Friday, August 28, 2009

B.C. throne speech signals public sector instability

It is always interesting to watch the press releases from one of Canada's major unions, the NUPGE. Despite the current economic times they steadfastly refuse to sacrifice for the economic well being of Canada.

The most recent comment from the NUPGE (National Union of Public and General Employees) is called B.C. throne speech signals public sector instability. It is a very well thought out article trying to address some major issues in Canada today.

The union wants to support a wide range of public initiatives:
in legal aid, libraries, literacy programs, student aid, housing, seniors' services and mental health and addictions services.
Despite the rhetoric for its support of these initiatives, the union refuse to offer any productive solutions. They are trying to incite fear that these programs will be cut because of a public sector wage freeze.

The simple solution would be to compensate the unions at the same level as the taxpayers in the private sector. The total compensation package of the public sector includes wages, benefits, and pensions. Public servants in Canada are paid up to 40% more than the same private sector worker.

For most MUSH organizations, municipalities, universities, schools and hospitals the single largest expense is for the compensation package of union employees. At most municipalities it is in the range of 50% of revenue and rises over 75% for most school boards. Hospitals and Universities fall somewhere in between.

By moving the public sector pensions and compensation to the same level as those in the private BC could save billions in its budget costs. Today PricewaterhouseCoopers calculated the public sector pension to be valued at 35% of wages. Public sector pensions in the UK. Canada and the US are paid at roughly the same level. They are defined benefit plans based on achieving 70% of final salary.

A complete report of the premium paid to workers in the private sector was published by the CFIB (Canadian Federation of Independent Business). It is in a PDF report called Wage Watch.

The goals and ideals of NUPGE seem right on target. However, their appearance is that of only wanting to protect the gold-plated benefits and platinum pensions of their members. All of course funded by the taxpayer.

Excellent BBC coverage of the Pension Crisis
Pensions in the UK Canada and the US are based on the same type of pension plan design. Defined benefit plans attempting to pay retirees at least 70% of their final salary at retirement.

Monday, August 17, 2009

There are a few groups that are fighting for taxpayers to make sure that government stay accountable to the taxpayer.

One of the groups that I respect is the Canadian Taxpayers Federation. Occasionally they bring an interesting pension situation to my attention.

A pension they brought to my attention is the Saskatchewan Healthcare Employees Pension Plan or SHEPP. It is a a typical mid sized pension plan in Canada. Funded by taxpayers for the benefit of public sector employees.

It is the kind of plan all Canadians would like to have.
Pension Envy

A total of 65 healthcare employers in Saskatchewan participate in SHEPP on behalf of their employees.

The plan serves 43,729 members. Of these 32,287 are in active service and 10,018 are retired and the remainder have a deferred pension

Total assets in the plan at the end of 2008 were just under $2.5 Billion

Total contributions into the plan 2008 were $163 million.
Last year the employees contributed $75.514 M while the employers contributed $84.464 M or 112% of the employee contribution

There was $117 million in total benefits paid out in 2008

The plan lost 19.8% on its investment portfolio last year.

The total plan assets fell by $562 million in 2008

The employee contributions into the plan are 5.85% of earnings up to the YMPE ($46,300) and the contributions on income over YMPE are 7.53%

The employer (taxpayer) contributions are set at 112% of employee contributions or 6.55%

A total of 65 public healthcare employers mainly hospitals in Saskatchewan participate in SHEPP on behalf of their employees.

Like most of these pension plans there is no representation from the taxpayers who fund them. They have a list of trustees who are “employer” and “employee” representatives. However, even the employer representatives appear to be members of the pension plan.

When difficulties arise with these plans the funding problems are usually discussed with the government behind closed doors. The government does not like to create friction with its largest voter block. Pensions usually get what they want from the politicians negotiating with your money.

There needs to be taxpayer watchdogs on the boards of these pension plans. They are funded by taxpayers and taxpayers have to kick in any pension shortfalls.

The average wage in the health care sector in Saskatchewan is $46,742 per year. The average pension from SHEPP is based on a 2% per year with maximum pension at 35 years. This means a benefit of close to 70% of retiring income or $32,719 including CPP.

Of this pension of $32,719 the CPP would contribute $10,905 and the pension plan contributes about $ 21,814.

The big question is …
An private sector employee pays 4.95% of annual income into the CPP plan to get $10,905 per year in pension income.

The public sector employee in SHEPP pays 5.58% to get $21,814. How can the public sector employee pay in the same and receive twice as much in taxpayer funded pension?

Canada is addressing pension reform at all levels of government. Fairness between the public sector and public sector pensions is one the key issues that needs to be addressed.

Tuesday, August 11, 2009

Union Dust up!

Unions have taken advantage of poor economic times to strong arm governments into luxurious settlements. It is a strategy that may have been misdirected. Especially as we are just around the corner from a major pension war.

Recently the NUPGE The National Union of PUBLIC and General Workers published an article complaining about the treatment of unions in Canada's media.
"Over the past couple of months, it’s been one offensive, union-bashing column or editorial after another,"

"Perhaps I missed something while taking some time off with family earlier this summer. How did 800,000 hard-working unionists in this province suddenly become such a drag on the economy?"
"Nor are they keen to publish stories on the successful negotiation of new and improved collective agreements for some 90,000 public sector workers in OPSEU over the past 12 months - without one strike.

NUPGE may be right about the press coverage that they have been receiving but they misunderstand the reasons for it.

The Toronto Star reported on unions in an article called Myths and reality of the union movement. The article cited a few myths that the unions live by.
unions do not represent the entire working world. They are only interested in defending the wages and benefits of their members, most of the time at the expense of other, non-unionized, workers.
even though they may claim to support the interests of children, students or patients, in reality there always is a demand for better wages or benefits behind almost every dispute.
they live in isolation. Most of the time, their demands are made with no consideration for the conditions of other workers in the same country, not to mention the reality in other parts of the world.

The unions cannot understand the anger that is directed at them?

The unions are the ones who began the battle and it will be them that have to end the battle. Even those who are sympathetic to the unions and understand them think they have gone overboard. One of these articles includes the Globe and Mail editorial called Get down to the strike 'essentials'

In reality the fight is public sector unions against the taxpayer. I wrote about this last month in my Canada's Public Sector Unions at War with Canadian Taxpayers

Sunday, August 9, 2009

California Pension Dust Up!

Last week I wrote Pension Reform In California about pensions reform in California. What happens in California will have an impact on pensions across North America.

On Thursday in the Los Angeles Times there was an article called Why did Schwarzenegger bail on pension reform? The article speaks about Schwarzenegger backing out of a commitment he made to reforming pensions in California.

In the LA Times article, two advocates for pension reform address the issue. The first is an analyst with American Federation of State, County and Municipal Employees. The secound perspective is countered by the head of California Foundation for Fiscal Responsibility. The article makes for interesting reading.

On Friday there was a follow-up article called CalPERS: a looming disaster? This article once again features the perspective on the two sides in the previous article. It addresses the huge shortfalls of Calpers, the largest California public sector pension fund.

Almost all public sector employees defined benefit pensions are suffering serious shortfalls and are perceived to be overly generous.

The articles together do a good job of describing in a comprehensive way the main issues surrounding pension reform. Pensions reform is coming to North America and the battle is on to see what it will look like in its final form.

One interesting note to keep in mind when you read these articles is that Calpers covers 1.6 million members and has accumulated $191Billion. In Ontario the biggest pension plan is Ontario Teachers and at the end of last year they had over $110 Billion but only had 284,000 members. Calculate the average amount of assets per member for each plan. You will see how generous Ontario taxpayers have been funding public sector pensions.

Dig deep and keep working there is lots more to pay!

Thursday, August 6, 2009

Canada promotes double dipping when most governments are eliminating it!

As the slogan for Red Rose tea says... Only in Canada Eh!

Jonathan Chevreau of the Wealthy Boomer and the National Post recently created a video that described how the Canadian government promoted double-dipping to Canadian public sector employees. Phased retirement video

This is a scheme that was hatched in the federal budget in 2007. There was not much discussion about the deal at the time. With the new environment in pensions it has highlighted the huge gap between public sector pensions and the average Canadian retiree. The idea was originally designed to help companies deal with labor shortages. Of course the bureaucrats who wrote it made sure that there was something in it for themselves. Phased retirement article

It was an issue that I had written about before in a previous article Double-Dipping. Imagine getting your gold-plated pension at age 50 and then government telling you they want to have you back at your old job... at full pay. With the elimination of mandatory retirement we will see public sector employees eligible for 2 gold-plated pensions.

I have been advocating for pensions disclosure similar to the Sunshine List in Ontario and B.C. There is one in California that lists those pensioners earning over $100,000 per year. We need one in Canada to list those who have excessive pensions in Canada. They were after all negotiated between them and the taxpayer. the only problem was that during the negotiations the taxpayers had no-one to represent them.

Most government in North America are looking for ways to eliminate double-dipping and Canada wants to promote it.
In Arkansas - State legislator puts spotlight on ‘double dipping’ county officials
Ohio needs to rein in double-dipping by public officials
Double Dipping in Florida
Upset in Delaware about double-dipping

Monday, August 3, 2009

Pension Reform in California

California has always been a bell weather state for most trends that travel across North America.

The pension crisis is a new trend where California has become the leader. California is the largest state and its pension funds are the biggest in the country. The population in California population is larger than Canada.

The public sector pensions in California are melting down and it has become a crisis. The Governor is needing to look at changes to the system as he is faced with a $63 Billion unfunded liability. It is a challenge all governments in Canada and the US are watching.

Several groups have begun lobbying against what are overly generous and unsustainable pensions for the public sector. One of those groups is the California Foundation for Fiscal Responsibility. Here is an excellent radio interview with the President.

Part of the problem with the pension crisis is that the pensions paid to the public sector over shadow those paid in the private sector. Thousands of retirees have annual pension income in excess of $100,000 per year. The gap between compensation paid to the public sector and private sector has widened dramatically. One group has focused on both these issues,

In California some of the fuel to the fire has been the release of the actual earnings of pensioners. Canada faces the same challenges as California. Many pensions paid in Canada are excessive. One pension identified in BC is paid in excess of $270,000 per year. The disclosure of pension income is needed in Canada as well.

All governments across North America are watching with anticipation the developments in California.

Sunday, August 2, 2009

Where is the outrage over pensions?

Veracruz Farmers in Mexico

For some time I have been following the blog of Leo Kolivakis called Pension Pulse. Leo runs an insightful commentary on current pension issues.

The last issue of Leo's Blog asked where the outrage was over the current meltdown of the North American pension. There should be outrage over the theft and plundering of taxpayers and pensioners hard earned dollars.

Leo's questioned why
"civilized' Canadians seem to be sleepwalking while their pensions are dwindling. The unions are keeping silent too. Why? Maybe because they know that the federal and provincial governments are on the hook to pay out pension benefits even if the public pension plans are severely underfunded. Why make a fuss when you know the government will come in and shore up the plan?"

My take on it in an interview for the Toronto Star was
"I don't think it will be confrontational or violent," says Tufts. "But there is going to be a lot of pressure for change in the system. What we need is leadership that can address the issue."
Over the summer the pension issue has been a little quiet. I think that people were worn-out from all of the economic worries over the past year. However, there are several events building that will bring pensions back into mainstream Canadian discussion. As my article from the Digital Journal pointed out "The Biggest Economic Issue in 2009 - Public Sector Pensions".

I do not think that Leo has to wait much longer for the outrage to come.

Part of the problem is that pensions are such a complicated issue that it has taken Canadians a period of reading about them in the media to understand how they work. For example, the difference between a defined benefit plan and a defined contribution or RRSP plan.

Leo and I were cited in several articles in Mexican newspapers. The most influential was El Economista. In the article they quoted Leo as saying there will be a Tsunami of insolvencies or large pension deficits in both public and private pensions. This situation threatens to reduce the pensions on thousands of retired persons.

El Economista further went on to say that Bill Tufts affirms that the financial implosion puts into a state of crisis private sector pension plans.

Several of Canada's think tank and policy institutes have taken on the pension issue. They include:
Canadian Chamber of Commerce
Carp - The Canadian Association of Retired Persons (soon to be called Zoomers)Note: check out what Moses has done to create a new image for the Zoomers.
CD Howe Institute
CFIB - Canadian Federation of Independent Business
Canadian Taxpayers Federation

It is too bad that we have to have this conversation as it will be hard for all Canadians. In the ideal world we could all have pensions like the one described in this video from BC Pensions. Where your pension becomes a "Guaranteed paycheque for the rest of your life". This works for me "you stop working but the cheques keep coming... guaranteed".

However, the fantasy that the public sector has been living in is not the reality. We as Canadians all have to work together to find solutions.