Monday, July 26, 2010

Will Public Unions Force California Into Receivership?

Big trouble in California - As the Public Pension Crisis in California heightens and municipal governments are bracing for the possibility of insolvency, the Full Disclosure Network® presents a special Video News Blog featuring Orange County Supervisor John Moorlach. He is one of the few elected officials in the State with a financial background as a former Certified Public Accountant.

Thursday, July 22, 2010

Working Seniors and Canada's Pension Apartheid

There is an excellent article on Canada's working seniors in today's Montreal Gazette

There are some excellent insights into this issue and as the article points out there are some important questions still to be asked.

The break point on the analysis of $49,000 is interesting. This is a group a little higher than the average Canadian wage; a little over $40,000. So there are Canadians retiring with good retirement incomes greater than those still working. 

This $49,000 puts these retirees into the level of pensions in the public sector. For example, the average federal worker earns about $72,000 annually. Fully qualified for a 70% pension they will earn the $49,000 a year pension sited here.

Pension Apartheid
The Brits have coined a phrase called pension apartheid. It is the gap between those retirees in the private sector and those who retire on public sector pensions, such as teachers, government workers, and police.

UK Pension apartheid

This gap exists in Canada as we see fewer and fewer Canadians able to contribute to decent pensions yet the public sector retires as early as 50 (police and firefighters ) and 55 (regular retirement).

Even the public sector unions who benefits from gold-plated pensions recognize the problem.
Are McJobs Part of Canada's Retirement System? 
The unions tell us the average pension is only $17,000 but they neglect to mention that the this includes pensioners who have been collecting for more than 30 years.

What is new pension today worth? Probably in excess of $40,000 and the workers are entitled to CPP on top.

Private Sector Poverty This gap means that many more Canadians will work in retirement not for fun but for necessity. Unfortunately it is the same in many developed countries.

US -
Retirement will be risky for many Americans, says Employee Benefit Research Institute
UK -Millions face retirement in poverty as pension savers decline during recession

Statscan tells us that 18 million workers are in Canada's labour force. Yet only a small portion of these workers have been able to contribute to their personal retirement savings.

In 2008 only 6.2 million workers contributed to their RRSP plans. This is only one third of working Canadians. To be fair in addition, 20% are public employees and have gold-plated plans. Due to the recession these numbers I suggest are falling.

RRSP contributions fell in 2008

Public Sector Prosperity

At the same time as the recession has put many workers into a precarious situation for retirement the public sector has seen their plans flourish and in fact prosper during these times.

Statscan shows the dramatic rise of public sector pensions over the past 20 years. See Chart 4 -
Pension assets in employer-sponsored plans by type

Another alarming Stastcan table shows the gap between the public sector plans and private plans. The public sector pensions combined with Government consolidated revenue arrangements show the public sector has about $800 Billion in its pension kitty. The private sector has about the same. However, only about 25% of workers are in the public sector yet they get the lions share?

Statscan - Pension assets by type.

Unequal shares
In 2008 all working Canadians contributed about $34 Billion into their RRSP's. At the same time the taxpayer helped public sector employees funnel about the same or $30 Billion into public sector pension plans. But there are only about 3.5 million public sector employees.
These contribution numbers are available at the Statscan - Pension Satellite Accounts

There is a total workforce of 18 million. So 3.5 million public sector employees were able to contribute the same amount into retirement pots as all working taxpayers. Of course, a bit part of that contribution came from taxpayers.

Golf for Life at 55 Club

As a result the public sector has pensions based on 70% of their retirement income. They are eligible to retire as early as age 50 and if they choose they can collect their pensions plus go back to work and collect a salary as well.

The ones that do not go back to work become part of the
Golf for Life at Age 55 Club.
Most of the Golf for Life at 55 Club will have pensions starting at $40, $50 and $60 thousand dollars per year! All fully guaranteed. Guaranteed for life, guaranteed to increase every year, guaranteed to a surviving spouse and best of all guarantee
d by Canadian Taxpayers. 
Bill Tufts 
Fair Pensions For All

Tuesday, July 13, 2010

Taxpayers in Deeper Doo-Doo

We have been talking for some time about the liabilities of public sector employee pension plans. They are a stone around the neck of taxpayers and taxpayers are going down. Taxpayers are having to fund these platinum pensions at the same time markets have melted down the value of their retirement nest eggs.

Plummeting Markets
Stock markets have plummeted in North America. Google Finance shows the 10 year rate of return to be -3.95% and the TSX 10 year rate of return is 11.4%. No those are not annual rates or cumulative those are total before MER's or investment management expenses.

A recent Washington Post article points out the problem. Taxpayers Don't Need $2.9 Trillion Pension Overhaul
The trouble is the assumptions that state and local pension plans make for their investment returns are too high.

Arizona's Public Safety Personnel Retirement System expects to make 8.25 percent on its investments this year.Colorado's Public Employees' Retirement Association will make 8 percent. And the Virginia Retirement System anticipates 7 percent returns.

Eileen Norcross of the Mercatus Center at George Mason University in Arlington, Virginia, and Andrew Biggs of the American Enterprise Institute say such assumptions are optimistic, and should be much lower, in the 3 percent range.

Government pension plans across the nation assume they will make between 7 percent and 8.50 percent, with the median for 126 plans surveyed being 8 percent, according to the National Association of State Retirement Administrators. Moving to the lower investment assumptions of corporate accounting would force taxpayers to come up with $2.9 trillion to bridge the gap between assets and liabilities.

In other words, if you want to figure out how much you will need to pay your retirees -- a low-risk liability, meaning, states and localities always pay -- you must put your money in very safe, low-risk assets. When New Jersey discounts its liabilities at 8.25 percent, the state reports that its pension systems are underfunded by $44.7 billion. If New Jersey discounts the liability at 3.5 percent, the rate you can get on U.S. Treasury securities, its unfunded obligation is $173.9 billion.

If you discount the nation's public-pension plans by 3.5 percent, the unfunded liability rises from $452 billion to $2.9 trillion

Leo over at the Pension Pulse had commented on this issue a few days ago. He pointed out in his comments about the article:
I don't know when the day of reckoning will come, but we are on a major collision course and as long as the stock market keeps heading higher, nobody seems to be noticing. But this is long-term structural issue that won't go away, and will require some difficult political choices ahead (look at the UK & Greece). To think otherwise is highly irresponsible and just plain old wishful thinking.
In his blog Leo also lists some links to other very informative reports on pensions. You should check them out.

Bill Tufts
Fair Pensions For All

Friday, July 9, 2010

New from "This is not a Tax" McGuinty

This one is unbelievable!

A new bureaucracy from the Ontario Government has been created called Stewardship Ontario. No not it does not refer to stewardship of your tax dollars!!!. Has anyone seen how much this is costing, how much it will generate in revenues.

Get on board... they will be hiring like crazy!
Stewardship Ontario - Only for those looking for outrageous salaries, golden benefits and platinum pensions. Friends only please!

If it did not hurt so much we would be having fun with this one! Here is a comment left at the CBC article New Ontario 'eco fees' not a tax: minister
I am furious about this newest sneaky tax foisted upon us. Please don't insult me by explaining how it is not a tax. I may be stupid because I live in Ontario, but you don't have to rub it in.

Please explain to me why dish detergent has an eco-tax. Is it a hazardous product? The plastic bottle isn't hazardous and is placed in my blue box, a service (not a tax) that I pay for in my property taxes (a tax, not a service).

Is it the detergent inside the bottle that is the hazardous material? I am already paying for the disposal of this dangerous hazardous material through my water and sewer fees (also not a tax). But if it IS hazardous, why on earth if the province of Ontario letting it get onto the dishes I EAT from, let alone into the water system??!!

Also, since the eco-tax is being applied to my medication, how do I apply for a refund for the portion of the medications I have ingested and which do not need to be disposed of as a hazardous waste? Is there a form that I need to fill out? Is a urine test required to prove the medications were ingested?

And how about the eco-tax on Kleenex. Freaking KLEENEX! This is disposed of in my compostable (green) bin which is costing me a pretty penny on my property taxes, I might add. And they are placing a hazardous product fee on it?!

I AM CANADIAN - TAX ME MORE!! (Lord, I hope KY Jelly doesn't have an eco-tax, too, or this is going to be even MORE painful than I expected!)
Barb S
All I can say is unbelievable!

Bill Tufts
Fair Pensions For All

Thursday, July 8, 2010

Where do we go from here?

The IMF just released their predictions for economic growth over the next year.For many parts of the world the situation is rosy but for the developed countries there are many challenges to overcome.

A friend of mine, Lee Fairbanks, from Fairbanks & Cannon Management & Consulting sent me this email. 
 The G20 wants to reduce their deficits by 50% in 3 years - how will they do that? Raise taxes and cut services. That affects all of us - HST on gasoline anyone? Where does the stimulus money come from? Taxes - which we all provide one way or another. Time to face the facts.
Are we in a recession or a depression? Listen to Wall Street expert Bill Bonner explain why stimulus spending will not save our economy because it supports businesses that should be allowed to fail in a free economy: Bill Bonner: Son of Stimulus
Or just read the newspaper every day: Cities and States in the US going bankrupt; company and government pension underfunded with no way to recover. "Guaranteed" pensions being cut. Most of those pensions rely on never ending stock market growth. With so much stimulus money pumped into the Global economy we should expect that markets will have risen back to their pre-crash levels. Consider these stats from Jan. 2010  to July 2010:
Dow Jones (US) up just 0.14% (virtually flat)
Dow Jones (Europe) down 12.4%
Dow Jones (Asian) down 4%
Dow Jones (Global) down 9.2%
In fact - The 10-year return on the Dow Jones and the TSE index is virtually 0% - as in zero, so any money invested there on 2000 has earned no growth in the past 10 years. The TSE is down 7% this quarter - where is your RRSP and your RESP invested?
Truth is, today the only wealth you can count on is earned income - after taxes. And with taxes going up and services going down, for most people that spells one thing: tough times ahead.
Lee had asked me where I see future business opportunities. In response to our conversation Lee wrote. 

Bill's facts are undeniable and they point to a future for Canadian Baby Boomers without the current level of "free" health care as they age. Provincial forecasts say that 70% of all tax spending would have to go to health care if the current levels are to be maintained. This is an ongoing increase, rising from 30% in 1981, to 45% in 2004.
Is there a solution?

Several things come to mind:
 1. Stay healthy longer.
2. Make sure you have enough money to buy your own health care when you need it.
3. Diversify your income offshore to capitalize on growth markets with younger populations. (Bill's suggestion).

Bill has an excellent article that uses the Japanese experience (Japan is the first developed nation to face this crisis) to explain where Canada is in this cycle.  - scroll past the headlines to read the article. Look closely at the charts, they are very revealing.

It appears that the IMF numbers show the same opportunities and challenges that Lee and I have identified. The developed nations of the world are collapsing under the weight of aging populations and the legacy, pension and healthcare costs that come with a greying population. 

Emerging Economies 
The emerging economies are poised to produce some stellar growth numbers in 2010 and beyond. You can see from the chart above the areas that are traditional growth drivers benefiting the emerging markets. These can be found in exports, industrial production and retail. 
Brazil - 7.1%
China - 10.5%
India - 9.4%
Mexico - 4.5%
Many of these countries are on track for stellar growth. Mexico grew by almost  7% in the last quarter. Crecerá economía mexicana entre 6 y 7% en segundo trimestre: Santander 

These numbers compare to Canada with an anticipated growth of 3.5% this year and 2.8% next year. Projections for Europe are dismal at only 1% growth. 

Bill Tufts
Fair Pensions For All

Wednesday, July 7, 2010

Pension Tsunami's Jack Dean on the Growing Wave of Public Pension Debt

Jack Dean of Pension Tsunami

Thanks Jack for all of your hard work towards this very important issue. It looks like we still have a long way to go.

"The whole idea of the pension was to provide public servants with a decent retirement," says Dean.  "It wasn't to make them wealthy, to allow them to retire younger and with more money and be able to go off and play golf while the rest of us supported them.".

Bill Tufts
Fair Pensions For All

Tuesday, July 6, 2010

The Private Sector and Public Sector Wage Gap

It is alarming in economic times like these that government employees continue to get bigger salaries, bigger benefits and bigger gold-plated pensions than the private sector.

The Wall Street Journal highlights this gap in an article  The Government Pay Bonus. They point out that private employees toil 13½ months to earn what federal workers do in 12:
Pay cuts, layoffs and the highest unemployment rates in decades have reignited a debate over the relative treatment of public and private workers. USA Today reported in March that federal workers earn substantially higher wages than private sector employees who work the same types of jobs.
Nevertheless, salaries are only one part of total compensation. Government employees may also receive more generous health and pension benefits than Americans working for private enterprise. So are federal employees overpaid? Data from the March Current Population Survey (CPS) suggest they are.
Federal employment also carries significant nonfinancial benefits—in particular that layoffs and firings are much rarer. If you think these aspects of federal employment lack value, ask any private employee who is now looking for work. A federal pay premium is unfair both to private workers, who receive less than their government peers, and to taxpayers who must cover the difference. Given our 2.7 million-strong federal work force, the government effectively overbills Americans by almost $40 billion every year just on labor costs.
If Washington demands "painful sacrifices" to make these programs solvent, as the slogan goes, it must first re-establish its credibility. Giving federal workers salaries, benefits and terms of employment comparable to those received by private workers would be a good start.
 In Las Vegas they covered the topic with and article called Welcome to Planet Government where your servants are better paid than you 
“For years, most people who worked for state or local governments accepted a fact of life: Their pay wasn't great. The job security was.
“Now that's gone, too.”
What planet are they on?

The federal wage premium for workers who have the same education and experience stands at 24%, still a windfall for public employees.

“Even using all the standard controls — including race and gender, full- or part-time work, firm size, marital status, region, residence in a city or suburb, and more — the federal wage premium does not disappear. It stubbornly hovers around 12%, meaning private employees must work 13 1/2 months to earn what comparable federal workers make in 12.”
 Of course this is countered by the public sector unions who claim that the gap can be explained. The Canadian Congress of Labour try to explain the gap: 
In its study, the CFIB does not take into consideration factors that explain wage disparities that are known contributors to wage gaps. Such as the level of education of employees, size of employers and presence of a union, job tenure and previous work experience of employees, real working hours and the impact of pay equity
The argument is logical until the actual facts are examined. The union OPSEU did an actual study and the results they found were:
  • Roughly 35% of respondents plan to retire within the next ten years. 
  • 81% of respondents have an annual income at or above the average income in the general population (which is $39,386). 37% of respondents have an annual income of $60,000 or higher.
  • 42% of respondents have college-level credentials, 30% have university undergraduate-level credentials, and 10% have graduate-level credentials.
 The News.Scotsman reported on the problem there. Yes it is the same in Europe as it is in the USA as it is in Canada. The only difference is that in Canada politicians are still too afraid to upset their biggest voting block. elsewhere around the world it is unavoidable. The day is coming where it will be necessary in Canada to end this travesty. 
Politicians and campaigners called for the state sector to take its "share of the pain" after research showed it enjoyed vastly better pay and benefits packages compared to the rest of the economy.
The report also said that public-sector workers enjoy better pensions, shorter hours and earlier retirement than those employed in private industry.
Private-sector employees work 23 per cent longer – the equivalent to an extra nine years and ten weeks
 The CFIB - Canadian Federation of Independent Business has consistently brought attention to this problem. Recently they called for more public discussion of this issue and said it is Time to get really big elephant out of Canada's living room
Add benefits, such as pension contributions, and the gap increases to a shocking 42 per cent. Imagine the public sector howling if these differences were reversed.
Think this only happens in Ottawa? Not so: provincial and municipal wage discrepancies exist, too. In Vancouver, municipal employees get paid 11 per cent more than equivalent jobs in the private sector. Add in benefits and the premium jumps to 35 per cent.
Now you know why your property taxes are so high.Not surprisingly, those in the public sector retire earlier, too -- at an average age of 59, compared with 62 in the private sector and 65 for the self-employed.
How is this even remotely fair when it is the private sector that takes the risks that generate the wealth to pay for these bloated public-sector wages and benefits?
Canada is in big trouble. Its too bad that our politicians and public sector employees don't realize it yet.

Bill Tufts 
Fair Pensions For All