Atlantic Canada has long been a net exporter of workers on the Canadian scene. While the West booms and the Ontario economic engine continues to hum, Atlantic Canada raises and educates its young people only to see them leave to seek opportunity elsewhere in Canada. Newfoundland and Labrador is perhaps most profoundly affected by this phenomenon, where net out-migration has been a constant for the past 30 years or more(peaking in 1997 after the collapse of the cod fishery).
There are indications this trend may be on the decline in some areas of the Atlantic region, but it will continue to be a significant factor in employment and economic planning in this region for the foreseeable future. As more workers retire and the tax base shrinks further, how will employers replenish the workforce? And how will governments pay for increasing demands for public services?
ECONOMIC CONTEXT
The Atlantic economy is heavily resource-based. Industries such as pulp and paper have been hit hard by a number of factors, including escalating energy costs, the strong Canadian dollar and declining demand, leading to several highly publicized business closures and restructurings with devastating economic implications. The regional manufacturing sector has suffered as well, with more than 9,000 jobs lost over the last year. Tourism in the region is also falling short of expectations. High gas prices and a strong Canadian dollar have proven to be barriers to the important American tourists on which the region depends.
The region also has the highest debt to GDP ratios in the country, with Newfoundland and Labrador at a high of 61%. That province’s outlook may be tempered however by the prospect of significant returns on investment that will materialize in the near future.
According to the Atlantic Provinces Economic Council(APEC), following a run of significant investment in the resource sector (primarily offshore and mining interests)over the past several years, investment activity in Atlantic Canada is expected to decline in 2006. APEC reports that for the first time in more than a decade, there is no multibillion dollar mega-project in the works.
There remains cause for optimism however.
In the most recent annual survey of “Best Cities for Business” published by Canadian Business magazine, St. John’s was ranked number one of forty. The top five best cities for business actually included three Atlantic Canadian cities: other than St. John’s, Saint John, New Brunswick and Charlottetown, PEI made the list.
In an effort to stem the flow of workers out of the province and to improve education and skill levels generally, Newfoundland and Labrador has made a solid commitment to post-secondary education. In an era when university tuition is escalating quickly, tuition fees at Memorial University have actually decreased.
There is also a commitment to providing distance education and adult learning opportunities through coordination with the community college network. This is good news for employers who rely on skilled workforces. There has also been considerable growth in the ‘business support services’ sector, notably in the development of call centre jobs. A full 25% of Canadian call centre jobs are located in this region. Call centres have been located throughout Atlantic Canada and are providing significant numbers of jobs in areas with historically high unemployment.
And as the White Rose offshore oil and Voisey’s Bay mining projects ramp up into production(on or ahead of schedule), the prospect for returns on these investments is on the horizon. There is also much speculation and optimism about the opportunities presented by liquefied natural gas, and rising oil and gas prices, which make the prospect of additional offshore exploration and development more attractive. Finally, soaring energy costs may be the catalyst that sparks development of the Lower Churchill hydroelectric project, an estimated $3.3 billion undertaking.
PUBLIC FINANCES
While much of Canada, including the federal government, is enjoying the relative euphoria of budget surpluses, the Atlantic Provinces have historic debt levels and a mixed bag of budget surpluses (New Brunswick)and deficits(modest in Nova Scotia and PEI, but a significant 2.4% of GDP in Newfoundland and Labrador).
PEI has recently embarked on a plan to reduce the size of its civil service as a partial answer to its economic problems. The recent Atlantic Accord between the federal government and the provinces of Newfoundland and Labrador and Nova Scotia will provide a much-needed boost, but doesn’t come close to solving the provinces’ financial woes. To put it in context, at $2 billion, Newfoundland and Labrador’s share is but a modest downpayment on its $12 billion debt.
It’s not all bad news however. According to Statistics Canada data from 2001, Newfoundland and Labrador has the lowest dependency ratio of all Canadian provinces and, in fact, has the highest rate of persons between the age of 15 and 64 of any of the other provinces. The other Atlantic Canadian provinces don’t fare quite as well, but a challenge for all, including Newfoundland and Labrador, will be finding a way to keep their young people employed at home rather than continuing the brain drain of the past decades.
PENSIONS
According to Statistics Canada’s most recent report on pension plans in Canada, three of the four Atlantic provinces have registered pension plan coverage rates above the national average. This may be partly explained by a high concentration of workers in the public sector and also by higher unemployment rates, since coverage rates are based on the proportion of paid workers participating in pension plans.
New Brunswick, Nova Scotia and Newfoundland and Labrador have fairly typical post-reform pension legislation, albeit with their own peculiarities. Each has its own Superintendent of Pensions as a regulatory watchdog. The gap in pension legislation in this region is in Prince Edward Island, which has had its unproclaimed pension standards statute on the books since 1990. There is no expectation that it will be proclaimed any time soon.
As defined benefit plan sponsors have struggled with poor investment returns and declining interest rates, the Atlantic jurisdictions with pension regulatory schemes have responded with various measures intended to provide relief. In New Brunswick, with the consent of the Superintendent of Pensions, the time period for amortizing solvency deficiencies may be extended from five to 15 years(or Dec. 31, 2018 if earlier). In Nova Scotia, which is the only jurisdiction aside from Ontario to include “grow-in”
benefits in its pension laws, the requirement to pre-fund these enhanced early retirement benefits payable on full or partial plan termination was eliminated. The benefits are still payable (if there are sufficient assets after settling basic benefits), but the relief from funding these benefits was welcomed by Nova Scotia plan sponsors.
Click here for the story Textbook Case by Andrea Davis
In Newfoundland and Labrador, as well as in New Brunswick and Nova Scotia, the major provincial public sector pension plans are exempt from the general pension legislation’s funding requirements. Not so for municipalities, universities, schools and hospitals(the so-called “MUSH” sector) that do not participate in the provincial public service plans. The MUSH sector has pressed strongly for further relief or exemption from solvency requirements on the grounds that it is unlikely to wind up and if it did, any deficits may well fall to provincial governments in any case.
Nova Scotia universities have had some success in these efforts, as a regulatory change under Nova Scotia pension legislation increased the amortization period for solvency deficiencies identified in university pension plans before Jan. 1, 2006 to 15 years from the normal period of five years. It remains to be seen whether similar relief will be granted more widely in Nova Scotia and elsewhere in the region.
The implications of New Brunswick’s priority of payment rules on the very public closure of the St. Anne-Nackawic paper mill in New Brunswick and the dramatically underfunded status of its pension arrangements took many by surprise last year, including those employed there. New Brunswick’s pension rules establish classes of priority for payments where a plan terminates with insufficient assets to meet its promises. All benefits in a given class must be paid out before any benefits in the next class are paid at all.
The effect of this regime, in the case of the St. Anne-Nackawic pension plans, was that plan members with long service but who were not yet eligible for an immediate pension(under age 55) were left with nothing to show for their years of pension plan membership. Some general regulatory changes to accommodate a possible solution to this situation were introduced in New Brunswick, but no final solution has been reached. There have also been rumblings about the implementation of a pension benefits guarantee fund in that province but, given the experience of such funds in other jurisdictions, that is likely not the best solution to this problem.
HEALTHCARE
Like the rest of Canada, the Atlantic provinces align their healthcare systems with the requirements of the Canada Health Act. However, Atlantic Canadian employers have not often had to deal with the implications of the withdrawal of public programs (like the changes in Ontario affecting public coverage of chiropractic and similar services)since there has never been equivalent public coverage of such services in this region.
Provincial governments rely on federal transfers based on population for a significant portion of healthcare funding. There have been calls from provincial governments in this region for an adjustment to those transfers to take into account the relatively older populations in Atlantic Canada.
All four provinces have put considerable efforts into designing efficient models for delivery of healthcare resources. Despite these efforts, a recent report indicates that the waiting times to see a specialist and to actually commence treatment in Atlantic Canada are among the longest in the country. The exception is PEI, but that may be a function of its small population size and compact geography.
GROUP BENEFIT DEVELOPMENTS
As virtually all employers consider and implement costsavings strategies to combat escalating price increases, employers in the Atlantic region are forced to become a little more creative. The options of introducing co-pays and employee contributions aren’t new solutions in this part of the country, as they have been standard features of group benefit arrangements here for years.
Click here for the story Grin and Bear It by Andrea Davis
Like many others, Atlantic employers are paying new and increased attention to wellness initiatives. There has been growing interest in some sectors in developing programs to combat problems such as obesity and smokingrelated illnesses, often associated with poor lifestyle choices. There is also an increasing shift toward jointly-managed benefit arrangements, with shared control and responsibility between employers and employees. Some employers are seeking ways to maximize efficiency of their group benefit programs and have implemented strategies to allow their employees to pay for group benefits with pre-tax dollars, for example through flexible benefit arrangements including healthcare spending accounts.
The proportion of the working population of this region employed in the public sector is high in comparison to the rest of the country. These jobs tend to be well compensated and stable, with the attendant pension and benefit arrangements typically found in the public sector. Contrast this with the relatively less generous private sector benefit arrangements in this region, and you may conclude that the rift between public and private sector is likely more pronounced here than anywhere else in this country. Notable in this category is the scarcity of private sector retiree health coverage.
This lack of retiree coverage will become more of an issue the closer we move towards pharmaceutical-based healthcare. Leaving aside benefits available for those below applicable low-income thresholds, Nova Scotia and PEI have public prescription drug programs for their seniors. And in New Brunswick, there is a plan that seniors can purchase, which is identical to the provincial low-income pharmacare plan. Newfoundland and Labrador, however, has nothing in place.
With very few products available in the private marketplace for individual purchase at a reasonable cost, this is a serious gap in practical access to healthcare. The public/private partnering between New Brunswick and its prescription drug coverage provider is perhaps a model those jurisdictions without programs should consider.
The challenges for employers in Atlantic Canada are real, but they are not insurmountable. The hopes for the economic prosperity of the region rest largely on the implications of rising energy costs(increased oil and gas and hydroelectric development), but continuing development in other sectors(such as business support, manufacturing, and tourism)is crucial as well. Atlantic Canadians have much to be proud of and a strong foundation on which to build.
All that and cheap lobster.
Lori Park, Doug Brake, and Kirk Shand are consultants in the Halifax office of Mercer Human Resource Consulting. lori.park@mercer.com, doug.brake@mercer.com, kirk.shand@mercer.com
