Monday, May 25, 2009

Talk of Pension Reform in Canada

Today there was coverage about the BC Supplementary Pension Plan in the Globe. Pensions at Meech
More Pensions for All

This will be another issue that has the potential to divert the media and politicians away from the issue of the public sector gold-plated pensions. While I hold some hope in the new supplementary plans, they will be only good if they fund at the same levels for private sector workers as they fund for public sector employees.

Part of the problem is the huge contributions required to fund pensions to the level of the public sector plans. About 30% of payroll is needed. For example, the BC teachers pay about 9% into the plan to get a $41,000 pension. A self employed person pays 9.9% into CPP to get a $10,800 pension. It is the taxpayer who picks up the rest in the public employee plan.

Let's fund both the private and public sector employee plans at the same rates. Why should the taxpayer have to pick up the tab for the gold-plated public employee pension plan?

In the CD Howe report Supplementary Pensions the design of the plan is presented by Ambachtsheer. He is one of the world's foremost pension experts. Another CD Howe report
A Pension in Every Pot discusses the problem of inadequate pensions for most Canadians. This is part of the BC supplementary plan issue.

These supplementary plans will not solve the issue of taxpayer funded public sector plans.

It may be too late to do anything about these public sector pension plans. Statscan estimates the value of BC's infrastructure at $40.9 billion. We have seen the value of the public sector plans in BC Pension Plans well in excess of this amount. This means that in the past 30 years. BC taxpayers have funded more into the gold-plated pension plans that into all of BC's infrastructure. Value of BC's Infrastructure

So part of the problem now becomes where do these pension plans invest their money? As you know they purchase stocks and bonds. The latest bandwagon is Private Public Partnerships PPP's. This becomes dangerous when public employee pension plans own the country's infrastructure. They love to invest best into areas where they have a monopoly and where they can get a high rate of return.

Check out the Ontario Teachers holdings.

They love monopoly investments. For example, the 407 toll road in Ontario. The most expensive in the world. Who pays the costs of traveling on the road? Is it a monopoly? Is the road beneficial for Ontario taxpayers or just the public pension plans that own the highway?

They recently updated their web site but had advertised the beauty of Private Capital is that they can get a 20% to 25% return. Bell Canada was a good example of the type of investments they like.

OTPP Holdings:

* Port facilities - OTPP owns the ports of Vanterm and Deltaport in Vancouver.
* A major portion of Chile's water and sewage systems
* UK airports

It may be worth the cost of the supplementary pans if we can stop funding into public employee pension funds. For example, at Y/E 2007 the OTPP had $110B and the value of Ontario's infrastructure was $ 90B. The OTPP is just one of several Ontario public sector pensions, much like BC.

These pension plans are already larger than the infrastructure of their provinces. They will soon own the infrastructure in most provinces. The plans are controlled by public sector employees. Whose interests will they protect? Those of their pension plan members or those of the taxpayers? The public sector used to be called the public service, but now the servants have become the masters (sounds like the Sting concert I was at last week).

The way I see it these things cannot avoid being a disaster whatever happens. They will by their very nature have to own most of the economic resources of the country. Peter Drucker had been talking about the socialism of pensions since the 1970's. It looks like these prophesies are bound to come true.

Sunday, May 24, 2009

Trouble with BC's Teachers

I recently had a look at pensions in BC. They are all included in a website at BC Pension Corp

They must be scrambling to decide what the message will be on the release of this year's information. They are behind on releasing their annual update as they were released in early April for the past couple of years.

The pension report is fairly comprehensive analysis of the plan and for a public sector pension the 2007 annual report is quite detailed and analytical.
BC Teachers Pension

Here are a few notes from it:

* Taxpayers contributions into the plan were $212M in 1998 and increased to $306M by 2007. A 44% hike
* The number of teachers covered by the plan has been flat since 2003. No new teachers hired. But of course the number of pensioners is rising every year, up 7% last year. In 2003 there were 2.3 working for every retiree and now the number is 1.83
* 34% of the active members are in the ages of 50 to 65. Last year 54% of new retirees were aged 56-59. This means 34% of current active members are likely to be eligible for retirement in the next 5 years.
* In 1999 the plan paid out $335M to 15,800 pensioners for an average value of $21,253. last year they paid out $689M to 25,859 for an average of $26,652.
* In 2007 the eligible retirees at 35 years of service had an average salary of $73,000. The pension they would be eligible for would be $41,000 and the value that was required to fund this pension was $683,000 or 16.6 times the annual pension.
* In addition to the $41,000 pension retirees are eligible at age 60 for CPP. If triggered at age 65 this is another $10,896.
* Total pension income at age 65 would be $41,000+$10,896 or $51,896
* In April 2009 the average working wage in B.C. averaged $ 22.31. This would be an income of roughly $46,400 per year.
* It appears that teachers in B.C retire up to 10 years younger than the private sector and earn more in retirement than the average working person makes.

In 2005 the last valuation showed the pension fund was short $904M. Based on $16.5B in the fund at year end of 2007 it is safe to assume 20% was lost in the plan or $$3.3B. Also they anticipated making a positive 6% return which would have produced another $1B into the plan. This leaves the plan at least $5B short.

The valuation was due at the end of 2008 and the pension plan administrators knows what the results are. Also they are late in filing their annual report. I suspect it is not a pretty story and they want to be very careful how it is sent out to the media.

When the story is released there will be all sorts of spin and manipulation of the numbers. The game this year is to minimize the shortfalls in the plan. They have created a method for averaging the losses over the next 5 years. So a $5B shortfall now becomes a $1B shortfall when "smoothed" over the next 5 years.

In 2008 the Ontario Teachers plan was going hard after extra money from taxpayers. They wanted to show how large the shortfall was to come up with extra funding. So at that time they showed a $12B shortfall. 2008 Shortfall at Ontario Teachers. Then last year they lost $21.5B on the markets. You would suspect that the $12B and $21.5B would be a shortfall of $33.5B. However, spread out over 4 years the loss becomes $2.5B. 2009 loss at Teachers .

The spin doctors can turn this thing any way they want. Part of the problem is that pensions are a complicated issue. The spin doctors have a large personal vested interest along with politicians and other public sector workers in BC.

Sunday, May 10, 2009

Double Dipping

Double dipping is a term referring to the practice of earning a wage at the same time as receiving a pension. New Haven Video

Double Dip Pensions
In order to get a double dip pension it is received at an age younger than the normal retirement of age 65. It must also be from a defined benefit pension. In other words, usually only public sector employees are eligible for the Double Dip. Police and fire fighters are eligible as early as age 50 for pensions and the rest of the public sector at age 55.
Politics plus pensions equals big bucks

Double dipping has come into the news recently as the media and politicians examine the fairness and cost to taxpayers of our public sector pensions. It occurs at all levels of government. Starting at the top, most of us know a retired Member of Parliament who is know holding down another job at the same time collecting their $70,000 a year pension.

An acquaintance of mine recently retired with about a $55,000 a year pension from the RCMP and is now working as a city by-law enforcement officer. He retired and got a 50% raise in salary.

Currently in the Florida legislature there is a bill that would ban double dipping. The bill in Florida focuses on employees who leave their position for 30 days to trigger the pension and then return to the same or a similar job at full pay.

Florida ban on double dipping
End of Double Dipping in Florida
Another example in Florida

In Canada the same thing is happening in the public sector with employees who arrange a leave in order to trigger their CPP (Canada Pension Plan) and then return to the very same position at regular pay.

Other Examples
It always has been popular for teachers in Canada.
Teaching the Double Dip

In a surprise comment by unions in New Brunswick, they cited double dipping as part of the high cost of public sector pensions there. Double Dipping in New Brunswick

Recently a the unfortunate Police Commissioner of Buffalo was in hot water because he did not process his double dipping paperwork properly. Buffalo Police Commissioner

Call for end of double dipping in New Jersey
End it in New York as well
San Diego

This is starting to sound like a Johhny Cash song!

Friday, May 1, 2009

St John City Pension

Please see the complete collection of newslinks about the ST John Pension on the main Blog

See the other blog posts as well.
St John First City in Canada to Make Pension Changes
St John Pension Problems

The precedent fight in the city of St John heated up again this week. It is important because it is the first one in the country to attempt to control the rising cost of public sector employee pensions.

In St John the case is being watched by public sector unions and taxpayers alike. Updates on the current events in the case are covered in the St John Telegraph.

I have included links of interest to the case in the sidebar of the blog.