily a direct debt, but a contingent liability. I think the concept behind the way the government is dealing with it is we are basically taking it from a contingent liability to a direct liability.

It is a contingent liability because we have that pension funding act that says you have to pay any deficiencies when they come due, but the government is addressing it upfront, saying: This will be the direct liability (inaudible), so we are taking it over as direct liabilities. By borrowing money it goes into the direct debt of the Province in terms of the borrowing, but it takes it off the liability in terms of a contingent liability.

CHAIR: With respect to disability pensions, it says in 1994 the government hired AOMS. What is the government paying for that, or the pension fund paying for that service per year?

MR. WALL: About $60,000 to $80,000 a year, somewhere around that.

MS McCARTHY: Not all of that goes to AOMS. Basically, we pay them a flat fee plus their cost for evaluating the disability pensions. Then there are other costs, including that $60,000 to $80,000: consulting costs, professional fees, like when you have had to send someone to a specialist or an occupational therapist (inaudible). That is included in that $60,000 to $80,000 as well.

CHAIR: Thank you. Again, with the disability pensions, and it was touched upon before with respect to the [technical malfunction].

(Inaudible) increased. My prayer and understanding of that statement you made, Mr. Bennett, is that really there has been nobody dropped from the disability pension since you brought in AOMS to do the follow-ups.

MR. BENNETT: We are talking about the follow-ups...

CHAIR: On disabilities.

MR. BENNETT: No one has been cancelled.

CHAIR: No one has been cancelled, that is the question.

MR. BENNETT: As you know, what we are saying is that before the person goes in the pension there is an elaborate front end (inaudible) evaluation. Once you are in the pension we have not dropped (inaudible).

CHAIR: No, but what I am saying is that the people that were on disability pension before the new policy came into effect -

MR. BENNETT: We have not gone back and we do (inaudible).

MS McCARTHY: (Inaudible) ongoing (inaudible).

CHAIR: You are going to have to bear with me because I have a lot of highlights here and I am going to have to skim each one before I ask the question, because probably a lot of them have been addressed already, especially in your presentation.

On page 3, the second column, second paragraph of the document, the Auditor General's is quoted as saying: "Our review of the general service and teachers' payrolls identified 149 employees who received both a salary and a pension in 1996." Then it goes on to say: "Of the 149 employees only 2 had received Cabinet approval as required by government policy." I think that has been kind of touched on here.

On page 6, the second paragraph in the first column says: "Our review of a sample of 22 pensioners disclosed that 1 pensioner, who was receiving a redundancy pension, was rehired; however, it was almost a year before the Pensions Division was notified and the pension terminated." If that person was working for a year, would there be an overlap in the monies received from the pension and salary? Does the pension group go back after that money, that overpayment type of thing?

WITNESS: (Inaudible).

CHAIR: Why would that be? It is because it was the government pension's fault? I am just curious as to why it would not have been.

MR. BENNETT: Certainly, we have to accept blame as the administrators. The difficulty with this type of stuff is if the individual comes back in a pensionable position. We have in excess of about 300 separate payroll feeds that are entering a system which we require for salary and service information. In addition to that, then, we have a payroll system, consisting of 12,000 or 15,000 members, that pays our pensioners. This just fell through the cracks, because that person who had returned to a pensionable position in his host plan would have his pension suspended automatically, and would then get extra service and extra entitlements depending on when he then retired. I do not know why that is the case. Maureen (inaudible).

MS McCARTHY: No, I do not know.

CHAIR: Maybe we could follow up -

MS MARSHALL: I think Mr. Janes might be able to explain. I think it was somebody in Central Newfoundland and I think they made some sort of inquiry to the Department of Finance. Based on the nature of the inquiry, somebody tweaked to the fact that this person was a pensioner and they were also receiving a salary. It was based on the individual's actual inquiry that it was picked up.

Now we basically run the reports to compare the two.

MR. BENNETT: The key is that they have to be receiving a salary which was a pensionable salary. In other words, they have to return to a pensionable position. An individual could come back as a part-time worker and we would not (inaudible). That could have easily been the case. We are not suggesting that is not the case.

CHAIR: If you look at the next column, basically the last sentence on that page, on the left column, the Auditor General says: "As part of our review, we compared the general service and teachers' payrolls for 1996 to the pension payroll. Our review disclosed that 35 Public Service Plan pensioners were on these payrolls and were paid over $400,000 in salaries. Only 1 of the 35 pensioners was approved by Cabinet."

Is there some problem here that we do not know about with respect to - apparently they should have to be approved by Cabinet before they are hired. Is there some way to resolve that?

MS McCARTHY: I believe the explanation that was given this morning by the finance officials was that a lot of these people were actually hired before the policy came into being. I felt that Cabinet should be at least advised that (inaudible).

CHAIR: Okay.

On page 13, under the Uniformed Services Pension Plan, this has been touched on somewhat. "Members contribute 8.5% of earnings up to the CPP basic exemption, plus 6.7% of the member's salary between the basic exemption and the maximum pensionable earnings as defined under CPP, plus 8.5% of the member's salary in excess of the maximum amount."

I was just comparing the amounts or the percentages compared to the Teachers' Pension Plan and the Public Service Pension Plan. There is a difference there. When these people are on pension, do they get a higher pension than, say, someone in the Teachers' Pension Plan or the Public Service Pension Plan?

MS McCARTHY: The accrual rates are the same. The difference with the uniformed services plan, the big difference, is they can retire after twenty-five years of service, regardless of age, but that has an extra cost associated with it; whereas in the public service plan it is age fifty-five, thirty years.

CHAIR: So you pay what you get?

On page 18, Disability Pensions, we have covered that enough I believe.

On page 25 of the document, the first sentence, Disciplinary Action, "With respect to the Uniformed Services Pension Plan, your Report details four instances where disciplinary action was pending or criminal charges had been laid against an employee during periods when disability pension applications were approved."

Would anybody like to comment on that?

MR. WALL: Reference to the disciplinary action was not included in the Auditor General's Report. This was in an earlier draft of the Auditor General's Report, I believe, and we responded to it and did not take it out of the final response.

This had to do with whether or not someone was eligible for disability pension if they were on suspension. Our position is, the fact that someone is suspended does not mean that their ability to access their benefits under the pension plan provided that - for instance, in this case, the disability pensions were recommended by the appropriate medical officials. That was basically our position. The fact that someone might have been suspended at the time that they applied for and got a disability pension was not an issue for us. They were still eligible for their benefits under the plan. As I said, the Auditor General, I guess, after discussing this with us, I believe, decided not to make an issue of it.

CHAIR: Okay, thank you.

On page 26, second paragraph, I had questions on the first paragraph there but they have been answered. The second paragraph, "Government is also considering its options with respect to improving the financial state of the Teachers' Pension Plan."

I just have a note here. Could you elaborate on that? They are putting in $166 million a year.

WITNESS: This (inaudible) reached an agreement with the NLTA dealing which will be in the legislation.

CHAIR: Okay. So that is the $166 million we are talking about?

WITNESS: Yes. An increase in contributions and the integration with the Canada Pension Plan.

CHAIR: The integration with the Canada Pension Plan, something just popped in my mind when Mr. Lush was on that. Just to have it clear in my head again, we have a stacked and/or integrated. So if I have mine stacked - well, not me but any individual - and say they are going to get $20,000 a year from their working pension, and say $10,000 a year - I don't know if these figures are accurate - but $10,000 from the Canada Pension, $30,000 they would normally receive. If you integrate them, is it possible that they could end up with $28,000 instead of $30,000? Is that the bottom line?

MR. WALL: Twenty-eight thousand or $25,000, or (inaudible), depending upon (inaudible).

CHAIR: That is what I am saying. What Mr. Lush was saying earlier on is that this is to the detriment of the employee. That has to be.

MR. WALL: To some extent, yes, but they have not been paying for that stacked benefit. So they were, up to now, getting a benefit that they had never paid for and the employer had not contributed towards either.

CHAIR: I am missing something.

MR. WALL: It costs more to have a plan with a stacking provision, and they have not been paying into a plan at a rate that covered stacking costs.

CHAIR: In whose opinion would that be?

MR. WALL: In the actuary's opinion. The actuary tells us what the benefits in the plan cost in terms of the contribution. So they tell us that it should be 6 per cent matched, 6 per cent, so 12 per cent for this benefit; and if it includes the stacking then it probably would be 14 per cent. They have only been paying - actually, up to date, for most of the time they have not even been paying the 12 per cent. They have probably been paying about 8 per cent for a 14 per cent benefit.

CHAIR: Wouldn't that again come back to, if there are collective agreements involved and what have you, that if government agreed, or whomever, with a certain group, that -

MR. WALL: Oh, yes. You cannot fault the NLTA or the individuals because they only paid into the plan what they were required to pay.

CHAIR: Exactly.

MR. WALL: Oh yes, exactly. They would not pay in what they should have paid in. They were paying in what they were required to, under the legislation and the collective agreements that were in place.

CHAIR: And they actually agreed, in negotiations, to integrate it?

MR. WALL: Yes, they have signed a collective agreement that includes that.

CHAIR: How did you manage that?

WITNESS: If I could just amplify that a bit, the way that this integration - which to me is a licence for an actuary to make a pot of money, because it's a minor thing but (inaudible).

In 1966, when they introduced the Canada Pension Plan, most plan sponsors at the time said: This is crazy. You are now forcing us to pay - at that particular time - 1.8 per cent of our salaries into this Canada Pension Plan. We are already paying 5 per cent and 6 per cent to fairly generous employee plans. So what the actuary said: Well, here is what we will do. For every dollar that you are contributing towards the pension of a Canada Pension Plan, we will reduce the contributions that you are making to your private plan. So at the end of the day (inaudible) plan, the 6 per center who made it, would end up having to pay out - and all the employees have the same reaction - you will only pay out your standard 6 per cent, but at the end of the day, obviously, we have to get the extra costs back. So we reduce this benefit because the Canada Pension Plan kicks in. That is how we come at it. In the perfect world, the individual who is under a stacked plan should pay for a stacked benefit, which would be the 6 per cent together with his Canada Pension Plan.

Now we have decided to (inaudible) over here in Newfoundland because we said: We have all this historical liability stuff, so therefore let's build in factors towards the past service liability (inaudible), which really clouds the basic issue. I am sorry, Mr. Chairman.

MR. LUSH: So is this conventional within the -

MR. BENNETT: This is standard throughout Canada.

MR. LUSH: - to stack the rate?

MR. BENNETT: No.

MR. LUSH: I was never offered a stacked rate. I would have taken it if I were.

MR. BENNETT: You did. You had the stacked rate.

MR. LUSH: I did? Well, how come you have me integrated?

SOME HON. MEMBERS: (Inaudible).

WITNESSES: (Inaudible).

MR. WALL: It is a standard practice in public service pension plans in Canada that (inaudible) teachers and other (inaudible). I would say you will not find a teachers' pension plan as of now in Canada that is not integrated. You might find if you ferret through every plan that there is in all the provinces - I believe we found one a couple of years ago. It was a special plan out in Alberta, one plan maybe of five or six they had. All the provinces, public servants and teachers, are integrated with the Canada Pension Plan. This is not unique and -

CHAIR: I am not saying it is not unique but in my mind, just because it is standardized and has happened in other areas, does not necessarily mean that we have to do it or whatever.

MR. WALL: It was negotiated in good faith (inaudible).

CHAIR: I am not saying - don't get me wrong. Anna, you have a question?

MS THISTLE: Just one quick one, and I think I know the answer. This new legislation will only affect teachers who are about to retire, will it? It does not affect the existing ones that are retiring?

MR. BENNETT: That is correct.

MS THISTLE: They will still be able to get the second.

MR. BENNETT: As of September, anyone who retires after (inaudible).

MS McCARTHY: The ones who are retired (inaudible).

MS THISTLE: Yes.

CHAIR: Gerald Smith.

MR. SMITH: Yes, just a couple of things that I did not get a chance to pursue with regards, specifically, to the Teachers' Pension Plan. First of all, in the information you have provided us you have indicated there the funded ratios of the different plans. Is there a benchmark? What would be kind of accepted as being a goal of where you would like to be in terms of the funded ratio of each plan?

MR. WALL: The set goal is 100 per cent funded. Most public sector plans - actually all private sector plans in the Province - are required to be fully funded by law.

MR. SMITH: The reason why I ask that is because when I look at what we have done with the Teachers' Pension Plan - and I am somewhat familiar with it, having come in from the teaching field prior to getting into politics - I am absolutely amazed, when I look at the major investment that has been required basically to salvage the plan (inaudible) twelve years. They have extended the plan by twelve years, and it has required a major infusion of dollars. I am just wondering what would it have taken at this level - because really, all we have here is a quick fix. I mean, this is not a solution in terms of this plan.

I would suggest, looking at what is here, that certainly within five or six years we are going to find ourselves in a situation where we are going to have to start addressing this again and looking at it. Mr. Lush alluded earlier to something. One of the things this time around, in terms of the negotiation, was that there was a recognition on the part of government that there had been over a number of years - and that has been alluded to here this morning. We all recognize that the plan was underfunded by both levels, but that is neither here nor there now.

In this round, anyway, government recognized that prior to 1980 they had an obligation of the liability there. This is being recognized now with this infusion of money. I would assume that within the twelve year period, with the advances in our health care system - and I think teachers are going to be living longer just as the population is living longer -, that means the demands on the plans perhaps are going to grow because people are going to collecting longer. Plus the fact we are going to have more teachers retiring. There has been no change to the thirty and out, and that is still in there. How long in your opinion can we go before we have to start looking at this again?

MR. WALL: I think we have to look at it (inaudible) to see what kind of progress we are making. If we are not making the progress that is anticipated then we have to make further adjustments.

I would say just something on one point with respect to the thirty and out, which has been a major drain on the plan. Of course, it is factored into the liability position at this time because now they are joined together, but I do not expect that there will be as many retirements under the thirty and out. Because, as you can imagine, most of the teachers coming into the system now are going through university, probably getting out of university at an age of twenty-five or twenty-six, and by the time they get their thirty worked years in they are going to be in their middle fifties, which will be more consistent with the other plans, as opposed to the current situation where there are quite a number of teachers who started teaching, in some cases, going back thirty years ago when they were in their early twenties and in some cases nineteen and twenty years old. They have worked thirty years by the time they are fifty and they are going out on a thirty-and-out with a full pension at fifty years of age, whereas in the future there will be a much larger group that will be going out at fifty-five anyway, when they could normally go out, and those people will not have the same opportunities to avail of - a thirty-and-out program at age fifty - as the current crop are much younger in terms of when they started in the system.

MR. SMITH: Considering the nature of the plan and the unfunded liability, and the difficulties that we have had with that plan for a number of years, can you explain to me: What is the advantage - and I am happy for people. Under the plan that we recently negotiated with teachers, there is a provision there that allows more teachers to buy out benefits and to get out. Why would it be to the advantage of anyone - the teachers' side or government's side - to facilitate an earlier retirement for people in there, so you have more take-up on the program? Is there an advantage there? Am I missing something? What would the advantage be?

MR. WALL: In terms of the position of the fund, there is no advantage to people going out earlier. They start drawing on the fund much earlier. In terms of the financial position of the pension fund...

MR. SMITH: That was just a matter of negotiation. That was something that teachers wanted, and it was something that we gave.

WITNESS: (Inaudible) leave without pay provision that they wanted.

MR. SMITH: Okay, just one final thing. To have corrected the problems with the teaching plan permanently, what would it have required at this point in time?

MR. WALL: I do not know if you have seen anything from the actuary, but it would be a monumental switch in terms of benefits and contributions. I would be glad to know how to correct it.

MR. BENNETT: The immediate one would have been - you see on the (inaudible) have the unfunded liability. If we could have looked at a billion dollars, $1 billion and one, as an immediate injection, that would be the solution. Obviously we have not done that. We have decided to put in $815 million over thirteen years.

That is the thing about it. There is no question of where we are coming from. We were flat on our stomachs in 1989 when we were looking at this. The trouble with the teachers, if we look at it respectively, was the fact that we waited so long, both of us, not only government. It was also the teachers because they have full discretion on changes to their pension plan.

We should have negotiated - if you want my personal opinion - this back in 1984. That is all great. Now at least what we have done is pushed the deadline up but we have made far less draconian changes. There are still major payments. I do not know about you, but $40 million to me is a large payment to be made by any administration. We could make other changes like that. We have this compounding effect of putting it in so we can invest, and that will change that particular deadline in 2015 to push it out further, but that is all we have done and we (inaudible).

MR. WALL: John alluded to one issue where (inaudible) mentioned before, and that is where we were kind of hampered in our meetings with the NLTA in that under their collective agreement they had veto power over any changes to their pension plan. Whereas with respect to the public service government could, if they wished, unilaterally make changes to the contributions and the benefits. We could not do that under the collective agreement with teachers. Everything had to be negotiated. That is where we had a problem with respect to moving quickly when we knew this problem was coming at us. It took a number of years to get the Teachers' Association to agree to the changes that were made.

MR. SMITH: This will be my final statement, Mr. Chairman. The scary thing with the teacher plan is that now that we are making these changes, our flexibility is getting less and less. The unfortunate thing is that it is the people who are still in the system, young teachers who are coming in, who are now - you alluded to the fact that people like myself, when I was in a profession, was not contributing what I should have been to the plan; but the young people who are coming in there now, those who are there and who will be coming and recruited into teaching in the next number of years, these are the ones that we are going to have to be negotiating with, within the next nine or ten years, trying to salvage this plan. I hope I am not on the other side of table when we start dealing with some of these negotiations.

MS McCARTHY: (Inaudible) get 20 per cent return on your fund.

CHAIR: That would be nice.

Ms Marshall, do you have any comments before we clue up?

MS MARSHALL: No, no comments.

CHAIR: No comments at all?

Okay, I would like to thank the witnesses for coming out this morning. I appreciate your time, your answers, and your original presentation. I thank the Auditor General and her staff, the committee and our staff, for being here this morning. We will be reporting on this hearing early in the new year, I am hoping. Thank you to the public for coming out and listening.

On motion, Committee adjourned.