Monday, September 27, 2010

More Pension Comparisons

I read with interest an article about the head of the  CPP plan touring on a Public Relations campaign. 
Canada Pension Plan at $130B and climbing

The writer commented that at $129 Billion it is the largest the CPP has ever been and it is expected to grow to $464 Billion. This plan is for the benefit of 18 million Canadians? This equals a little over $7,000 for each working Canadian taxpayer.

I challenge you to think about this ...
There are 3.6 million public sector employees in Canada. The assets of their taxpayers funded pension funds are valued in excess of $800 Billion. This equates to over $200,000 for each working public sector employee in Canada.

Around $30 Billion flows into the government employee pension funds annually.
How much were the annual contributions into the CPP plan?

The CPP is expected to grow to $464 Billion in 20 years.
What is the expected future growth of the public sector pension plans?

Both the CPP and the public sector pension plans are funded by the taxpayer. Yes I know I will get lots of complaints that the employees in the public sector fund their own plans. But they fund only a small portion.

You may want to consider an analysis and compare the CPP with the public sector pensions. The  conclusion may change from ...
Relax Frederictonians, your Canada Pension Plan benefits still will be there when you retire and for your children when they retire.

Part of  the analysis might include the question of asset ownership. The total public assets for bridges, roads, ports airports etc. in Canada as estimated by Statscan is around $275 Billion. Less than one half of the assets that are in only the public sector pension plans.
It appears that slowly the pension funds in Canada will be devouring the infrastructure of the country. You note the purchases of MacQuarrie and ownership in over 500 Canadian companies. At one time this would have been called socialism; the country's factors of production being owned by the government itself.

It is interesting the majority interest in Skype. The public sector pensions restrict themselves almost exclusively to monopoly markets. They obtain 20% to 25% returns at the expense of taxpayers everywhere. If it is not a monopoly market, they have the assets to quickly buy up enough to make it a monopoly. Take commercial real estate in Canada, it is almost exclusively owned by pension funds.

Question the source of the information that was given. Do you think Denison is relying on the CPP plan for his retirement or is sheltered in one of the gold-plated public sector plans.


Bill Tufts
Fair Pensions For All 

Friday, September 24, 2010

Pension disclosure

Recently in California I had a chance to meet with Jack Dean. Jack runs a blog called Pension Tsunami he is also one of the key forces behind the California Foundation for Fiscal Responsibility they run the website California Pension Reform.

Jack was responsible for helping to uncover some of the worst pension abuse situations in California. His efforts also led to better monitoring and understanding of the pension debate. This debate has turned into a national issue. One of the key tools for pension reform is the disclosure of the levels of pension paid to retired public sector workers.

The Wall Street Journal reported on the efforts to disclose the problems behind public sector pensions. Fury Over Public Pensions Sparks Disclosure Lawsuits
Several state and local retirement funds have balked at disclosing the pensions of individual government workers, triggering lawsuits that claim taxpayers have the right to such information.
The showdown comes amid growing scrutiny of public-sector pensions as voters, many struggling amid the recession, increasingly question how tax dollars are spent in states and cities facing budget shortfalls and service cutbacks.
The California Foundation for Fiscal Responsibility, a group that advocates for pared-back pension benefits, sued the San Diego County retirement fund in August after it refused to provide the names of retirees collecting annual pensions of $100,000 or more. While other counties have released similar information, San Diego maintains that state law prohibits it from doing so.
In New York, the fiscally conservative Manhattan Institute's Empire Center recently filed lawsuits against New York City's police and firefighters' retirement systems, after the funds refused to release retiree names and pensions. Three other city funds have released the information, the center says.
The police fund considers the release of members' names "potentially dangerous" to former officers, who could face retribution for their work, as well as an invasion of privacy, said Jesse Levine, senior counsel at the New York City Law Department. The department is "in the process of resolving" the request regarding the firefighters' fund, Mr. Levine said.
Newspapers have also been denied requests for pension data in states including Ohio, where the legislature is considering spending millions to shore up the public retirement system.
"Taxpayers should have a good understanding of how the system works," said Doug Oplinger, managing editor of the Akron Beacon Journal, one of the papers rejected in a request for information besides specific names.
Some advocates of disclosure say the funds are hiding behind legal arguments to avoid scrutiny, especially in the wake of the recent Bell, Calif., controversy that revealed the city's administrator was earning close to $800,000 a year. Based on that salary, it has been estimated that he stands to collect at least a $600,000 annual pension from the California Public Employees' Retirement System, or Calpers. He stepped down in late July amid a public outcry, and his pension is on hold pending a review by Calpers.
California State Controller John Chiang recently announced he is requiring all California cities and counties to report compensation for current public employees, which he plans to post on his website in November.
"When does it stop being the public's money," he said, "and when does it start being [state workers'] money?" 
 The initiative of the CFR has led to fights in other states over the disclosure of pension information.  
  • An advocacy group sued the San Diego County pension fund for refusing to provide the names of retirees with annual pensions of $100,000 or more.
  • The Manhattan Institute recently filed lawsuits against New York City's police and firefighters' retirement funds for refusing to release retiree names and pensions.
  • Five Ohio pension funds rejected a request for pension data from a coalition of eight local newspapers.
The success of these fights have been mixed in terms of the information  or disclosure that has been passed along to taxpayer groups. But one thing is clear is that the disclosure that has occurred  has uncovered lots of pension malfeasance.

Public or Private
The debate rages on whether the personal pensions received by retirees should be disclosed.

Pension disclosure has permitted the uncovering of taxpayer abuse. The most blatant case is in Bell City California. California city manager's pension could top $30 million Other debates and articles are listed here. 

Find them, fire them
New Hampshire Retirement System thumbs its nose at public
Public pensions: Our right to know
Ohio public pension system must undergo public scrutiny
Hundreds of former NYC educators pulling in six-figure pensions, even scandal-riddled principal

Canada needs this pension disclosure

In Ontario the Sunshine Act shines light onto the salaries of public sector employees. Most employees will collect more in pensions that they earned in salary. Many will collect pensions for longer than they were employed.

Ontario has dozens of retirees earning over $200,000 or $300,000 per year in pensions. There are thousands, if not tens of thousands (including all levels of government) who earn  more than $100,000 per year in pensions, in Canada.

The limit for disclosure under the Ontario Sunshine Act is $100,000 This same bright light needs to be shined onto pensions as well.

Bill Tufts
Fair Pensions For All

Wednesday, September 22, 2010

Pension Apartheid in Canada - Nortel vs OMERS

Yesterday our blog looked at the huge difference between private sector and public sector pensions. Today another example has been exposed. Lets look at the OMERS (Ontario Municipal Employees) pension plan and the pension plan for Nortel. 

OMERS and the Ontario government shocked cities across the province with the news that pension costs at all city halls have to rise to fund an expected $6 Billion shortfall in the pensions for city employees. The taxpayer abuse was reported in the Ottawa Citizen, Municipal pension shortfall could affect property taxes. 

There was no debate about the increases or media discussion. It is a fait accompli, taxpayers must ante up for the Protected Class! OMERS Pension funding shortfall 

Pension Apartheid
At the same time the Finance Minister in Ontario turned down an opportunity to resurrect the Nortel pension plan that is suffering a $2.5 Billion shortfall. Duncan warns Nortel pension scheme too risky
Finance Minister Dwight Duncan has killed a scheme to give Nortel retirees the right to have their $2.5 billion pension plan run by a private firm.
Ontario Finance Minister Dwight Duncan has officially put the kibosh on a controversial scheme to allow Nortel retirees to have their $2.5 billion pension plan run by a private company.
The provincial government, which has faced noisy protests at Queen’s Park by former workers at Nortel Networks Corp., had been concerned the move would be too risky.
“It is difficult for us to endorse an unproven financial sponsorship model which could put at risk the most vulnerable of the Nortel plan members, retirees, and other beneficiaries,” Duncan wrote in a letter to Nortel Retirees and Former Employees Protection Canada (NRPC).
 In another report Duncan noted: 
Duncan also pointed out that the Ontario government added $500 million to the province's Pension Benefits Guarantee Fund last year, knowing about half of it would be needed to help Nortel workers. The fund guarantees pensions of up to $1,000 a month when companies close.
It is sad that workers at Nortel will be protected to a maximum tune of $1,000 per month. We saw yesterday the Ontario Teachers plan with a $17 Billion shortfall provides an unlimited guarantee to its employees. 

It looks like the Protected Class has once again protected its interests over those of taxpayers. 

Bill Tufts 
Fair Pensions For All

Tuesday, September 21, 2010

A Tale of Two Pensions

The Toronto Star recently reported on one of  the largest pension plans in Canada. They are in Deep Doo-doo.

It is reported in Big pension plan pressed to fix funding woes that:
Canada’s biggest private sector, multi-employer pension plan hasn’t fixed mounting underfunding problems or clearly informed members about possible reductions in benefits.
The Financial Services Commission of Ontario will not comment publicly about persistent troubles with the Canadian Commercial Workers Industry Pension Plan (CCWIPP).
The commission’s letter charged that the plan has not told more than 300,000 members that their pension benefits are “seriously underfunded” or what they would get if the plan had to be wound up.
Canada’s biggest private sector, multi-employer pension plan hasn’t fixed mounting underfunding problems or clearly informed members about possible reductions in benefits, government watchdogs reveal in internal correspondence.
The commission’s letter charged that the plan has not told more than 300,000 members that their pension benefits are “seriously underfunded” or what they would get if the plan had to be wound up.The letter also suggests that, without more action, approval of a funding improvement plan to stabilize the CCWIPP may be in jeopardy.
CCWIPP has 350,000 active and deferred members and provides pensions to another 20,000 retirees and their spouses. A group of trustees representing the United Food and Commercial Workers union and more than 300 employers, including major grocery store, chains runs the plan.
The commission began pressing the plan for action last year after learning that it had a funding deficiency of $760 million on the basis of an actuarial value of $1.68 billion in assets and total liabilities of $2.44 billion at the end of 2008. CCWIPP will release its 2009 actuarial report by the end of September. CCWIPP notified members that they could face cuts in future benefits ranging from 15 to 50 per cent. The moves do not affect existing retirees. Active members will face a 40 per cent hit on future benefits if employers and the union cannot negotiate significant increases in contributions. 
 All defined benefit pensions in Canada are under serious strain. What makes them painful is if they are in the private sector or the public sector.

Canada's Largest Public Sector Pension

  • 175,000 teachers in elementary and secondary schools in Ontario
  • 114,000 pensioners – includes survivor pensions
  • Plan originally created in 1917
  • One of Canada’s largest payrolls, paying $4.4 billion in pension benefits annually
  • Net assets: $96.4 billion (December 31, 2009)
Benefit Design
  • Defined benefit plan: 2% x years of credit x average “best-five” salaries = annual pension 
  • Targeted replacement income of 70% of final 5 years. Highest retiring salary of teachers $ 102,000
  • Unreduced retirement with 85 factor (age plus qualifying years = 85)
  • Partial years count as full years for determining the 85 factor,
  • Members can repay refunds and buy back service for leaves 
  • Indexed up to 8% per year 
  • Indexation is 100% of CPI 
 Private and Public Sector Disparity 
A quick look at these two pension plans shows the hoodwinking that has been put on Canadian taxpayers. Last year Canadian taxpayers funded about $30 Billion into public sector pension plans.

You get a lot of pension for that sort of money.

                       Comparison Chart 

                                                                    Private Sector         Ontario Teachers
                                                                     CCWIPP                      OTPP

                          Assets                            $ 1.68 Billion                $ 96.4 Billion
                          Workers                           350,000                          175,000
                          Retirees                             20,000                          114,000
                          Total Members               370,000                          289,000

                          Avg Assets                       $ 4,500                         $332,000
                          Avg retiree pension         $ 6,450                          $ 38,596
                          Employer contribution   $139 Million                $ 2.72 Billion (taxpayer)
                          Normal retirement           Age 65                            Age 55
                          Pension shortfall           $ 760 Million                   $ 17 Billion 
                          Special taxpayer
                          Contributions 2010          $    000                        $ 500 Million 
             Teachers at a Glance
             OTPP annual Report 2009
             Ontario Teachers' Plan projects $17B shortfall
             Horrible deal for Ontario teachers - $102,000 per year 
Pension Envy 
This example shows why most taxpayers in North America are suffering from pension envy. Jonathan Chevreau covers the issue of pension envy in his article Don't count on Ottawa to fund your retirement.

Boomers still toiling in the workplace will need a sense of humour as they try to suppress a new phenomenon I call pension envy. This compares to contemporaries who retired in their 50s with the gold-plated, annuity-like defined-benefit pension plans enjoyed by most government workers in retirement.
There is “an alarming disparity between the pension coverage of employees working in the public and private sectors.”
This comparison between two of Canada's largest pensions, one private sector and the other public sector show why so many of us suffer from pension envy.

Bill Tufts
Fair Pensions For All

Monday, September 20, 2010

Extraordinary offer for taxpayers

US numbers but identical trend to Canada

Thanks to a heads up from one of our blog readers (JD) we saw this article from The Ottawa Citizen by Kathryn May. Let’s talk wages, Tories tell unions
 The Harper government made a surprising offer to negotiate wages with its major unions before contracts expire to help manage “financial predictability” in preparing the next budget.
The extraordinary offer was made to the two giants, Public Service Alliance of Canada and the Professional Institute of the Public Service of Canada, with the caveat that negotiations start immediately and settlements must be reached within weeks. Seventeen unions represent federal public servants.
The move has sparked much speculation about what’s behind these early, exploratory talks. Some say the government wants “labour peace” and the thorny issue of wages resolved before an election.
Public Servants have become masters
A quick examination of the facts shows that spending  on compensation for federal employees is out of control in Canada. No different than communities elsewhere in North America where Public servants are now its master
These days, government employees are better off in almost every area: pay, benefits, time off and security, on top of working fewer hours. Public workers have become a privileged class – an elite who live better than their private-sector counterparts. Public servants have become the public’s masters.
More troubling still is the inherent political corruption. Elected officials tend to be accommodating when confronted by powerful constituencies such as the public service unions that agitate for plush benefits and often provide (or deny) a steady flow of cash to election campaign funds. Their successors will have to cope with the inherited debt burden – and ultimately the nation’s taxpayers are stuck with the bill.
When I was in Los Angeles there was a full page front section advertisement from the Cato Institute. The title of the ad was President Obama we are still waiting! The ad listed several areas that needed to be addressed. One of the key ones was the disparity between the compensation of taxpayers and those of what Scwarzenegger calls the Protected Classes.

The Cato Institute highlights the costs to taxpayers of the huge compensation paid to government employees. Of course a big part of this compensation comes from the benefits package. Gold-plated pension and health benefits not available to the average Canadian worker. These benefits are estimated to be an additional 35% of compensation costs.

Cato Institute - Federal Pay Continues Rapid Ascent

Canada's  Numbers  
Canadian politicians are in denial about the problems that exist here.  

In Canada the common thinking is that they are relying on a significant downsizing of the federal public service as baby boomers retire to cut back their costs overall. This however, is not happening. Employment is rising the the public sector and costs are increasing at the rate of 5% per year. 

The official story is that annual increases are only  2 or 3 percent each year. However, what is not taken into account is the annual grading or step increases that are not included in the annual wage disclosures. 

Statscan released government compensation numbers. They show that last year in 2009 the core federal public service had 415,397 employees earning $29.3 Billion. This is up from 351,000 and $17.9 Billion in the year 2003.

This year the average federal employee earns a little over $70,000 with additional benefits worth by the government's estimate $24,500. The total compensation per employee is edging in on $100,000.
So it is very dangerous to suggest the problem will be solved by attrition. Employment has increased almost 18% from 2003 to 2009 and annual compensation increases have been 5%. 

Statscan - Public sector employment, wages and salaries 2009
Treasury Board - Expenditure Review of Federal Public Sector 

Private/Public Comparison 
When we look at the wage comparison between the public and private sectors we see the gap is widening every year.

The gap between the average private sector worker and a federal government worker is now 60%. That is the government worker makes more than 60% more than the average Canadian. This does not include the 35% benefits and pension package the government worker gets. This would increase the gap dramatically.

More worrying is the increase of the average government worker's pay package. It is has increased at the rate of 5% for the past 4 years while the private sector wage increase has been about half or 2.5% per year.

This information comes from Statscan - Employment and average weekly earnings
The numbers also confirm the average wage levels of $ 68,848 for a federal worker and  $42,796 for a private sector employee.

Milt Zuckerman has pointed out the risks to taxpayers. Canadian or American we are all in the same situation. 
A fundamental rethinking of the public workforce is necessary. Americans cannot maintain their essential faith in government if there are two Americas, in which the private sector subsidies the disproportionate benefits of this new public sector elite.
Bill Tufts 
Fair Pensions For All

Sunday, September 19, 2010

Token Gestures

I have been away for a visit to see my father in California. 

California has always been seen as a bell weather for trends. These include trends of all sorts from fashion to music to movies. 

One area that I am interested in is the trend in government management and fiscal accountability. California offered an eye opening experience. The state is in serious trouble and those who are bringing it down have no clue as to what is going on or why it is happening.

California has a disastrous system of public administration. The roads are in serious disrepair. There are problems in the education system at all levels and of course healthcare is a train wreck waiting to happen.

The Governor
I covered the comments of outgoing Arnold Scwarzenegger in my last blog post. Scwarzenegger On His Way Out in California 
 Roughly 80 cents of every government dollar in California goes to employee compensation and benefits. Those costs have been rising fast. 
Spending on California's state employees over the past decade rose at nearly three times the rate our revenues grew, crowding out programs of great importance to our citizens. Neglected priorities include higher education, environmental protection, parks and recreation, and more.
 It is evident the problems that an out of control  public sector has had on the well-being of the state. If I get a chance in a future blog I will highlight some of the other problems I saw. 

A government of the employees, by the employees, and for the employees.
The major problem in California is the looting of government coffers by the people put in charge of running the system. As Schwarzenegger said in his recent editorial. 
Roughly 80 cents of every government dollar in California goes to employee compensation and benefits. Those costs have been rising fast.
The foxes in charge of the hen house in California, and all governments in North America have a vested interest in not making changes to the system. As you have followed this blog the largest malfeasance has occurred in the Defined Benefits plans that politicians and bureaucrats have provided for themselves courtesy of taxpayers everywhere. 

 Feeble Attempts 
There is a need for meaningful changes and real reform to the public sector pension problem that is causing nightmares for taxpayers all over North America.

To respond to the outrage that is being expressed over the pension issue some governments are trying to make reforms. However, these efforts are coming up short and are doing nothing to solve the root of the problem. 

The Wall Street Journal has recently made major analysis of the pension problem and offers continuing insight into the real issues. One article that shows the deception that is occurring in the pension reform issue comes from Seeking Alpha - The Problem With Pensions

A WSJ article today brings another example of the reform efforts that are falling short of the intended goal.  One of the leading crusaders for pension reform is New Jersey Governor Chris Christie. Even his efforts that are seen as the most drastic of all policy makers in government come way short. The Christie Example points out the only real cure for the pension solutions is the abolition of defined benefit pensions.
New Jersey Governor Chris Christie has become the national pacesetter in state fiscal reform, and he's once again lighting up Youtube with his defense of taxpayers against the appetites of government-employee unions. The plan he announced last week to reform public pensions is crucial to saving the Garden State from economic calamity, but it falls short on one crucial part of long-term reform.
New Jersey has officially run up unfunded liabilities of $46 billion in its pension plan and $67 billion in its medical plan, though some estimates put the shortfalls much higher. Absent reform, the Republican Governor says the unfunded pension liabilities alone will explode to more than $180 billion over the next 30 years.
Most notably Mr. Christie's plan includes a rollback of the fraudulent 9% pension increase that triggered recent civil charges brought by the Securities and Exchange Commission. Without the money to pay for enhanced benefits, and unwilling to suggest even higher tax rates, legislators cooked the books in 2001 by pretending that the pension funds had more assets than they actually did, and therefore could cover larger payments. The fraud was repeated in various state bond offerings. Unions like to cast benefit hikes as sacred promises on the part of taxpayers. But in this case they are more accurately viewed as offenses that would draw prison terms if committed by anyone in private business.
But missing from the Christie proposal is the most important reform for the long-term: shifting government workers from pensions to 401(k)-style plans that have become the norm among private workers. This type of structural reform would prevent future politicians from simply repeating the mistakes of the past and returning to padding pensions when taxpayers are paying less attention.
Government pension systems are inherently flawed because the politicians who bestow benefits upon state workers are the same politicians who seek votes and campaign contributions from the unions representing these workers. When it's time to negotiate the benefits, the politicians and unions are often sitting on the same side of the table, facing no one representing the taxpayers.
 Governor Christie has previously promoted the use of 401(k)-style plans for government workers, but Democrats resisted and he apparently concluded the cause is hopeless. But other states have introduced such programs in gradual fashion, say, for new hires, or perhaps offering a hybrid plan of a limited pension combined with a 401(k). By dropping the issue without a fight, Mr. Christie has given away too much even before the unions get to the table.

Bill Tufts 
Fair Pensions For All