Thursday, April 21, 2011

University Pensions Driving Tuitions Higher




It appears that Dalhousie is suffering from the same financial problems as many universities across the country. The pension costs for an aging workforce are killing them. Dalhousie spending big bucks on university brass

We are now seeing the conflict plaguing all government organizations. The gold-plated defined benefit pensions that the staff in the public sector enjoy have melted down and are no long sustainable without large injections of cash. It creates a choice between more services for students or more gold-plated benefits for management and staff.

The large increases in tuition are expected to generate an additional $14.6 million in revenue. It happens to coincide with a $11 Million injection (Note C)  into the pension staff planned last year. This is on top a regular annual pension contributions of $19 Million. It appears that the pension fund is short in excess of $100 Million and the administration is worried about being able to retire in comfort.

In 2002 the university contributed $4.7 Million into the pension fund and it has increased every year since then and last year the regular pension payment was $19 Million. Despite more than $135 Million of taxpayers money going into the fund since 2002 it is still woefully short. The employees contributed $91 Million over that same period.

The Economist this week featured a report on pensions of the kind offered at Dalhousie. They noted "A pension promise can be easy to make but expensive to keep. The employers who promised higher pensions in the past knew they would not be in their posts when the bill became due" Well the bill is due and at most universities the numbers of retirees is reaching record numbers. These easy promises are becoming expensive.

The pensions plans are not sustainable and it is unfair to ask students to pay more or suffer less services to pay for these gold-plated plans.

Pension contributions on the plan are woefully short and they will suffer shortfalls for many years to come. That is why the request to the government for solvency relief is so important. Solvency relief is like a mortgage that is amortized over 30 years instead of 10 or skipping a payment on your credit card.

Why not have employees pay their fair share?

The taxpayer (university) funds 16% of employee salaries into the pension fund and the employees only have to come up with 6.15%. The CD Howe has estimated that the true cost of these pensions are 34% of annual salary. The shortfalls are built in at these contribution rates. Even worse, as salary costs skyrocket so do pensions. Pension funding is like trying to chase a rocket, unless pensions are capped it will never happen.

The pensions are based on 70% of the last 3 years of salary of the retiring employees. The faculty at the university is earning an average wage over $100,000 per year,  this means a pension in excess of $70,000 per year including CPP. Many of these employees are eligible to retire at age 55 and will earn this pension for the rest of their lives. If they live to age 80 this will be over $2.3 million in pension income when indexed for inflation. To fund a pension like this takes pool in excess of $1 Million.


Then there are the Super Sized pensions, those of the senior administration staff. The article mentions that one income is at $360,000. This income level will generate a pension in excess of $250,000 for life and will require a pool of  $4 Million.


Its time to change these pensions. Firstly, convert them into defined contribution, the kind most taxpayers have. Limit them to a reasonable amount say $80,000 per year, twice what the average wage earner makes. Make the employees pay their fair share and not rely on the generosity of taxpayers who will never see a pension close to this. Why allow workers to retire at age 55 when government around the world facing the same crisis are raising the age of retirement?


Our students deserve better than this, its time for a change. 

Bill Tufts 
Fair Pensions For All 

7 comments:

  1. While I am not against pension reform, I have to question the idea that the taxpayer is paying for something the employees have not earned. The pension figures were arrived at through collective bargaining and are a part of the renumeration promised to the employees. To change them unilaterally when the ink on the contracts is long since dry is unethical. There are ways to make changes that are not unethical, but they require going through the standard bargaining procedures to reach a deal.

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  2. Contracts are broken all the time. It's unethical to expect taxpayers to foot the bill for any public sector pension. I have a great idea. Why doesn't the public sector pay for my retirement? It wouldn't cost too much. Our family has had to live on 16K last year. 5k of that was mortgage.

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  3. The simple answer is to make pensions and other benefit packages part of the pay package. Thus salary is the cost of the total pay package for an employee less the cost of benefits.

    That way the unviversity does not facce additional costs if benefit costs go up.

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  4. nice content I like it. Someday I will back again to see your blog.

    ReplyDelete
  5. There are ways to make changes that are not unethical, but they require going through the standard bargaining procedures to reach a deal.

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    ReplyDelete
  6. I have a great idea. Why doesn't the public sector pay for my retirement? It wouldn't cost too much

    ReplyDelete
  7. Teachers always benefit at the expense of students

    ReplyDelete