Understanding Public Service Pensions
There have been several articles and news reports released recently relating to the operating costs of the Public Service Pensions Board (PSPB). The most recent article printed in the Caymanian Compass on 24 March, 2010 entitled "Gov't pensions cost more", attempted to compare the PSPB to local private pension plans, specifically the Silver Thatch and Chamber of Commerce (Chamber) plans. This article, and others printed prior to it, has brought several important topics to the forefront. The PSPB would like to take this opportunity to address these topics and, to clarify misconceptions that exist in the media and amongst the public.
Administrative Complexities
A common misunderstanding is that the PSPB can easily be compared to other pension plans on the island. This idea seems straightforward but is actually quite complicated. One key reason is that the PSPB oversees the administration of both defined benefit (DB) and defined contribution (DC) systems, while Chamber and Silver Thatch exclusively manage DC plans. In addition, the organization is also responsible for the uniquely separate Parliamentarian and Judicial plans as well as the Government’s ExGratia scheme. The administration of the various plans is quite a task once all relevant components are accounted for.
Another misconception relates to the extent of effort required to administer the three plans. The PSPB’s administrative functions are more comprehensive than those of the Silver Thatch and Chamber plans, due largely to the active role played in legislative reviews, oversight and plan strategy. As a result, the plan absorbs fund actuarial, legal and consultancy expenses as well as employment costs for specialized staff.
The ratio of actives to pensioners is another important factor when contemplating administrative costs. Retired participants require ongoing monthly payments and administrative services including health benefit eligibility determination and enrollment. Currently, the PSPB administers benefits for approximately 1,250 pensioners.
An important, but frequently overlooked fact is that the PSPB office, established in 1999, administers benefits accruing since 1 January 1940 - as per the Public Service Pensions Law. This requires the verification of historical employment information which is often a laborious and time consuming process.
Over the years, extensive legislative reforms have occurred in an effort to reduce Government’s pension liabilities. One change introduced to contain the growing Government liability was the closure of the DB plan and introduction of the DC plan in 1999. The administration of both introduces inherent complexities.
Understanding these facts is crucial to developing a comprehensive view of the PSPB’s pension administration. The bottom line however, is that the public sector DB and hybrid DC pension plans do not fit neatly into the DC cash balance framework. It is therefore nearly impossible to arrive at a meaningful comparison.
Transparency
With respect to its financial reporting, concerns that the PSPB has deleted financial statements from an online file are unfounded, as the only electronic financial information exists in annual reports which continue to be maintained on the organization’s website. The PSPB does admit to being backlogged with respect to its reporting and has made significant progress. Working tirelessly to rectify this situation - completing nine financial statement audits and six annual reports in the last 7 years - the PSPB is now poised to be current and compliant by December 2010. Despite this reporting backlog, information regarding performance figures, specifically current rates of return, have always been included in the annual benefit statements and are now published in the recently established newsletter.
The PSPB takes its fiduciary responsibility to participants and pensioners seriously and is currently undertaking its tri-annual organizational review, a testament to the organization’s commitment to continued improvement. The PSPB appreciates the public’s concern, and will continue to work with the Government to ensure that public service pensions are administered and regulated as efficiently as possible, while maintaining quality and being compliant with the respective laws and good governance practices.