Saturday, February 27, 2010

Working through some numbers

Ottawa's Job Bubble 

Statscan came out with some average wage numbers in Canada. Average wage BC. Numbers show that the average Canadian is making a little over $ 40,000 per year.

The National Post reported on the dramatic increase in employment in the federal government. Ottawa's jobs bubble. It appears that the average wage for employees in Ottawa is around $72,000.This would be consistent with a report that analyzed compensation at the feds. Total compensation—Core public service

Golden Pensions
The federal employee are entitled to a pension worth 70% of salary when fully qualified. Demands grow for civil service wages, pension reform. This means that a fully qualified average federal employee has a pension, including CPP valued at $49,000 per year. They can start pensions as early as age 55 and many will collect them for longer than they worked. Report on life expectancy is good news

Who Pays? 
 Kathryn May wrote an article suggesting that the civil sector pay for at least half of the cot of their pensions. Demands grow for civil service wages, pension reform. This seems a little more fair for taxpayers.  

What is fair? The CD Howe estimates that these pensions are worth about 34% of compensation. The employees currently only pay 8.5%. They would have to double contributions to pay 50%. PSSA RATE OF CONTRIBUTION It appears that the taxpayer subsidies are about to end.

This will generate ...

Howls of Protest
PSAC members are up in arms over media reports that no longer with their pensions be funded on the backs of taxpayers. PSAC members mobilizing to protect pensions

We are into a new era of pensions and saving for retirement. I was quoted in an article by Monica Gutshi of the Wall Street Journal in and article called Little Confidence In Pension System. 

Most Canadians do not have much faith in the system the way it works now and are counting on the government to make some real changes to make the system more fair and equitable to all. 

We will see....

Wednesday, February 24, 2010

Upcoming Federal Budget and MP´s Role


Costa Rica is a beautiful country. I was lucky to spend 2 weeks travelling in costa Rica including a stay in the shadows of Arenal an active volcano. 

The people in Costa Rica are very friendly and it is a safe country to travel. The minimum wage here is about $300 per month. They pay about the same as North America for most commodities including food, communication and gasoline.

It looks like much is happening leading up to the next federal busdget. 

There is lots of speculation about with the budget will bring. Will it contain provisions to control pension costs or will the status quo prevail?

In order to control the costs of public sector pensions, some think that change must start at the top. The Canadain Taxpayers Federation think that MP´s must re-evaluate their own pensions and then look at the public sector as a whole. Class of ´93  

MPs indeed have a juicy pension. MP Retiring Allowances Detailed Report .

This is a typical public sector pension plan, I dont know why they call it a retiring allowance? 

The tax laws for taxpayers and ordinary non public sector workers only allow for pension accumulation up to about $82,000 per year. Anything over the Federal Tax limit must be set-up in special plans such as RCA´s and SERP´s.

The MPRCA is a special public sector plan.
The purpose of the RCA is to fund a Supplemental Executive Retirement Plan (SERP) for a group of managers or executives on a defined benefit basis. The SERP provides pension benefits that exceed the maximum pension limit prescribed by tax legislation.

These plans are common in the public sector for earners over the pensionable max. Thus Catherine Swift talks about seperate rules for taxpayers and the public sector. Check you local hospital board, school board and municipality many have set-up these specials plans.

Pension boosting and spiking.
This is for the payment of pensionf or income over and above regular income. For example, the plan calls for 3% per year based on the best "sessional indemnity" for 6 years. It appears that MP´s get paid only for for base salary and not all allowances for committees and junior minister positions etc.

This 3% pension compares to the regular public sector that gets 2% per years of service and emergency services who get 2.5%.

The pensions accumulate like this: 
3% for 25 years = 75% of annual salary
2.5% for 30 years = 75%
2.0% for 35 years = 70%. 

These guys get abut $5 for every one that they put in. See the Members Contribtuions and Government contributions Table 2 contribution schedule.

Future shortfalls of course are all government (read TAXPAYER) backstopped.

Double Dipping
One good note is the double dipping feature if the MP returns to work with the Feds his allowance is suspended. Not a usual feature in public sector plans.

It will be interesting to watch the events leading up to the next federal budget. 

Friday, February 5, 2010

Regina's Pensions Back in the News

It appears they are having discussions about the city Pension in Regina. At least we can say we saw this one coming. Original post April 2009.

It would be wise for the trustees to wait until the 2009 results are released before making any decisions. All too often we see governments rushing to make recommendation before the full scope of the problems are acknowledged and then saying OOPS... it too late. Here is the direct link to the pensions most recent annual report. Regina's Civic employee's Pension Plan

The Leader Post states:
"The trustees have provided information and experts so employers — represented by the City, which consults with the other employers — and the employees — represented by a committee of delegates from the 19 groups — can examine the options.""

"Bob Linner, vice-chairman and designated spokesperson for the Board of Trustees of the Civic Pension Plan. That board is made up of 12 representatives, with six from each of employer and employee groups."

The only problem is that the ones guarding the chicken coop are the foxes. It appears that everyone who has been brought to advise on the pension in probably is getting a union negotiated, taxpayer funded gold-plated  pension.

Who is protecting the taxpayers interest? Although there was a gratuitous reference made to the taxpayers in the article I dont think it means much.

Here is  a list of the items the taxpayers should be demanding from the city.

1) Fundamental changes - The taxpayers 'pension plans are not good enough. " Fundamental changes — such as to a defined contribution plan, in which risks rest solely with employees — have not been discussed. Such a shift would be considered "worst-case scenario". "
Note: we saw earlier in the week that the Province had already converted most of the public sector to DC plans. If it is good for taxpayers and provincial workers why is it worst case for city workers?

The Trustees have these items on the table:
  • Increase contribution rates (subject to Canada Revenue Agency maximum employee contributions of 9%),
  • Introduce less generous inflation protection after retirement,
  • Reduce future benefits; or,
  • Implement a combination of these options.

2) Plan shortfall - The pension plan lost $158 Million in 2008. Dropping to $685M total assets in the plan. The plan was up in 2009 to 85% funding from 75% funding in 2008. However, the markets are off already this year and quite likely will produce very meager returns.

3) Already the plan has fallen to the point more money is coming out than going in.  There are almost as many retirees on the plans there is active workers contributing to the plan.

4) Contributions required to fund these types of pensions are about 34%. The current contributions fall short. By about 10%.
Member Contributions

5) Eliminate Pension Buy Back
You can also voluntarily increase your pension plan contribution before retirement by contacting Pensions. You may elect to:
  • Purchase a period of service where you were previously a member of this Plan but received a refund of contributions upon termination. If you elect to purchase this service within 180 days of re-entering the Plan, you will receive credit for previously forfeited employer contributions.
  • Purchase a period of service where you were employed by one of the employers participating in the Plan but were not a member of the Plan.
  • Increase your post January 1, 1966 base salary pension factor from 1.35% to 2%.
6) Change the retirement age
Many pensions are looking at making 65 the mandatory retirement age

7) Ensure there is no Pension Spiking - Sick leave and Vacation Allowances usually are included in pension calculations. can we get FOI info on the pensions for these guys?
Retirees get big Pay Day
Pension Spiking Stinks

8) Commuted Pensions - Check the values of commuted pensions. The smart ones will be getting as much money out now as they can. Commuted Pensions
9) Double Dipping - Because of the early retirement provisions in the pension plan many employees trigger the pension and return to work shortly thereafter either with the city or another government organization. Many governments are taking responsible action and disallowing this type of taxpayer abuse. How Double Dipping works

Other notes:

Wednesday, February 3, 2010

Getting the Message?

Yesterday the Ontario governments Committee on Finance and Economic Affairs heard expert witness from Catherine Swift. These are the pre-budget meetings to determine where Ontario needs to go in its next provincial budget. Globe and Mail report

One part of the interview focused on pensions. CFIB Presentation PDF
Mr. Michael Prue: In chart 15 your members talk about the wage differential and you talk about the pensions.
Ms. Catherine Swift: Right.
Mr. Michael Prue: Just to deal with the pensions, public employees, both federally and provincially, pay enormous amounts of their gross—
Ms. Catherine Swift: I realize that.
Mr. Michael Prue: —into the pension. You can't take that away. They've paid it, some of them, for—
Ms. Catherine Swift: We're not saying take it away. We're saying freeze it. The federal and provincial employees—the taxpayer is required to match what is put in by the employee. I don't begrudge anyone saving for their own retirement. Knock yourself out. But you will never find a private sector program that is as rich as all of these public sector programs, and right now you are beggaring the private—and it's not just Ontario; I said it's right across the country and some are worse that others.
But you will never find the richer pension than you will get in the public sector, and you retire much earlier.
We've done quite a bit of research on this. The public sector employee works fewer hours, makes more money now—it used to be the pension was a quid pro quo for lower wage levels, decades ago, but those wage levels have come up and exceeded the comparable private sector job, on average.
Any actuary you speak to—and we speak to them quite regularly—will tell you that something's got to give on the public sector pension front, because it has gotten way out of control and it's not even financially sustainable, even if you agreed that people in the public sector should get more than their private sector counterparts and should retire much earlier and so on.
The Vice-Chair (Mrs. Laura Albanese): Thirty seconds.
Mr. Michael Prue: But I don't understand what your members are expecting to happen with this—
Ms. Catherine Swift: Well, why can't things be frozen? Compensation levels could be frozen for a period of time. Private sector should be permitted to catch up. I mean, you want to help lower-income people. The best way to do it is reduce their tax burden. In the last budget—a lot of people didn't notice it; one of my actuary friends did and brought it to my attention—$2 billion was put in for the next three years, simply to cover off shortfalls in public sector pensions. And you know what? That's not even enough. So there's $6 billion in a three-year period alone to deal with this. It's milking everybody dry right now, and we're going to have a crisis in it.
Warren was referencing municipalities in the US going broke and having to increase taxes. You know the main reason they're going broke? Their public sector wage and benefit burden. 

The only comment I have is that there is a  serious misunderstanding about how much public sector employees pay into their pension plans. It is not as Prue suggests enormous amounts of their gross.

The CD Howe Institute has pointed out that true cost of these pensions in in the range of 34%.  Most public sector workers pay well under 10%. This leave the taxpayers to fund at least another 20% into these plans. The problems is most government's only match the employee funding. Thus currently these plans are underfunded to the tune of 10%.

For example, most of the members of the CFIB pay 9.9% into CPP (Canada Pension Plan) to get pensions from it of 25% of earnings.

It will be seen if the Ontario government has heard the message.