Vaughn Hammond’s column in the July 13 Weekend Telegram “St. John’s city council leading by example on pension plans” urges governments to abandon the Defined Benefit (DB) pension plans for their workers and to institute less-secure Defined Contribution plans in their place.
Hammond suggests that our DB pensions are structurally broken and that these plans are fundamentally unfair. We strongly dispute the claims he makes and the flawed solution he proposes.
Our pension laws require DB plans to undergo financial evaluations every few years to ensure that there is enough money being set aside to fund the retirement promises being made. Hammond suggests our plans are structurally broken, yet openly acknowledges that the deficits in these plans only arose “in the last few years.”
This point cannot be stressed enough. The current funding challenges faced by pension plans are not due to some kind of structural flaw in the model itself, but are largely the result of the market crash of 2008.
We should remember that for decades prior to the crash, the problem was not that plans were underfunded, but that there was too much money in pension plans. This meant years and years where employers were able to use plan surpluses to reduce their own pension contributions. We heard little about “unsustainable” pension plans during these decades.
The crash of 2008 and the ensuing recession, however, left pension plans, like all investors, with some financial ground to make up. The law provides timelines for these deficits to be amortized, and the good news is that pension plan health is improving across the country. CUPE has been a reasonable partner in ensuring pension plan sustainability by working out deals with employers across the country.
In all of this, we see no evidence that DB plans are fundamentally broken. It would be shortsighted to permanently abandon an innovative and time-tested model to deal with temporary and surmountable challenges.
Working people have fought to establish and defend the DB pension model for good reason. The risk-pooling mechanisms and economies of scale inherent in these plans mean a high level of retirement security can be achieved at an affordable cost. The pensions paid from our good DB plans are in fact quite modest — an average CUPE member would receive less than $18,000 annually after a 30-year career of work and pension contributions. Many receive much less. The bulk of this pension will be paid from investment returns over the years, with the remaining cost affordably shared between worker and employer contributions.
Abandoning these plans will be costly and painful for individual workers and for our economy. Defined Contribution plans place many unnecessary risks, such as the risk of outliving retirement savings, on individual workers. Study after study shows that Canadians without good workplace pension plans are not saving enough for retirement. Without good DB pension plans, more and more seniors will live in or near poverty. This means bigger taxpayer bills for the public support programs for low-income seniors that are provided by all levels of government.
Pitting public-sector workers against other workers and taxpayers, as Hammond does, is divisive, simplistic and fails to propose a real solution to the perennial problem: how to ensure a decent and secure retirement for all workers. Attacking workers with pension plans is not a solution. Retirement security cannot come by pulling workers down in a race to the bottom.
We would be better served by concentrating on improving the prospects for Canadians without workplace pension plans. This is why CUPE and the labour movement have been campaigning strongly for an expansion of the Canada Pension Plan, which benefits virtually all working Canadians: private sector, public sector, non-union and union workers.
Let’s preserve the aspects of our pension system that are working efficiently and concentrate on expanding the aspects that can bring much-needed retirement security to the 11 million Canadians without workplace pension plans.
CUPE Newfoundland Labrador