Tuesday, February 24, 2009

OMERS Posts results for 2008

OMERS released their much awaited financial results for 2008. As anticipated the markets pummeled the fund and along with it the taxpayer.
The Ontario Municipal Employees Retirement System is the 3rd largest pension fund in Canada. These pension funds have been the largest diversion of taxpayer's money since the secound world war. This money has gone into public sector plans to prepare for the retirement of those society used to call public servants and now refers to as public masters.
On a positive note to the members of the OMERS plan, in a statement from the President and CEO of OMERS "I know that the global financial downturn has raised concerns among some of our OMERS members, especially those approaching retirement as well as retirees who are now relying on their pension income to make ends meet. The first and most important thing I want to do is to assure all members that their pension benefits are secure. They are based on an individual’s years of service and earnings – not on the performance of the stock market."
This statement is designed to comfort the public sector employees that no matter what the markets do in the end the plan is guaranteed by the taxpayers for the promised pension income. Furthermore any enhancements over the years have been determined by the courts to be an unbroachable contract between you (the taxpayer)and the public sector employee for these benefits.
These plans are guaranteed by you the taxpayer to provide a guaranteed stream of income to the public sector employee for the rest of their lives. Generally the income stream to be guaranteed is based on 70% of the last 5 year's income of working salary. Recently several members of OMERS in Ontario increased the income to the last 3 years of working income, congratulations. You have also guaranteed to increase their pension income every year and pass along 60% to a surviving spouse regardless of whether or not they have their own public sector pension.
Thanks for your appreciation to the hard work and service of Canada's public sector. Thanks to you they will have a gold-plated pension plan.
For an excellent analysis of the details of the financial report on the plan please read the Pension Pulse by LEO KOLIVAKIS
I will be watching the progress on the reports of this situation as they are analyzed by the media over the next few days. But in the meantime get back to work we need your tax dollars to fund these things!

Here is a list of Canada's top pension plan - Top Plans PDF.

Monday, February 16, 2009

Prime Minister of UK makes call to scrap Member of Parliament final pay pensions

In a bold move the current Prime Minister of Britain wrote a letter to a parliamentary review board asking them to consider moving the MP gold-plated pension plan to a contributory plan.
This is possibly a first step in the reform of the public sector pension system in the UK.
This article that was sent to me by Julian Rhone is certainly a shocker and will generate a lot of controversy in the coming months.
Critics of the public sector pension system have come to the conclusion that the defined pension system is an unsustainable burden for taxpayers over the long term. The amount of money that needs to be pumped into the system to fund the public sector plans is huge and no longer palatable to most taxpayers. The system in the UK, in my understanding, is a pay as you go system. Whereas in North America some attempt, however feeble, has been made to accumulate pools of money to fund the obligations. Both are unsustainable for taxpayers.
In a shocking comment Brown stated in his letter that "The Government is committed to providing public-service pension schemes that are affordable and sustainable in the long term, consistent with the principle of fairness for all taxpayers and between generations." The comment is shocking because although most taxpayers knowledgeable of these plans feel the same way it is suicide for politicians to actually state this fact.
As reported in The Independent the Prime Minister urged the SSRB chairman, Bill Cockburn, to consider the "full range" of options to reduce the taxpayers' contribution. These would include "increases in the pension age; changes in the provisions for retirement on the grounds of ill health; increases in MPs' contributions; changes in the accrual rate, changes in the maximum level of benefits that can be built up and the merits of defined-contribution structures".
The Independent stated that the heat that politicians are taking from the private sector and taxpayers is painful. For Brown to write a letter like this, it is more painful than the wrath that will be hailed down upon their heads by the public sector unions. This is a good thing. For far too long, in the interests of political expediency, public sector defined benefit pensions have been excluded from debate by legislators around the world.
As I have watched the debate and analysis of public sector pensions move across the globe, there is a trend for major changes to first surface in the UK and the rest of Europe and then proceed to cross the ocean. Let's hope this is a trend that is on it's way to our shores.

Tuesday, February 10, 2009

Pension and Public Sector Reform Gaining Steam

As the financial crisis worsens some public figures are stepping up to reform the system. It may be an impossible task but is essential to economic recovery.

All world citizens are faced with the same challenges in this financial crisis.

The Governor of the State of Rhode Island made a speech that will be instrumental in addressing the problems of the system. Complete Text: State of State Address

"In the midst of all the economic turmoil, tonight Id like to start out with
some uplifting stories.

First, what we need to do to get through this economic downturn. Second, how we better position our state for the future. And third, what we have already done to put in place the building blocks to create a stronger and more competitive.

First, we must strengthen our safety net for our most vulnerable citizens

we must reform our public employee pension and benefit plans so that they are fair and equitable, affordable and sustainable. And third, we must slow the rise of local spending by giving our mayors and town councils the ways and means to control spending and balance their budgets without raising property taxes.

I know that our proposed changes are difficult ones, and I know there are many critics.

But, the only alternative we hear from the special interests and lobbyists is raise taxes, because, they cant get by on less.

We need every department of every city and town to sharpen their pencils, tighten their belts, and be smarter about how they spend the taxpayers money! We need the unions to realize that our cities and towns cannot afford business as usual-they cannot afford the wages, the pensions, the health care, and the work rules that were bargained for. The world has changed dramatically. The cost of defined benefit pension plans and healthcare have spiraled out of control.

These costs are crushing our taxpayers - most of whom dont have such pensions and health benefits. This is not about picking on anyone-rather this is about picking up the burden together, for the sake of our children, our seniors on fixed incomes, and those truly dependent upon us. This is about pulling together to get us through this severe downturn.

Were not alone in this! Connecticut and Massachusetts are facing multi-billion dollar deficits.

California has an unemployment rate of 9+%, and a $45 billion deficit. Governor Schwarzenegger has declared a fiscal state of emergency. They are out of money!

They're postponing tax refunds, college tuition payments and requiring state employees to take 2 unpaid days off each month. We cant let this happen in Rhode Island.

I encourage every public employee union to sit down with the mayors, town managers, the city and town councils, and the school committees to become a part of the solution. Help your communities get through this! Some have already stepped forward and I thank them.

Our immediate challenge in the next few months will be to use the anticipated federal stimulus money wisely and sensibly. We must use the additional funding to bridge the deficit, support tax relief and structural reforms, grow jobs, and grow our economy.

Today, the pressing issue is growing jobs in those sectors of the economy that will bring money and investment to our state.

To illustrate why our state continues to be so vulnerable to economic downturns, I want to share a chart with you! In 1978, Rhode Island had 137,000 jobs in manufacturing which represented 34% of the entire workforce-today we have 46,000 representing under ten percent of the workforce.

I want to repeat that. The state has reduced employment by 25 percent, while the cities and towns have increased employment by 38 percent.

Ladies and gentlemen, thats why your property taxes are so high and keep rising. Thats also why it is so imperative that we find ways to consolidate services, and reduce the burden on our economy and our taxpayers. Government services consume our economy's resources --- they don't create them!

The competition, among states and countries for companies and jobs is intense. There are many factors that go into a company's decision about site selection-available workforce, energy costs, site readiness, over-all business climate, and, yes, taxes. We have been working hard on the first four - but now we need to make significant changes in our tax competitiveness.

Im tired of people writing stories about R.I. being tax hell, or ranked near the bottom in business tax competitiveness. We need to reverse the trend on that chart with bold, business friendly tax reforms.

I am firmly convinced that if we dramatically change our tax structure, our economy will produce jobs! What Rhode Island needs now is more taxpayers; not more taxes. This will only come from a tax policy that says to our business community, stay here and grow your business, and by the way, tell all of your out-of-state business friends that R.I. is a great place to do business. I want to send a loud signal that - R.I. is open for Business!!!!"

It will be a challenge indeed for all political leaders. Many cannot rise to the challenge but my hope is that those who do will be an example for others.

The Biggest Economic Issue for 2009 will be Pensions

As the world starts to understand the implications of the biggest economic melt-down ever, pensions are emerging as a major economic issue.

We have seen the headlines over the past few weeks as media in Europe and North America look at and examine the impact of the current economic situation on public sector pensions. Billions of dollars have been lost. Taxpayers will have to replace the lost money into these pension funds and at the same time are suffering major meltdowns in their own retirement portfolios.

The weight of the public sector pension upon the back of the taxpayer is unsustainable. There is rising anger in the private sector over the cost of public sector pensions and resentment that taxpayers are having to fund the gold-plated public sector pensions.

Recently the Las Vegas Chamber of Commerce examined government spending in Nevada. As a result of several reports on the efficiency of government spending they released an initiative of Legislative Reform Issues

The top 3 reform issues addressed the fairness of the public sector compensation package.

1) Reform the Public Employees' Retirement System (pensions)- Nevada pays retirement benefits of 75 percent of a retiring employee's three highest consecutive years' salary.

2) Reform the Public Employees' Benefits Program - Unless action is taken to significantly redesign, reduce or eliminate the state's health insurance subsidy program, or to devise a viable pre-funding mechanism, the estimated $4.0 billion unfunded liability is expected to grow as the state's workforce increases, retired workers live longer and medical costs rise over time.

3) Bring local and state government employees' wages more in line with those of the private-sector. - On average, a Nevada public sector employee is paid roughly 28 percent more than a private sector employee

These are serious issues that need to be addressed. In a buoyant hyper-active economy, like we have seen over the past 30 years, these excesses could be funded by governments. Now government at all levels can no longer afford these extravagant compensation packages.

Tuesday, February 3, 2009

St John First City in Canada to Make Pension Changes

In St John there has been a pension battle brewing for the past several years.

As can be expected the battle has been brutal as the public sector workers fight to retain their gold-plated benefits. Benefits enjoyed for life and paid for by tax payers.

I have watched with interest the past few months as the discussions have continued in City Hall about the changes that will be required. The changes on the table would go a small ways to helping to solve some of the pension problems. It will be interesting to see how many of them actually are in the final proposal.

Some of the suggestions include:

* Eliminate the rule that allows employees to retire without penalty when they have 85 combined years of service and age, the so-called Rule of 85.
Note: I don't know what the rule is replaced with. It should be eligibility at age 65.

* Remove disability benefits from the pension plan.
Note: It was ridiculous they were included in the first place

* Change the way the city calculates pension payments to retired employees; instead of an average of earnings over three years, payments would be an average of earnings over 10 years.
Note: This is a start but still will result in gold-plated pensions. Just not as much gold plate.

* Change the annual increase of pension payments retirees receive to one per cent from two per cent.
Note: This is a necessary change.

It will be very interesting indeed. The newspaper article notes that several of the councillors are retired public sector workers on guaranteed pensions themselves. Let's hope the taxpayer will have a chance on this one.