The provincial government is preparing to make significant changes to the public sector pension plan, and no one should think it means change for the better.
In announcing a new tentative agreement between NAPE and the government this week, Premier Kathy Dunderdale told reporters pensions were the next thing to be tackled.
“We’re going to talk more a little later this week about our pensions and the unfunded liability and approaches we might be taking,” she said. “So stay tuned on that one. We’ll have more to say on that one in the days ahead.”
The “days ahead” turned out to be Thursday, when the premier held a news conference to say they’re definitely working on a plan.
Public sector pensions, those defined plans, are the holy grail of working for the government. Tamper with them at your peril. Still, there is a reality that has to be addressed. A lot of Canada’s pension schemes are in trouble. World financial markets have not provided the returns needed in the last few years to keep most plans solvent, and the provincial government plan is no different.
We often hear about the unfunded liability the government must deal with — well, a big chunk of that unfunded portion is the money needed to keep the pension plan solvent.
So when the premier says they’re looking at “approaches we might be taking,” she is talking about changes to the pension scheme itself.
Just last year, a large group of municipal sector employees discovered their pension plan was being changed. Like provincial civil servants, most of these municipal employees have a defined pension plan, which means a guaranteed monthly payout from retirement to death. Some pensions are indexed and regular increases can be expected; others are not.
Here’s how it used to work.
Most of those municipal employees could expect a monthly pension cheque when they retired, based on their best five years of earnings. But the best-five-years concept is no more. It was eliminated in favour of “career averaging.” I won’t go into detail, but for new municipal employees and those a long time from retirement, it means a reduced pension. Can government employees expect this to be the “approach we might be taking”?
Private sector companies are also dealing with the problems with defined pension plans and the ever-increasing liabilities they seem to bring, especially in a troubled economy. These days, most companies favour defined contribution plans rather then defined benefit pension plans. What that means is that all of your contributions and the government’s contributions go into the market. When you go to retire and cash out, whatever you have, you have, and all ties to the company are cut when you leave. The commitment to paying out pensions for as long as a person lives is gone. I wonder how that kind of plan would be embraced by NAPE and CUPE?
Here’s the big question: can a defined benefit pension plan be sustained for the long term even if more money is invested in it, and are employees willing to put more of their take-home pay in the plan to try and keep it?
Last spring, Canada’s finance ministers met on Prince Edward Island and one of the topics they addressed was pension reform. They agreed a modest increase in the Canada Pension Plan was
warranted, though they rejected CUPE’s suggestion that payments to CPP be doubled.
It all means that pensions are going under the microscope and then the scalpel. Dunderdale said as much in her scrum announcing the new deal with NAPE and at Thursday’s news conference.
NAPE president Carol Furlong has said she was not privy to any government move to fix or change the pension plan.
But you have to give Dunderdale her due. Just when her political numbers are at an all-time low, she goes and opens Pandora’s box.
She says she doesn’t govern based on polls. That must be true.
Randy Simms is a political commentator and broadcaster. He can be reached at email@example.com Twitter: @RandyRsimms