Budget Bulletin: Pension Plan Accounting

The international downturn in financial markets affected the Public Service Superannuation Plan (PSSP) and the Teachers' Pension Plan (TPP) in 2002. While the market downturn had an effect on public and private investments, the province's plans are secure and well managed. The PSSP is regarded as one of the best-funded public service plans in Canada.

There are two methods for valuing pension plan assets -- the fair market value and the smoothed market value. Both are in accordance with generally accepted accounting principles as prescribed by the Public Sector Accounting Board. The government has adopted the smoothed market value method. The smoothing method allows for gains or losses to be taken into the asset value over five years in equal amounts. This is a responsible approach and alleviates the effects of wide market fluctuations that may never be realized in the long term. Smoothing provides more stability in the budget process for pension-related expenses.

While the market downturn will have a short-term impact on pension plans, the accounting for these events recognizes the long-term nature of pension plans.

Total pension-related costs have increased debt-servicing charges by $81 million for 2003-04.

In keeping with the province's accrual accounting policies, the Pension Valuation Adjustment (PVA) credit for 2003-04 is budgeted to be a credit of $13.6 million.

The province's pension plans have significant assets to meet their cash-flow obligations: PSSP has $2.6 billion in assets with an annual pension payout of $152 million; TPP has assets of $3.2 billion with an annual pension payout of $214 million.

NOTE: For further 2003-04 budget information, visit the Department of Finance Web site at www.gov.ns.ca/finance .