The Yukon government has paid out more than $6 million to the Yukon Hospital Corporation’s pension plan over the last two years to abide by federal legislation that it believes shouldn’t apply to the corporation at all.
That money is on top of regular contributions to the pension plan, and doesn’t increase the benefits available to hospital employees.
“It’s somewhat stranded money, I would say,” said Clarke LaPrairie, assistant deputy minister of the finance department. “It could be spent on other things.”
In January, Premier Darrell Pasloski wrote to federal Finance Minister Bill Morneau to ask for an exemption from the federal regulations to prevent the Yukon government from having to pay more into the plan. But he has yet to receive a formal response.
“They are working on it at the speed at which they work in the federal government,” LaPrairie said.
The issue stems from the Pension Benefits Standards Act, a federal law that governs pension plans for cross-jurisdictional industries like airlines, banks, railroads and telecommunications companies. That federal law includes a provision that protects employees if their company goes under. And it’s that provision that’s causing problems in the Yukon.
Most other pension plans in Canada are regulated at the provincial level. But in the three territories, all pension plans are governed by the federal law, including those of the Yukon Hospital Corporation and Yukon College, government-backed institutions that are unlikely to go bankrupt.
“There’s never been a pension devolution, so all the pensions in the North fall under the federal act,” LaPrairie said.
According to the act, pension plans must have enough funding so that all members could be supported for the rest of their lives if the company shut down suddenly and the plan ended.
But because interest rates have been very low since the financial crisis of 2008, the amount required to ensure that support has grown significantly.
That means that pension plans governed by the federal act are currently required to hold much more cash than the amount required simply to cover year-to-year benefits.
In the Yukon, for instance, the hospital corporation pension plan had a surplus of 19 per cent over what was required back in 2014. Yukon College’s pension plan had an 11 per cent surplus.
Despite that, both of those plans still had a solvency deficit, meaning they still didn’t hold enough cash to pay out all the employees if the hospitals or the college were to close. Together, in fact, they fell $39 million short.
LaPrairie explained that in the provinces, hospitals, colleges and other public institutions don’t have to meet such requirements under provincial legislation.
“Pension plans for hospitals and colleges have been exempted from the solvency test, because it’s not likely that a hospital or a college will go bankrupt,” he said.
He argued that the federal law is meant to protect employees of private companies like airlines or railroads, which are much more likely to shut down than government-backed hospitals.
Even the other territories aren’t affected in the same way, because hospital and college workers in the Northwest Territories and Nunavut are government employees and aren’t covered by this law.
LaPrairie said the solvency requirement has been a problem for the hospital corporation and the college since 2005, but it’s gotten much worse since 2008, after interest rates tanked.
For a while, the government was able to rely on a letter of credit to supply the extra money for the pension plans. In fact, that letter of credit is still being used for Yukon College’s pension plan.
But the government has already reached the limit of its letter of credit for the Yukon Hospital Corporation pension plan. In 2014-15, the Department of Health and Social Services had to pay $3 million into the plan, followed by another $3.26 million in 2015-16. It has not yet paid anything this fiscal year, according to a department spokesperson.
And LaPrairie cautioned that Yukon College’s letter of credit will only last so long. “Their day of having to write cheques will come,” he said.
In December 2015, Yukon Hospital Corporation chair Craig Tuton, Yukon College chair Paul Flaherty and Yukon Employees’ Union president Steve Geick signed a letter to Pasloski asking him to raise the issue with the federal government.
“Despite having an affordable normal cost of benefits and surpluses when measured on a going concern basis the plans will continue to require … additional funds each year to cover the solvency deficiencies,” it reads.
In January, Pasloski drafted a letter to Morneau proposing various solutions.
“Contributing significant amounts of public money to plans that are in surplus on a going concern basis that would otherwise be used for service delivery is arguably not the best use of taxpayers’ money,” he wrote.
He asked that post-secondary institutions and hospitals be exempt from the solvency test altogether. Failing that, he suggested that the letter of credit be increased to prevent the government from having to pay out of pocket, or that the federal government accept a guarantee from the territorial government instead of solvency funding.
LaPrairie said the issue isn’t unique to the Yukon. Many private companies are also struggling to meet the solvency test since interest rates have dropped.
“If we get a response, we think it’ll be a national response,” he said.
Contact Maura Forrest at email@example.com