Record bonus payments at Vestcor and lingering questions about the organization’s record of below-average investment returns have led the New Brunswick Liberals to renew their call for the Office of the Auditor General to be authorized to audit the organization.
“Although Vestcor is not a Crown corporation, it is responsible for managing the New Brunswick government employees pension fund and therefore must be held accountable,” said Rob McKee, Liberal Critic. of Finance and Treasury Board, in a press release on Monday.
The MPP for Moncton Center reacted to the news. Vestcor created a new incentive plan for its employees in 2021, but without completely canceling the plan it replaces. Instead, the two operated simultaneously in 2021, rewarding employees for the same accomplishments twice in many cases.
The new incentive program was fully functional in 2021, and employees earned $5.9 million in bonuses from its operation.
Bonus of two programs
This was a new bonus record for Vestcor alone, but employees then received an additional $2.7 million from the old incentive program which remains partially operational until 2023.
“The exorbitant amounts of bonuses awarded to senior employees are a key reason why the Auditor General should have the power to review Vestcor’s operations,” McKee’s statement said.
“As most of their job is to manage the pensions of New Brunswick government employees, they are responsible for managing a large amount of taxpayer money, which makes transparency and accountability all the more important. “
Vestcor is headquartered in Fredericton and was created in the 1990s to manage what has become $21 billion in pension funds and other funds for New Brunswick government employees, including approximately $900 million in funds NB Power nuclear waste and decommissioning.
It was originally a Crown agency, but was reconfigured, renamed and gained independence in 2016.
It is now jointly owned by the province’s two largest public pension plans serving New Brunswick public servants and teachers.
Although Vestcor is not government-owned, two New Brunswick auditors general have argued that “the significant amount of funds from public sources that Vestcor manages” and its “extensive customer base of government entities” make its operations a concern of public interest.
Most bonuses paid to Vestcor employees in 2021 were generated by returns on investment that exceeded Vestcor’s own internal targets, but were otherwise below industry averages, by at least one metric.
According to Vestcor’s annual reports, revenue from the funds it manages totaled $5.5 billion over the past four years, from 2018 to 2021.
The amount exceeded the organization’s benchmark investment targets for the periods by $652 million after covering the organization’s expenses. That includes $452 million in returns above Vestcor’s benchmarks in 2021 alone.
This is the source of most bonuses – the difference between Vestcor’s 2021 return on investment of 9.46% and its overall 2021 target of 7.23%.
“Investment returns against our clients’ investment policy benchmarks reached an all-time high due to the strong active management performance of each of our four investment teams,” Vestcor’s annual report said.
But according to data compiled by LifeWorks, a Canadian pension and benefits administrator that monitors the performance of pension plan managers and which Vestcor has used for comparison purposes in the past, an investment return of 9.46% in 2021 would rank it in the bottom five percent among pension plan managers with diversified mutual funds.
The median fund return for the year, according to LifeWorks, was 13.83%.
It’s a similar story for Vestcor’s 7.5% four-year annualized return. It is also well above its own benchmark target of 6.52% in those years, but below the 8.8% that LifeWorks calculates as the median return for diversified pension funds.
Every one percent difference in investment returns is worth about $200 million a year to Vestcor’s holdings.
In February 2021, then-Auditor General of New Brunswick Kim Adair, formerly Adair-MacPherson, told MPs that her office had an interest in reviewing Vestcor’s investment objectives and benchmarks to assess the difficulty of exceed them.
“There’s a lot of content in their annual report about benchmarks and achieving benchmarks and other goals,” Adair said.
“These are the areas if we had the ability to do performance audits, we would look at whether the benchmarks are, for example, stretch goals or are they easy to achieve.”
Adair expressed concern about escalating bonus payouts at Vestcor without, in her view, an independent measure of whether the returns achieved justify the payouts or are as strong as Vestcor claims by industry standards. .
“Are they adding the value they indicate in their public statements? ” she asked.
“Essentially, there is no independent, third-party assessment on this, and they manage significant New Brunswick public sector funds.”
Vestcor Chairman John Sinclair has regularly defended the organization’s balance sheet which shows revenues below industry averages. He said it’s a by-product of a conservative, low-risk investment strategy needed to manage the province’s shared risk pension plans which will show their true value when the markets rise. will collapse.
Vestcor says its costs are lower
He also argues that costs at Vestcor are significantly lower than other pension management companies, which partly offsets the revenue shortfalls.
“The idea has been to provide that protection for our members,” Sinclair told MPs last September. “Our pension plans should do better in weaker market environments. But to be able to do that, they probably won’t do as well in stronger market environments.”
New Brunswick Liberals say they would like to see all of these issues assessed by the Auditor General’s Office, but in an email Monday, the Department of Finance said that would not happen.
“Vestcor is not an agent of the Crown and was created to operate independently of government,” wrote Erika Jutras, director of communications for the department.
“There are no plans to change the legislation.”