Ontario's Sunshine List and Super-Sized Pensions

Today in Ontario the Sunshine List of employees earning over $ 100,000 was released. It always makes a big splash. Ontario's Sunshine list - the salaries I question: Blizzard

Super Sized Splash
The Canadian Taxpayers Federation did a quick tally on the numbers from the Sunshine List. 
Ontario public sector $100,000 club grows by 19%

One of the tidbits they found was that there were 164 on the list who earned over $400,000. A quick analysis shows that if all are fully qualified for their pensions the value of these 164 pensions will be over $700 Million. One of my favorites is U of Calgary president eligible for $4.5M pension

Super Sized Pensions   
Public sector pensions are estimated at 70% of salary. This means a $400,000 salary will gain a $280,000 annual pension.

The cash value of the pension is 16 times the annual income amount. So a $280,000 pension has a value of $4.4 MILLION. This refers to the amount of money you or I would need in a bank account in order to fund a pension of this magnitude. It assumes the pension starts at age 55 and pays until age 82, the Canadian life expectancy.  

Most public sector employees are eligible for pension at age 55. If they retire at this age and live to the average life expectancy of 82, this is 27 years. A pension of $280,000 over 27 years adds up to $ 7.5 Million. The lower amount of $4.4 Million assumes that earning on the pension will make up the extra. Hence, 164 pensions valued at $4.4 Million each is about $721 Million.

The lump sum is also know as fair-value of the pension or present value of a member's earned pension. In simple terms, it is the amount of money that would have to be invested today to pay for the member's future pension.

Super Sized Taxpayer Contributions  
Pension limits in Canada are around $82,000. In order to get these higher pensions a special pension rule was created for the public sector. Called a SERP, it allows for an unlimited amount of funding. We looked at this in an earlier blog. 

Statscan shows that these plans have accumulated $199 BILLION to pay the pensions of these Super-Sized pensions. Note these are called Government Consolidated Revenue Arrangements in this illustration. 

Taxpayers have contributed more into these plans ($199 Billion) than we have accumulated into the CPP plan. ($122 Billion). Note also that of the $1.2 Trillion in pension funds, $805 Billion of this has been funded by taxpayers on behalf of public sector employees. 

Not only do these guys get the big bank roll today, the ice cream on the pie is the pensions to come. In fact most of these guys will earn far more in their retirement years than they ever earned working. Remember they did not earn $400,000 for their entire careers. 

All this is funded by taxpayers earning an average wage of $40,000 per year. 

As Kevin Gaudet says:

“There is an increasing divide between those who work in the private sector and those privileged and protected workers in the public sector. This has to end,”

Ontario Budget Another Disaster

The Ontario Government released the annual budget. In it they tried to explain the reason for the disastrous state of the provinces finances.

Sensing the wrath across the country over a  public sector gone wild, the government set in motion a series of sleight of hand tricks. The words sounded good but the actions did not back the rhetoric. Once again the taxpayer is being heaped with taxes to protect the public sector compensation package.

Ontario government moves to contain public-sector wages

The front page headline from the Globe and Mail is exactly what the public wanted to hear. Upon further inspection it was a devious slight of hand. The article shows how the government will be controlling labour costs and save $375 Million over each of the next 2 years.

James Daw of the Toronto Star points out what really is happening with public sector compensation. The budget notes show that costs for the Ontario Teachers' Pension Plan and other pensions and benefits will be $1.627 Billion this fiscal year, up $754 million in the past three years. So it appears that even though a few dollars might be saved by some salary freezes the total compensation spending spree continues unabated. 

It appears that rather than directly paying the public sector employees. Employees now get the money through a back door pension contributions. This is better for the employees too as direct wages are taxable but pensions are "non-taxable".

Lack of Leadership

In the fight to control compensation as the single biggest expense of the government, McGuinty and crew failed to show leadership. The Globe points out: 

 The new wage law will take effect immediately and will apply to all organizations covered by provincial salary-disclosure rules with the exception of municipalities. That exclusion, characterized as a policy decision to reflect municipality’s status as a separate level of government, also allows the province to avoid a showdown with the powerful police and firefighters’ unions.

Protecting friends at the expense of all 

One project that was shelved in order to cover the increased contributions into pension was Toronto's transit expansion. Either it was money for public sector pensions or infrastructure. Since infrastructure does not vote the money is going to pensions. Budget slashes billions from Toronto transit expansion

Why should things change now? Statscan shows that Canada's infrastructure is valued at $290 Billion but over the same period of time taxpayers have accumulated about $ 555 Billion into public sector pensions. So it was no surprise that more money being poured into the pensions of the pension class trumped infrastructure investments.  

Well at least there were no surprises in the budget. It is business as usual in Ontario.

Flaherty announces pension consultations

Canada's Finance Minister announces countrywide consultations on Canada's pension system.

Overview of Canada's current system
CTV coverage
CBC coverage

The initial information from the government shows how good our system is in Canada. It is one of the best in the world and provides some of the highest retirement income for seniors in the world.

Interesting Facts 
The "pension assets" in Canada are listed by the Finance department as being $1.8 Trillion:

They break down like this in a Statscan 2007 report

CPP/QPP -                                                              $ 157 Billion

Public Sector
Public sector pensions                                             $ 606 Billion
Super Sized public sector pensions top-up              $ 199 Billion
(Government consolidated revenue arrangements)

Private Sector 
Registered Retirement Savings Pensions                  $ 739 Billion
Private sector pensions                                            $ 314 Billion

Other - annuities, insurance companies                   $ 102 Billion 

I an assuming that the $ 300 Billion difference between 2007 and the 2009 numbers are the market losses over the past 2 years. Note the public sector employees (25% of workers) have accumulated a total of  $ 805 Billion in retirement assets and the private sector pensions and RRSP's have accumulated $1.053 Billion.

Pension reform needed
One interesting issue has not discussed. If the system we have is good enough for taxpayers, why is it not good enough for the public sector. Canadians have had to funnel billions of tax dollars into public sector plans to provide gold-plated pensions for MPs, MLA's and public employees.

You can see from the numbers above there are two levels of pensions in Canada. One for the taxpayers and one for the public servants.

The most glaring difference are the rules that the public sector has created for themselves. In the numbers above we see the special top-up public sector pensions. These are technically known as SERPS or Supplementary Employee Retirement Plans. They are designed for civil servants who go over the usual pension limit the average taxpayer must abide by.

They are described by Osler as:

Most SERPs are retirement or pension plans that provide for retirement income payments in excess of those provided under “registered pension plans” (which are qualified or tax assisted plans). Registered pension plans are subject to “defined benefit” or “defined contribution” limits designed to limit the benefits that may be funded through such plans on a tax assisted basis. Because of those limits, registered pension plans often do not provide adequate income replacement for higher income employees, and SERPs are commonly used to supplement or “top up” the benefits (of public servants)

These are the really big earners who earn over $120,000 per year. The Ontario Sunshine List has over 53,000 of these guys.

Illinois Reforms Pensions
In the US they are having to deal with the financial repercussions of these plans and have started to make changes. Sweeping state pension overhaul proposed

Illinois has tabled some excellent reform ideas to make the system more fair. I will contrast them with Canada.

1. Anyone hired by schools, universities, state or local governments after Jan. 1 would have to work until 67 to get full retirement benefits. In Canada the usual pension age is 50 for emergency services and 55 for the rest of the public sector. 
2. The pension would be based on the highest consecutive 8 years out of the last decade of service. In Canada the gold standard is 3 years.
3. Maximum salary for figuring a pension would be capped at $106,80. In Canada with SERPS there are no limits. On the Sunshine List there are hundreds of public sector workers who will earn, when fully qualified over $200,000 per year. Thousands at over $100,000 per year and at the bottom end tens of thousands are guaranteed a $70,000 per year in pensions. Even the bottom ones are almost twice the average Canadian's working wage.
4. Annual pension cost-of-living increases, now an automatic 3 percent, would be limited to half the rate of inflation or 3 percent. In Canada the 3% is pretty standard or the rate of inflation whichever is lower. (Guess who setts the inflation rate? Government economists)
5. As for double dippers, the proposed law would ban people from collecting one government pension while taking another public sector job. The first pension would be suspended during the duration of the second job. Upon retirement, the person could then collect both pensions. In Canada there is limited control on double dippers, they usually have to move to a different level of government ie. municipal to provincial to federal.

As you have a followed this blog you have seen the uproar and out rage across Canada, North America and across the world. Lets hope their days are numbered. 

The Grapes of Wrath
I have been reading an amazing book called the Grapes of Wrath by John Steinbeck. He won the Pulitzer Prize for it. A story of the Great Depression, it is as relevant today as when it was written.

Men who have created new fruits in the world cannot create a system whereby their fruits may be eaten. And the failure hangs over the State like a great sorrow. ...and in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.

Will the process move all Canadians to the same level of pensions? Or will we continue on with our two-tier pension system?

Pension Pulse - Leo Kolivakis pension crisis pioneer

Pension Pulse provides excellent insight into the crisis and the current affairs of pensions. 

Leo has an excellent blog that follows the pension world. He is one of the first to pull the alarm on pensions and the problems that we face today. He forecasts and explains the the disasters we face tomorrow.

My hat goes off to Leo for the excellent insight he offres and the hard work keeping his blog up-to-date.

Leo works hard and updates his blog almost every day.

Today's blog is and excellent update on the situation Pension Woes May Deepen Financial Crisis

Canada's Biggest Industry

We have some pretty significant challenges in North America. The biggest challenge is how are we going to pay all of our bills? Our governments are spending like drunken sailors and when the hangover is done someone has to pick up the tab.

I have bad news, you will have to cover the bill. The sailors will have already left with whatever money is left over.

Today I had a very interesting conversation with a business owner Mike who provided me with the chart above. It shows what has happened to manufacturing in North America. This has serious consequences for us all.

Mike spoke to me how as a professional engineer he had missed the boat by not working for the government. How his friends in government make more as janitors than him as a business owner. When you consider the pensions they have and the fact they can retire as early as age 55 he is not far off.

We agreed that the system is broke and the only solution is bankruptcy. Our society needs to start over and restructure in a way that is sustainable. The sooner the bankruptcy comes the better, the sooner we can start over.

The Impossible

There was an excellent article this week from the Globe and Mail; Can Ottawa tame its deficit beast?

The article has some interesting stats about the value of public sector wages and salaries. These have surpassed manufacturing in Canada as the largest single industry.

The article shows that the total value of the public sector compensation package in Canada is $176 Billion. Statscan shows that manufacturing had a GDP of only $150 Billion in 2009. This makes the public sector employment the secound largest industry in Canada, next only to the financial and real estate industry.

The problem is that the secound largest industry in Canada does nothing to drive our economy in fact, it has the opposite effect. As Ross Perot aptly described Free Trade, "you can hear the sucking sound", the same can be said about the public sector in Canada. It adds nothing productive to our economy. It is only a consumer of the nations wealth

When the secound largest industry in our country is the public sector payroll, we are in big trouble.

Pension Boosting

The pensions systems is broken. Everyone knows and acknowledges it, except those who have a vested interest in the system and will receive benefits in the millions of dollars from it.

Firstly, there are the law makers. They are the first in line for lucrative taxpayer funded pensions. Former Reform MPs set to collect large pensions.The pensions mentioned here are in the range of $150,000. At age 55 the fair cash value of these pensions are about $2.4 million. Over the course of an estimated 30 years of pension payments the MP's will stand to collect $4.5 million. Many provincial MLA's not wanting to miss the boat have bought a ticket to the gravy train. $800,000 per Lucky MLA

Tell me that one of these guys could go home and tell his wife about pension reform ... "guess what we did in Parliament today". Then he will have to explain what happened to their $4.5 million. It ain't going to happen! 

Next in line are the senior bureaucrats who as management are supposed to protect the interests of taxpayers. They are in a position to makes changes but they too have a large personal vested interest. In fact, they have even implemented juicy rules for themselves to ensure high pension payouts go directly into their pockets. See my last blog where a senior bureaucrat gave himself a juicy pension even though he had stopped working 10 years before. We cannot count on any changes to be implemented at this level.

Finally there is the last level of average public sector employee. They have gotten together to use the political power of their unions to pile onto the taxpayer. This has ensured special rules for them as well. Even the Auditor of Ottawa could not resist the goodies in the cookie jar. $104K payout to City of Ottawa auditor upsets taxpayers

Pension Spiking
One issue that has not gotten much traction in the debate is the issue of pension boosting or spiking, It happens here in Canada but the ones who can do something about it are powerless because it will cost them personally millions of dollars. 

Buy Backs
These are special rules that allow public sector employees to give pensions a good boost by buying additional pension time. This is the rule that the public employee from my last blog used to give himself a juicy gold-plated pension. For just cents on the dollar public servants can boost pensions by hundreds of thousands of dollars using a  Service Buyback Package. This is a standard tool in pension gaming.  

Vacation Time and Sick Day Payouts 
Last year the City of Toronto had a city employee strike. One of the big issues in the strike was the sick pay issue. No one discussed the connection between sick pay and the ultimate impact they have on pensions. The unions fought tooth and nail to keep this benefit. They realized the future impact any changes would have on their pensions.  

Sick-leave bank becomes pivotal issue in Toronto strike 
Pension Calculus Draws New Scrutiny 
City Wants Police Union To Pay More For 'Spiking' - Video  
California takes aim at big pension payouts for public employees 
State must act on county's pension abuse 
Public Pension Plan Targets ‘Spiking,’

Overtime
For the rank and file members of the public sector this is the easiest way to boost pensions.

Colin Craig of the Canadian Taxpayers Federation, brought my attention to a Winnipeg Overtime and Sick Leave Audit. It shows the boosting that takes place. Of course the report makes no reference to the pensions drivers over this issue or the long term costs.  

Winnipeg Overtime and Sick Leave Audit
Police OT is a pension lode 
Using overtime to increase pensions draws protest 
Overtime an issue in police budget 

A search for solutions in Alberta

Alberta has requested public input into pensions.

It is a follow-up to the Expert Commission on Pensions. In the consultation they are asking for input into specific ideas. Most of these issues are based around increasing the level of pension coverage for individuals in middle income ranges.

The pension consultation process asks 15 specific questions about the available options. It is appears straight forward and everyone can answer the questions the way they are posed.

I encourage you to complete a response and send it in. The future you will be impacting maybe your own.  You can find the consultation paper at Pension Consultation

Public Sector Pensions 
If you can catch it Barrons has an excellent article about the problems with public sector pensions.  
The $2 Trillion Hole

We know the problem but where is the solution?

 

An interesting article caught my attention today. TD's Don Drummond to rest his calculator end June.

The part of the article that amused me was that at age 56 and after 10 years at TD Bank, Drummond is eligible for a FULL federal government pension. He had retired 10 years earlier from the federal government but is still eligible for a full pension.

In an interview, Mr. Drummond, 56, said the plan was always to retire after 10 years at TD because he would be in a position to get his full pension from the federal government without actuarial penalties (under arrangements for people who reach the deputy minister rank).

Prior to joining TD in 2000 as chief economist, Mr. Drummond worked at the Department of Finance for 23 years, rising to the rank of associate deputy minister.

Some of the comments from friends that were sent to me included:

Wow, took the pension, now he will consult and double dip...or join the Caisse. (wink, wink)

He was still making contributions to his public service pension - I just about fell over. And of course he'll be working somewhere else tomorrow and have his full pension. It never ends. 

Wow, what an eye-opener.

Mr Drummond is one of the better economic minds in Canada.I have admired much of the work he has done.

But this situation points out all that is wrong with our current system. A system that need reform urgently. Mr Drummond did not make the rules he only plays by them  

Pension Reform
Reform is long overdue and everyone knows that it need to be done. However, it is a game of chicken. Who goes first?

The mayor of Chicago recognized several years ago the changes needed to be made and today he stated:

that the day of reckoning has arrived for a financial crisis that’s choking local taxpayers:... the crisis that won’t be pretty or politically popular.

“I hope it’s controversial. It has to be. If it’s not controversial, then it’s not worth anything,”

 Same Pensions, Same Problem
Across North America public sector pensions have basically the same design. It is the design of these pensions that has to change.

The Chicago Sun-Times ran a feature last fall that highlighted the problems.

The article What they get . . . shows the design of public sector pensions. They are the same across North America for all levels of government. For example, pensions at age 50 are available in Canada to "emergency workers" and in some cases like the police department in Hamilton some employees start a couple of years before 50.  

Public pensions, fat retirements  

This article shows some of the jumbo pensions. They exist here in Canada too. The only problem is that we have no pension disclosure to illustrate the problem. The Sunshine List in Ontario for example, shows over 53,000 Ontario provincial employees earning over $100,000 per year. When fully qualified these pensions will pay almost twice the average Canadian's working wage.  

Many are jumbo!!!  Take any area from the Sunshine List and you can find some biggies. In my home town the hospitals are generous with your money. One CEO earns $613,187.21 per year. If fully qualified this income will generate a pension of around $420,000 per year.  The cash or fair-value of this pension is in excess of  $ 6.4 million 

Double Dipping  

This is frequently very popular with the pension class. As the Sun -Tines writes:  Retire on Friday, start a new job on Monday -- and we pay for it al. 

The pension disclosure rules were attempting to bring these types pension double-dippers  abuses to light. California has one of the most popular lists. CALPERS pension list   

Mr Drummond is collecting a federal government pension. In addition, probably has a juicy one from TD Bank and when he starts teaching or another government job will have several years qualification towards collecting a third pension. How is that for fun... triple dipping! 

Pension Boosting or Spiking!

This is another very popular game with the pension classes. Pension boosting involves getting a pension higher than just 70% of income, the usual gold-plated pension. Pension boosting is usually done by three methods. Working overtime in the final few years before retirement helps to spike the pension dramatically. An added bonus is the overtime worked is at 1 1/2 times regular salary. The overtime goes towards pension calculations. Finally, accumulated vacation pay as well as sick time payouts. All these bonuses are not available to those outside the pension class.  

The Sun-Times articles featured a similar bonus plan. A year after retiring, Jones to get 51% boost  

Survivor Pensions   

No one can argue with this part of the plan, a survivor pension for widows. What can be done is to prevent two pensions being paid to the same family in the pension class. A teacher widow who married a teacher would get two pensions upon the spouses death. She would get her 70% pension and 60% of her husband's pension.   

On one final note about pension envy. The other day in my neighborhood, a fairly affluent one I saw a nice bright new 4X4. I thought to myself we don't see as many brand new cars around these days.  Then I recognized the driver.

 The driver of the car was a local civil servant who was in his early 50's, ready to retire. It occurred to me that he did not have to worry about saving anything for retirement. He would be getting 70% of his salary, indexed for the rest of his life. Of course, all guaranteed by me. 

The pension classes can enjoy the good life today and rest assured that I have covered their future standard of living as well.   

Shifting Pensions

 

UK Pensions - Same trend as Canada

Well the budget has come and gone and Ottawa has made some very vague comments about pensions. Probably we will have to wait until after more MP's qualify for pensions until Ottawa's MP's take a hard look at the issue. 74 MPs will qualify for pension if election delayed until July 2010

Maybe Ottawa is hoping that the upcoming battle with federal public servants will distract Canadians from the gold-plated pensions of those in the top layer of Canada's two-tier pension system. Public service facing the most cuts

Shifting Pensions
Shifting Pensions is the name of a report from Statscan that shows the trend in pensions in Canada. Shifting pensions - By Philippe Gougeon

The report cites

Registered pension plans comprise defined-benefit (DB), money-purchase or defined-contribution (DC) and hybrid/mixed (H/M) plans. These plans covered 30%, 6% and 1%, respectively, of employees in 2006. Over the last 30 years, a gradual transition away from DB plans has taken place (note: only in the private sector!)

 When we look at the numbers we see that DB plans cover the largest number of  employees they are considered the gold-plated pensions. DB plans are guaranteed, indexed and provide for survivor benefits. Of course these pensions back-stopped by taxpayers are the type our elected officials give themselves and the public sector. The other type of pensions plan DC plans, that a few Canadians have, are much less secure.

Two Tier Pensions 
If we analyze the numbers we see that 30% of Canadians have DB plans. The public sector comprises almost 24% of Canada's employees. Of these about 80% have DB pensions. Labour Force Survey.This means he gold-plated plans are predominantly the domain of the public sector. A few large corporations have these plans, many are "Crown corporations" of the balance sheet of the government but fully backed by taxpayers. 

To restate the numbers; 20% of total Canadian workers are covered in government DB plans and only
24 % of the remaining Canadian workers have pensions. 

Of course Canada has no pension problem. We would have to have pensions for there to be a problem. With over 76 % of private sector employees having no pensions there is no problem.  

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....

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%. 

Funding
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. 

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:
http://www.regina.ca/AssetFactory.aspx?did=3277
http://fairpensionsforall.blogspot.com/search?q=regina
.

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.

Chicago is broke!

 

Like most governments around North America, the State of Illinois is staggering under the weight of its pension obligations.

Public servants baby boomers have made extravagant pension promises to themselves. Now that these boomers are close to retiring, the taxpayer and future workers are finding out the size of the tab. It is not pretty.

A large part of the problem is the gap between what public sector employees have offered themselves and what the private sector will get. Now in Illinois the States largest business organization, Commercial Club of Chicago, has started a campaign to control the costs of these plans.

Check out the Web Site and watch for more future news from this group. Illinois is broke.com 

Lets hope we see more of these groups help to share the news.
Canadian Taxpayers Federation  
Canadian Federation of Independent Business
New Start Nova Scotia - Pensions In Crisis
Pension Tsunami
The Free Enterprise Nation

Obscene taxpayer and pension abuse in Ottawa

.
The CBC reported on an issue in Ottawa where the city auditor gave himself a very juicy pension deal courtesy of the taxpayers of Ottawa.

The auditor was leaving employment of the federal government. Unfortunately for taxpayers he had not yet qualified for his gold-plated pension with the feds. He appeared to be a few years and $100,000 short.

Some of the facts are:

• He had a verbal agreement with Kirkpatrick (city manager) that he could transfer his federal pension to Ontario’s municipal employees’ group pension plan.  
• He had the opportunity to buy back federal pension time. For an expenditure of $20,256, he was able to boost his federal transfer amount by $175,536
• Ask the corporate-services committee if it would cover the money he had paid out to enhance his pension. Because such a payment would be a taxable benefit, the city was asked to boost the amount to just under $104,000 to cover the taxes Lalonde would have to pay.
• Lalonde worked for the federal government and then the City of Gatineau before getting the Ottawa auditor's position in September 2004 
• The auditor now has full pension credits from three different employers and one taxpayer

        Auditor got $104,000 boost to city pension 
        Pension defence tarnishes auditor

The truly obscene thing about this deal is not the $ 104,000 "bonus" he took from City Hall or the $208,000 that Ottawa pays him every year; it is the fact that he transfers pension credits from one employer to the next, and keeps his full pension.

He appears to be fully qualified for his City of Ottawa pension. At his current salary of $208,000 he will receive a 70% of salary pension for life. This is worth $ 145,000 per year, paid for life and indexed to go up every year. All courtesy of the Ottawa taxpayers.

The fair-value of this pension is close to $ 2.3 Million.

This is the same deal that earlier in the year the President of the University of Calgary received.
University Faculty calls president's pension 'obscene'

Part of the tragedy of this story is that the position of auditor is one that most government organizations should better manage and implement. However, if the auditor himself has no credibility the position loses all of its potency.

Here is an example of the types of issues the auditor can address: 
Sick leave, transit strike cost Ottawa millions 
City auditor general's report

Here is what happens when he has no credibility:
Auditor has no authority to question taxpayer funded party

This is outrageous and Ottawa taxpayers should stand-up against this type of abuse. 

To whom is Canada's Debt Owed? CTF Report

A recent report from the Canadian Taxpayers Federation shows that a large portion of Canada's federal debt is owed to the civil servants. It is owed for the future promise on the pension obligations of the federal government. Canadian Taxpayers Federation

The statistics from Statscan shows that Canadians owe $137 Billion to the pensions of federal employees. This is in addition to the billions already pumped into these pension plans.At the end of 2008 the PSP already had almost $40 Billion of taxpayers money.

The amount of the deficit is actually a lot larger than the $137 Billion that Statscan reports. The CD Howe Institute shows the actual amount is closer to $200 Billion. The Startling Fair-Value Cost of Federal. Government Pensions - PDF .

The CD Howe report comes up short on the obligations for Canadians when it is considered that federal employment only accounts for 15% of total Canadian government employment. If we consider that 15% of government pensions are short almost $200 Billion. The total liability to taxpayers is in excess of $1.3 Trillion.

This is in addition to the $555 Billion that Canadians have already pumped into public sector pension plans.

In Other Notes 
The average Canadian is earning about $41,000 per year. Canada's average wage

A report from BC shows that paramedics in Ontario earn in excess of $100,000  in total compensation. Considering their base salary of $88,000 per year, pensions for these employees will be valued around
$61,600 per year. They are guaranteed for life, indexed to increase every year and go to a surviving spouse for life.
Report on Paramedic Compensation - PDF

Pension report from BC's Finance Minister

The Globe and Mail pension specialist, Janet McFarland, covered a report released from the BC government. The report shares their vision for the future of pensions in Canada.

Middle-income retirees face pinch

BC Pensions Report

This ia an excellent article on an interesting topic.

The CPP as it stands is designed to provide 25% of income up to the YMPE limit of $47,200. So any earners over the limit have topped out on CPP. This year the earnings will be $11,800.
2010 CPP contribution numbers

The BC report points out that CPP and OAS programs combined are designed to provide 40% of the YMPE income level. This is seen as a suitable income level for Canadian taxpayers to have for retirement. However, the BC Finance Minister and the rest of the MLA's in BC feel it is necessary to have a 70% replacement pension for themselves. They like to include the rest of the public sector employees at 70% as well. All with no limits or YMPE.

One rule for taxpayers and another for public servants sucking up taxpayer money.
Gold-plated Pensions for MLS'a in BC

This compares with public sector pensions that earn 70% of final salary. The income average at the federal level is $75,000. (the last salary survey was based on 2002/3 numbers, the average annual increase has been about 7% since then.) So the pensions here are at about $52,500 including CPP.
Treasury Board of Canada Treasury Board Compensation Report

Canada's average wage is at around $40,000 per year. So most Canadians are covered under the CPP plan. As the article points out there is a shortfall for the group between $30K and $100K. This group pays about 42% of disposable income into taxes. This does not leave very much to save into retirement plans.

The unions in Canada envision a program to boost CPP to 50% up to $100k. In the UK they have begun to implement this type of a program. They call it the NEST plan. All employees and employers will be required to contribute into the supplementary retirement plan.    
UK-wide pension fund to be called NEST
 
Lets move the public sector and private sector to the same plan, level the playing field so to speak and most Canadians will live comfortably in retirement

Public Sector Prepares All Out Battle with Taxpayers on Pensions

 

The public sector is preparing for battle over the issue of protecting their taxpayer funded pensions. It will not be pretty and the taxpayer does not have much chance of winning.

The war teams of the public sector unions are meeting in Ottawa to develop the battle plan. Eighteen of Canada's public sector unions are getting together as Federal civil servant unions gird for battle

It is urgent for the public sector unions to protect their pensions as Canadians begin to realize that Federal PS pensions are a $58B debt time bomb. Especially as Taxpayers are asked to cover rising pension costs for government employees as noted in this Business Week article. This article has US references but still relevant for Canada, I put this in here as Leo from Pension Pulse is quoted.

In Ottawa the current government is afraid of the fight and has been trying to avoid it at all costs. In an attempt to diffuse the issue they claimed that retirement security was not a problem for Canadians. Don't panic on pensions.

Despite federal government denials of pensions being a problem in Canada, public sector unions can see trouble brewing. CUPE Video on Issue

You can get a preview of the fighters who will be in the ring making this similar to a last man standing WWF fighting match. Heading Towards a Pension Summit. Indeed there are billions of dollars of your money at stake!!!

The unions had a get together in the fall of 2009. Here is a series of videos that offers a preview of issues that they will be bringing forth.  

Pension Video Series 

Ontario Teacher Federation  

Canadian Labour Congress  

CLC, pension crisis - Part 1

CLC, pension crisis - Part II

Public pensions part of the problem

One of the leaders in the discussion on pensions in Canada is Catherine Swift. She is president and CEO, Canadian Federation of Independent Business (CFIB).
 
Today her letter to the editor was printed in the National Post. She is right on the money when she says Public Pensions Part of the Problem

 Ontario NDP Leader Andrea Horwath’s claim that pension plans like OMERS, the Ontario Teacher’s Pension Plan and HOOPP work well once again promotes the incorrect notion that if only we could have such wonderful types of plans to offer other Canadians all our problems would be solved. She neglects to mention that there is one and only one reason these plans work — because they are endlessly supported by massive and growing amounts of private sector taxpayer dollars. 

These are dollars that those private sector taxpayers do not have to put away for their own retirement. Public sector plans like OMERS and the OTPP are part of the problem, not part of the solution. These plans are invested in exactly the same stock and bond markets as are RRSPs and other plans.

For example, the OTPP lost 23% in the recent market meltdown — pretty much the same as what everyone else lost.  Yet did benefits get affected one iota? Of course not, as generous taxpayers are expected to pick up the slack like they always have.

There are indeed serious problems facing private sector retirees that need to be addressed, and one of the first steps must be cutting back on the private sector dollars going to rich public sector plans, and increasing public sector retirement ages (currently much younger than anyone else in the economy) so that private sector taxpayers are left with a few bucks to put away for their own modest retirements. There is no financial or social justification for our two-tiered, reverse-Robin Hood pension system.

The facts that she presents here were backed up in a report produced by the CFIB called the Pension Predicament  This report was on the first to recognize that the gap between public sector pensions and taxpayers retirement plans is unfair, unjustified and unsustainable. 

Retirement crisis overblown???

An interesting article today from one of Canada's foremost pension expert was released in Advisor.ca

The article cited that

Despite dire warnings in the press that Canada's pension plans are set to implode, one of the country's most respected actuaries says the problem isn't really that bad. In fact, Canadians are in an enviable position compared to most other countries.

When we see the news today  about the earthquake in Haiti we realize how truly blessed we are to live in a country like Canada. It is true that

"We have virtually no poverty among senior citizens in Canada — virtually none; a big change from 40 years ago when we started to develop the (retirement) system that we now have."

The contention of this blog is that all Canadians need to share fairly in our countries wealth. There should not be a divide between the haves and the haves nots. Especially when the haves are funded at the expense of the have nots.

Statscan showed that in 2008 Canadians contributed a total of $ 34.1 billion into their Registered Retirement Savings Plans (RRSP). These are the plans that cover those workers who do not participate in work sponsored pension plans. There are a total of around 18.4 million workers in Canada and only 5.9 million belong to pension plans. These RRSP contributions include those of the 68% of workers not in a pension plan, or about 12.5 million workers. Nationally, the median RRSP contribution was $2,780.

These RRSP contributions contrast with those contributions made into Canada's pension funds. Statscan estimates these pension contributions to be about  $ 37.2 Billion in 2009. This is for the other 5.9 million Canadian workers who are in a pensions plan. Of these workers almost half are public sector employees. This makes for an average contribution of $ 6271.

A significant portion of contributions were funded by taxpayers for the benefit of a public sector on defined benefit pension.

In the Eye of the Pension Storm

The eye of the pension storm is focused in Southern California.

ABC News came out with this report on Pension Friction in Contra Coast County. Contra Coast is a bedroom community in the San Francisco - Oakland area. Although the report focused on an issue called "spiking"" it is really just the tip of a much larger fight that has been brewing for some time and threatens to become much larger.

Last summer we saw the Toronto strike focus on an issue of accrued sick time. The vacation time issue in this news report is based on the the same concept, a lump sum payout at retirement. Because public sector pensions are based on final salary, these terminal payments go towards the calculation of the worker's pension. The result is known as pension spiking or boosting.  

The issue of spiking is really just the current bulls eye on a fight over public sector pensions.

In the report we see Marcia Fritz interviewed. She is the President of the taxpayers advocate group called California Pension Reform. They are demanding the reform of public sector pensions in California.

One of the accomplishments of California Pension Reform has been to bring to light a serious issue that has been hidden and undisclosed to taxpayers for a long time. They have been responsible for the push in California to disclose $100,000 pensions in the public sector. Their work has been aided by the Pension Tsunami.

Pensions are an issue that will steamroll over every level of government in North America. Public pensions are the same in design and cost for workers from the City of Toronto, to California State to federal workers in Ottawa. They are surprisingly consistent across cites, states and provinces.

Unfortunately too many politicians and taxpayers are unaware of the looming disaster. Arnold Schwarzenegger calls them a locomotive.

"We are about to get run over by a locomotive and we can see the lights coming at us. We can see the lights coming"

Pension reform is an issue that is very controversial. These entitlements will be  furiously by the public sector unions regardless of the costs to taxpayers.

Conversations Between Bankers and Taxpayers

Stephen Gray wrote about the the feudal system the gap between the corporate elites and taxpayers. He captured a conversation between a banker and a taxpayer. It covers the essence of the problem very well.

The Writings of Stephen J. Gray - Blog

Earlier this year the Globe and Mail quoted me:

He calls it our "Modern Feudal System."
A system where a few have a lot and the majority have - or will have - very little indeed." -

Church and King have been replaced by Government and Big Business," says the Hamilton-based pension specialist with WB Benefit Solutions. "In the feudal age, the church and nobility always wrestled for the purse of those trapped in the caste system. But the poor serf still paid with everything he grew or could make.

 The Globe article went on to talk about the gap between public pensions and private pensions. Stephen covers the other side.

 

Average RRSP Holdings of Canadians

Statscan produced a report called the Wealth of Canadians (PDF). The report shows the level of preparedness of Canadians for retirement. It is based on the amount of retirement savings Canadians have put aside for their golden years.

This is a list of confusing facts and figures compiled on retirement savings in Canada. Feel free to analyze and create a create a comprehensive report of what all these numbers mean. The bottom line is Canadians have manged to save about $37,000 into their personal retirement accounts while contributing into and creating public sector employee plans worth and average of $163,000 per employee.

It appears that Canadian taxpayers are in deep doo-doo.  


RRSP Average Holdings for Canadians( for the 58% of Canadians who have them)
Age 35 - $22,500
Age 35-45 - $49,100
Age 45-54 - $ 90,300
Age 55-64 - $124,500
Age 65 and Older - $ 108,200

All age average of employer funded pension assets - $ 160,000


Based on the Average Wages of Canadians it appears most Canadians are woefully prepare for retirement. The average working wage in Canada is slightly over $40,000 per year.

Total value of employer pension plans $826.5 billion, loss of $128 Billion from a year previous.
Total value of public sector pension funds $ 555 Billion

Annual contributions into pension plans in Canada $ 38.8 Billion
Considering that public sector pensions hold 67% of all pension funds, if the contributions levels are the same Canadian taxpayers funded about $25Billion into public sector pension funds last year.

Public sector pensions make up over 65% all employer-sponsored pension assets. 
Public sector workers make up 20% of the workforce

Total value of Canada's infrastructure - $286.2 billion
Including highways and roads, bridges and overpasses, water supply systems, wastewater treatment facilities and sanitary and storm sewers
Taxpayers have funded a total of $ 269 Billion more into public sector employee pension plans than they have contributed into Canada's infrastructure

Average annual contribution into public sector pension plans $ 7,269 per employee. Based on estimated annual contributions of $ 25 Billion for 3.4 million public sector employees.  
Average Canadian contribution into RRSP's - $2,650

Assets in public sector pension plans in 1990 - $111 Billion
Assets in public sector pension plans in 2008 - $555.7 billion
Growth in assets in public sector plans - 500%
Percentage of workforce - 20%
Average per worker $163,000

Assets in individual registered savings plans in 1990 - $157 billion 
Assets in individual registered savings plans in 2008 - $631 billion
Growth in assets - 400%
Percentage of workforce 80%
Average per worker $ 37,000

I hope my analysis of these numbers is accurate. Please let me know if you see anything out of place.