B.C. throne speech signals public sector instability

It is always interesting to watch the press releases from one of Canada's major unions, the NUPGE. Despite the current economic times they steadfastly refuse to sacrifice for the economic well being of Canada.

The most recent comment from the NUPGE (National Union of Public and General Employees) is called B.C. throne speech signals public sector instability. It is a very well thought out article trying to address some major issues in Canada today.

The union wants to support a wide range of public initiatives:

in legal aid, libraries, literacy programs, student aid, housing, seniors' services and mental health and addictions services.

Despite the rhetoric for its support of these initiatives, the union refuse to offer any productive solutions. They are trying to incite fear that these programs will be cut because of a public sector wage freeze.

The simple solution would be to compensate the unions at the same level as the taxpayers in the private sector. The total compensation package of the public sector includes wages, benefits, and pensions. Public servants in Canada are paid up to 40% more than the same private sector worker.

For most MUSH organizations, municipalities, universities, schools and hospitals the single largest expense is for the compensation package of union employees. At most municipalities it is in the range of 50% of revenue and rises over 75% for most school boards. Hospitals and Universities fall somewhere in between.

By moving the public sector pensions and compensation to the same level as those in the private BC could save billions in its budget costs. Today PricewaterhouseCoopers calculated the public sector pension to be valued at 35% of wages. Public sector pensions in the UK. Canada and the US are paid at roughly the same level. They are defined benefit plans based on achieving 70% of final salary.

A complete report of the premium paid to workers in the private sector was published by the CFIB (Canadian Federation of Independent Business). It is in a PDF report called Wage Watch.

The goals and ideals of NUPGE seem right on target. However, their appearance is that of only wanting to protect the gold-plated benefits and platinum pensions of their members. All of course funded by the taxpayer.


Excellent BBC coverage of the Pension Crisis
Pensions in the UK Canada and the US are based on the same type of pension plan design. Defined benefit plans attempting to pay retirees at least 70% of their final salary at retirement.

The Double Dip Party Continues

A news article caught my attention today. Pension + Salary — how’s that for a “retention bonus”?

It is an issue that is rising is concern across the US. My hope is that it will soon be addressed in Canada as well. My recent blog called Canada promotes double dipping covered the basics of the issue.

If you see any Canadian articles about double dipping, please let me know.

Some NY lawmakers collect pension pay and salaries
State Legislators Double-Dip Salaries, Pensions; Lone Holdout Honored
In Utah - Double dippers adding to the pension fund problem?

USA Today - Our view on ‘double dipping’: Public sector ‘retirees’ draw a pension — and a paycheck
Auditor: 'Double dipping' costs Del. $17M a year
Florida limits 'double-dipping' for state workers

There are a few groups that are fighting for taxpayers to make sure that government stay accountable to the taxpayer.

One of the groups that I respect is the Canadian Taxpayers Federation. Occasionally they bring an interesting pension situation to my attention.

A pension they brought to my attention is the Saskatchewan Healthcare Employees Pension Plan or SHEPP. It is a a typical mid sized pension plan in Canada. Funded by taxpayers for the benefit of public sector employees.

It is the kind of plan all Canadians would like to have.
Pension Envy

A total of 65 healthcare employers in Saskatchewan participate in SHEPP on behalf of their employees.

The plan serves 43,729 members. Of these 32,287 are in active service and 10,018 are retired and the remainder have a deferred pension

Total assets in the plan at the end of 2008 were just under $2.5 Billion

Total contributions into the plan 2008 were $163 million.
Last year the employees contributed $75.514 M while the employers contributed $84.464 M or 112% of the employee contribution

There was $117 million in total benefits paid out in 2008

The plan lost 19.8% on its investment portfolio last year.

The total plan assets fell by $562 million in 2008

The employee contributions into the plan are 5.85% of earnings up to the YMPE ($46,300) and the contributions on income over YMPE are 7.53%

The employer (taxpayer) contributions are set at 112% of employee contributions or 6.55%

A total of 65 public healthcare employers mainly hospitals in Saskatchewan participate in SHEPP on behalf of their employees.

Like most of these pension plans there is no representation from the taxpayers who fund them. They have a list of trustees who are “employer” and “employee” representatives. However, even the employer representatives appear to be members of the pension plan.

When difficulties arise with these plans the funding problems are usually discussed with the government behind closed doors. The government does not like to create friction with its largest voter block. Pensions usually get what they want from the politicians negotiating with your money.

There needs to be taxpayer watchdogs on the boards of these pension plans. They are funded by taxpayers and taxpayers have to kick in any pension shortfalls.

The average wage in the health care sector in Saskatchewan is $46,742 per year. The average pension from SHEPP is based on a 2% per year with maximum pension at 35 years. This means a benefit of close to 70% of retiring income or $32,719 including CPP.

Of this pension of $32,719 the CPP would contribute $10,905 and the pension plan contributes about $ 21,814.

The big question is …
An private sector employee pays 4.95% of annual income into the CPP plan to get $10,905 per year in pension income.

The public sector employee in SHEPP pays 5.58% to get $21,814. How can the public sector employee pay in the same and receive twice as much in taxpayer funded pension?

Canada is addressing pension reform at all levels of government. Fairness between the public sector and public sector pensions is one the key issues that needs to be addressed.

Union Dust up!

Unions have taken advantage of poor economic times to strong arm governments into luxurious settlements. It is a strategy that may have been misdirected. Especially as we are just around the corner from a major pension war.

Recently the NUPGE The National Union of PUBLIC and General Workers published an article complaining about the treatment of unions in Canada's media.

"Over the past couple of months, it’s been one offensive, union-bashing column or editorial after another,"

"Perhaps I missed something while taking some time off with family earlier this summer. How did 800,000 hard-working unionists in this province suddenly become such a drag on the economy?"

"Nor are they keen to publish stories on the successful negotiation of new and improved collective agreements for some 90,000 public sector workers in OPSEU over the past 12 months - without one strike.

NUPGE may be right about the press coverage that they have been receiving but they misunderstand the reasons for it.

The Toronto Star reported on unions in an article called Myths and reality of the union movement. The article cited a few myths that the unions live by.

unions do not represent the entire working world. They are only interested in defending the wages and benefits of their members, most of the time at the expense of other, non-unionized, workers.

even though they may claim to support the interests of children, students or patients, in reality there always is a demand for better wages or benefits behind almost every dispute.

they live in isolation. Most of the time, their demands are made with no consideration for the conditions of other workers in the same country, not to mention the reality in other parts of the world.

The unions cannot understand the anger that is directed at them?

The unions are the ones who began the battle and it will be them that have to end the battle. Even those who are sympathetic to the unions and understand them think they have gone overboard. One of these articles includes the Globe and Mail editorial called Get down to the strike 'essentials'

In reality the fight is public sector unions against the taxpayer. I wrote about this last month in my Canada's Public Sector Unions at War with Canadian Taxpayers

California Pension Dust Up!

Last week I wrote Pension Reform In California about pensions reform in California. What happens in California will have an impact on pensions across North America.

On Thursday in the Los Angeles Times there was an article called Why did Schwarzenegger bail on pension reform? The article speaks about Schwarzenegger backing out of a commitment he made to reforming pensions in California.

In the LA Times article, two advocates for pension reform address the issue. The first is an analyst with American Federation of State, County and Municipal Employees. The secound perspective is countered by the head of California Foundation for Fiscal Responsibility. The article makes for interesting reading.

On Friday there was a follow-up article called CalPERS: a looming disaster? This article once again features the perspective on the two sides in the previous article. It addresses the huge shortfalls of Calpers, the largest California public sector pension fund.

Almost all public sector employees defined benefit pensions are suffering serious shortfalls and are perceived to be overly generous.

The articles together do a good job of describing in a comprehensive way the main issues surrounding pension reform. Pensions reform is coming to North America and the battle is on to see what it will look like in its final form.

One interesting note to keep in mind when you read these articles is that Calpers covers 1.6 million members and has accumulated $191Billion. In Ontario the biggest pension plan is Ontario Teachers and at the end of last year they had over $110 Billion but only had 284,000 members. Calculate the average amount of assets per member for each plan. You will see how generous Ontario taxpayers have been funding public sector pensions.

Dig deep and keep working there is lots more to pay!

Canada promotes double dipping when most governments are eliminating it!

As the slogan for Red Rose tea says... Only in Canada Eh!

Jonathan Chevreau of the Wealthy Boomer and the National Post recently created a video that described how the Canadian government promoted double-dipping to Canadian public sector employees. Phased retirement video

This is a scheme that was hatched in the federal budget in 2007. There was not much discussion about the deal at the time. With the new environment in pensions it has highlighted the huge gap between public sector pensions and the average Canadian retiree. The idea was originally designed to help companies deal with labor shortages. Of course the bureaucrats who wrote it made sure that there was something in it for themselves. Phased retirement article

It was an issue that I had written about before in a previous article Double-Dipping. Imagine getting your gold-plated pension at age 50 and then government telling you they want to have you back at your old job... at full pay. With the elimination of mandatory retirement we will see public sector employees eligible for 2 gold-plated pensions.

I have been advocating for pensions disclosure similar to the Sunshine List in Ontario and B.C. There is one in California that lists those pensioners earning over $100,000 per year. We need one in Canada to list those who have excessive pensions in Canada. They were after all negotiated between them and the taxpayer. the only problem was that during the negotiations the taxpayers had no-one to represent them.

Most government in North America are looking for ways to eliminate double-dipping and Canada wants to promote it.
In Arkansas - State legislator puts spotlight on ‘double dipping’ county officials
Ohio needs to rein in double-dipping by public officials
Double Dipping in Florida
Upset in Delaware about double-dipping

Pension Reform in California

California has always been a bell weather state for most trends that travel across North America.

The pension crisis is a new trend where California has become the leader. California is the largest state and its pension funds are the biggest in the country. The population in California population is larger than Canada.

The public sector pensions in California are melting down and it has become a crisis. The Governor is needing to look at changes to the system as he is faced with a $63 Billion unfunded liability. It is a challenge all governments in Canada and the US are watching.

Several groups have begun lobbying against what are overly generous and unsustainable pensions for the public sector. One of those groups is the California Foundation for Fiscal Responsibility. Here is an excellent radio interview with the President.

Part of the problem with the pension crisis is that the pensions paid to the public sector over shadow those paid in the private sector. Thousands of retirees have annual pension income in excess of $100,000 per year. The gap between compensation paid to the public sector and private sector has widened dramatically. One group has focused on both these issues, OurLA.org

In California some of the fuel to the fire has been the release of the actual earnings of pensioners. Canada faces the same challenges as California. Many pensions paid in Canada are excessive. One pension identified in BC is paid in excess of $270,000 per year. The disclosure of pension income is needed in Canada as well.

All governments across North America are watching with anticipation the developments in California.

Where is the outrage over pensions?

Veracruz Farmers in Mexico

For some time I have been following the blog of Leo Kolivakis called Pension Pulse. Leo runs an insightful commentary on current pension issues.

The last issue of Leo's Blog asked where the outrage was over the current meltdown of the North American pension. There should be outrage over the theft and plundering of taxpayers and pensioners hard earned dollars.

Leo's questioned why

"civilized' Canadians seem to be sleepwalking while their pensions are dwindling. The unions are keeping silent too. Why? Maybe because they know that the federal and provincial governments are on the hook to pay out pension benefits even if the public pension plans are severely underfunded. Why make a fuss when you know the government will come in and shore up the plan?"

My take on it in an interview for the Toronto Star was

"I don't think it will be confrontational or violent," says Tufts. "But there is going to be a lot of pressure for change in the system. What we need is leadership that can address the issue."

Over the summer the pension issue has been a little quiet. I think that people were worn-out from all of the economic worries over the past year. However, there are several events building that will bring pensions back into mainstream Canadian discussion. As my article from the Digital Journal pointed out "The Biggest Economic Issue in 2009 - Public Sector Pensions".

I do not think that Leo has to wait much longer for the outrage to come.

Part of the problem is that pensions are such a complicated issue that it has taken Canadians a period of reading about them in the media to understand how they work. For example, the difference between a defined benefit plan and a defined contribution or RRSP plan.

Leo and I were cited in several articles in Mexican newspapers. The most influential was El Economista. In the article they quoted Leo as saying there will be a Tsunami of insolvencies or large pension deficits in both public and private pensions. This situation threatens to reduce the pensions on thousands of retired persons.

El Economista further went on to say that Bill Tufts affirms that the financial implosion puts into a state of crisis private sector pension plans.

Several of Canada's think tank and policy institutes have taken on the pension issue. They include:
Canadian Chamber of Commerce
Carp - The Canadian Association of Retired Persons (soon to be called Zoomers)Note: check out what Moses has done to create a new image for the Zoomers.
CD Howe Institute
CFIB - Canadian Federation of Independent Business
Canadian Taxpayers Federation

It is too bad that we have to have this conversation as it will be hard for all Canadians. In the ideal world we could all have pensions like the one described in this video from BC Pensions. Where your pension becomes a "Guaranteed paycheque for the rest of your life". This works for me "you stop working but the cheques keep coming... guaranteed".

However, the fantasy that the public sector has been living in is not the reality. We as Canadians all have to work together to find solutions.

Tales from the other side of the aging catastrophe

A recent article entitled Gray Menace - Why Japan's aging, shrinking population is bad for the United States was written about the impact of an aging population base in Japan.

The article provides a good overview of the implication of Japans aging society.

Japan is the grayest country in the world, with 21.5 percent of its population 65 or over. Not only is the Japanese population aging, it's also shrinking, from 127 million today to a projected 89 million by 2055

Older workers are less innovative; older, more "mature" markets attract less investment. Older populations live off savings, rather than generating new capital. And, as the number of working-age citizens diminishes, pension funds will be exhausted and tax revenues and government budgets will be squeezed.

Canada is one the verge of suffering the same effects that Japan has suffered as a result of an aging population. However the frightening thing is that it could be much more serious here in Canada than it has been in Japan.

The impact of an aging population been devastating in Japan. In order to look at what has happened check out the the Japanese stock market performance over the past 20 years. Nikkei Index stock chart. The 20 year rate of return on the Japanese market is a negative 75%. The 10 year rate of return is a negative 50%. In 1990 the index was at 38,916 and in 2000 it was at 20,337 and recently touched a low of 7568.

It is important to compare Canadas aging population relative to that of Japan. Japan 10 years ago had a population pyramid that looked like this:


Ten years later Canada has a population pyramid that looks like this:

Courtesy Nationmasters.com

In the year 2000 the largest age group in Japan was those aged 50 to 54 and in Canada 10 years later the largest age group is those aged 45 to 49. It is quite likely that what happened to the Japanese economy over the past 10 years will repeat itself in Canada.

Look at the band of those aged 25 to 29 in Japan. Canada does not have this band and cannot benefit from the buffer it provided for Japan.

Harry S Dent - The Great Depression Ahead
I was first alerted to the trend of Japan in a book written by Harry S Dent called The Great Depression Ahead. Dent has been a hero of mine since I first came across one of his books several years ago called The Roaring 2000s. One of my brothers made a very successful real estate investment based on the understanding Dent has into real estate markets and how they relate to demographic trends.

The Roaring 2000s accurately predicted the huge run up in stock values that we have seen on North American markets during the past decade. He based this on demographics and the baby boom generation we have heard so much about. There are several concepts in the book that still make The Roaring 2000's worth reading today.

Both of Dents books are filled with charts and graphs that describe the baby boomer spending habits and social trends. The most important fact though is that North American peak spending occurs at around age 48. After that spending decreases at a fairly dramatic rate. Look again at the population pyramid. Where are we now?

Where do we go from here?
Over the past 20 years Canadian have started to invest for their retirement. Much of this money went into mutual funds in the private sector and of course gold-plated pensions in the public sector. In 1987 there were about $40Billion in mutual fund holdings in Canada. That grew until where we have been for the past several years, around $400Billion.

During the time these holdings were increasing the financial services industry was selling based on the Baby Boomers trend. We had such classic books as Boom, Bust and Echo and the Pig and the Python. Everyone was talking Baby Boomer.
The growth in the North American economy over the past was fueled by Baby Boomers. First as they moved into homes and then as they bought mutual funds for their retirement. Both these bubbles ended last year.

Shallow men believe in luck. Strong men believe in cause and effect. - Emerson
Spending the last 20 years in financial services I have paid attention to the experts. These experts predict the trends the future of our economy. I always listened to that class of experts who made money from selling mutual funds and other investments.

Last year I was lucky when I started to take heed of a class of financial commentators who do not receive much press. These are commentators who go against the "common wisdom". They work as advisors to those who have already accumulated their fortunes and want to preserve them.

Last year they were telling a story much different than those who make money selling investments.

Tales from the other side
Many of these commentators are telling the story that we may be in for a long period of very slow economic growth. That the most important thing during this period will be the preservation on capital.

Here is a video by one of those commentators. You may not enjoy what he has to say but I hope you will take some heed in his perspective.

Of course we all hope he is terribly wrong. But remember the Return of your Capital is more Important than the Return on your Capital.
Bill Bonner: Son Of Stimulus

Public Sector Pension Club get annual pensions in excess of $100,000

In Canada and the US thousands of public sector employees are retiring with pensions in excess of $100,000 per year. These plans will never fail, because they're backstopped by the taxpayers.

These pensions cost taxpayers Billions and have started a financial crisis for governments at all levels on both sides of the border. Jack Dean of the Pension Tsunami recently went to court to obtain the release the names of pensions over $100K. It has been a cause of Jack to protect taxpayers for over 5 years.

In a recent radio interview Jack discussed the crisis these pensions have created and the challenge he has had to make all taxpayers aware of the crisis. The radio interview begins at about 10 minutes. Jack’s radio interview

The problem in Canada continues to run its reckless course. Recently Bill Robson of the CD Howe Institute estimated the shortfalls in public sector pensions to be in excess of $422Billion. As Margaret Wente reports in her article about the pension crisis… Luckily for us, we don't riot in the streets. We just phone talk shows and sound off.

The issue of $100,000 pension is one that needs to be discussed. Are they fair? should taxpayers be the ones funding them? The Wall Street Journal covered the issue recently in Group Shines Light

Do we need a Sunshine List of pensions in Canada?

The great public-sector pension rip-off

The Economist published an article that reported on public sector pensions.

It is called The great public-sector pension rip-off. It is a short article but highlights the key points about what is wrong with our public sector pensions. Although it is written from the UK it perfectly describes Canadian pensions as well.

JOIN a private-sector company these days and you will be very lucky if you get a pension linked to your final salary. In Britain almost three out of four companies that retain such schemes have closed them to new employees. The cost of paying such benefits, which are partly linked to inflation and offer payouts to surviving spouses, is simply too high now that many retirees are surviving into their 80s.

Yet most new public-sector employees in Britain and America continue to benefit from pensions linked to their salaries. The pension costs facing the public sector are roughly the same as those facing the private sector; their employees are likely to live just as long. But because of the presumed largesse of future taxpayers, governments seem under much less pressure to reduce their pension costs. In 2005 a reform package in Britain raised the retirement age for new state employees, but still left existing employees able to retire at 60.

Note: In Canada the retirement age begins as early as 50 for some public sector workers and most are eligible for retirement beginning at age 55 for full pensions. Many workers in the public sector will spend more time in retirement than they did working. For many the pension income will be far greater than their working income ever was.

Perhaps the real reason why public-sector pension costs have not been tackled is that the full bill has never been revealed to taxpayers. Calculating the cost of a pension scheme depends on two key assumptions. The first is the potential longevity of the employees; the second is the discount rate applied to future benefits. The higher the discount rate, the smaller the liability appears to be. There is a lot of debate about the right discount rate to use, but the conservative approach is to take the cost of government borrowing. Use that rate, and the liability of American state and municipal pension schemes may be $3 trillion—three times the value of all the authorities’ existing debts. In Britain the liability adds up to 85% of GDP.

Even if that figure overstates the problem, there is little doubt that governments are understating their pensions liabilities. When workers in Britain are transferred from the public to the private sector, they are entitled to keep their pension rights; employers who take them on find that their pension costs are around double those estimated by the public sector. The fudge seems likely to continue. A consultation document sent out by the British government suggested that, rather than raising taxes or cutting spending, local authorities should fall short of fully funding their pension liabilities in the short term.

Note: A recent blog of mine called The need for transparency in public sector pensions addressed this issue of the real pension shortfalls that exist.
Public affluence, private penury

There may be an argument for giving some public-sector workers, such as the police or the armed services, higher pay and benefits in the form of pensions. But the cost should be fully accounted for. Today’s opaque pensions system is unfair to private-sector workers, who suffer a triple whammy. First, most are now enrolled in riskier defined contribution (DC) pension schemes, where payouts depend on investment performance. Second, employers make smaller contributions to DC schemes than to final-salary plans, so pensions are likely to be lower. And third, as well as shouldering more of the burden for their own retirement, private-sector workers pay for public-sector pensions via their taxes. There is, in effect, a hidden transfer from private-sector workers to their public-sector peers. In Britain it may amount to as much as 30% of pay.

When the full costs become apparent, taxpayers may demand reform. Cutting costs is not easy: the bulk relate to promises already made. But raising the retirement age for public-sector workers in order to reflect increased life expectancy would be a start. Moving to DC pensions for new entitlements, or to a cheaper version of a defined benefit scheme (such as an average- rather than a final-salary pension) would also help. The greying of the American and British populations will inevitably involve some costs. It would be unfair if the burden was borne disproportionately by private-sector workers.

Here is another excellent article printed earlier this year by the Economist detailing the Pension Predicament. Pension Apartheid

Pension Problems in Nova Scotia

There was an interesting article about the pensions with city unions being renegotiated. Cities want to negotiate pensions

It will be a very tough challenge. Once given these things are hard to take back. They create a large financial burden on taxpayers and are very generous pensions indeed. This pension plan is in serious financial trouble. Lets hope that the cities will be able to negotiate some reasonable concessions for taxpayers.

At last report the pension fund was short $1.65 Billion to cover the cost of the commitments it had made. This is despite the fact that since its inception it had accumulated more than $2.9 Billion of taxpayers and members money. How long will it take to accumulate this extra $1.65Billion.

The government and pension managers have been aware of his problem for many years. In an attempt to cover the shortfall they have doubled annual contributions into the plan from $75Million in 2004 to $140Million last year and it has not made a dent in the plan's funding.

The plan is hemorrhaging cash very quickly now. There are almost as many on pensions (11,646) than paying into the plan (16,629). There are only 1.42 paying members for every pensioner.

Most members are paying only 8.48% of income into the plan. The taxpayer matches this for a total contribution of 16.96% of income. The CD Howe has estimated that the true cost of these types of pensions is 30% of income. This means contributions are short 13.04% every year. It is a ponzi scheme that has to end one day!

Retirees receive pensions based on the 80 rule. This makes an employee who started employment at age 20 eligible for pension at age 50. Many go on to other jobs while collecting pensions (double dipping). Many of these jobs will be with the same government employer.

As well the taxpayer is on the hook for the Teachers Pension Plan that had $1.5Billion of unfunded liabilities at the end of 2008. Even worse they only had 1.23 working teacher for each pensioner. The taxpayer funded $61Million into this plan last year.
These plans can be seen at: Nova Scotia Pension Agency

Last year taxpayers funded over $70Million into the plan. It is still almost $2Billion short.

The plundering of taxpayer dollars has got to stop

Comment from public sector worker about this Blog

After the series of CBC interviews I received a comment post on the blog. It was from a public sector employee who was upset with some of my remarks on the radio interviews. One of those 11 interviews across Canada can be found here from CBC Edmonton. In the rest of Canada that same interview was done by Catherine Swift

Monique did respond with some very legitimate comments. There are some members of our society that new to be protected.

For example, my mother a single mother sacrificed much to raise me and my three brothers. I am very thankful that she has a partial federal government pension.

We know that the group most at risk to poverty is senior women.

Some of the comments were as follows:

It is true that *some* individuals at the highest levels of management in municipal governments receive compensations of 6-figure salaries, along with their pensions and various benefits packages. However, if you would first do, and then share, thorough research with your readers you would find that many, if not all, of those managers are in union-exempt positions. This is certainly true of my own employer.

The vast majority of employees in my workplace do not make enough to even be included on the annual compensation disclosure list (whose cut-off is 50 K, annually). I am one of those employees not on that list.

Yes, if I am lucky enough to not lose my job to cutbacks in the next 20-some years (I am a newer employee) I will retire with a pension that will allow me to not starve, keep a roof over my head and access sound health care in my retirement years. How dare I expect this?!!

Until that time though, I will take my $44, 000 per year (plus - maybe - an annual cost of living increase and, yes, benefits: I'm having my teeth cleaned this Wednesday, and tonight I will file to get maximum - $200 - reimbursement for the $500 prescription eye glass lenses I had to buy last month). I'll take that 44 K and the promise of a dignified retirement and do my darndest to serve the people of my city - putting to use my 6 years of post-secondary education (a graduate degree is the minimum professional qualification for my position - you may be interested to know mine came from a faculty of management) to try to figure out a way to offer my particular type of public service city-wide with a staff of 2.

In my opinion we live in one of the best countries in the world. There are many challenges ahead for us and our society. I think we can all come together and find the solutions that will allow for fairness and dignity for all Canadians.

I hope that we can achieve for all Canadians what Monique outlines in her comments.

Thanks for your comments Monique

Canada's Public Sector Unions at War with Canadian Taxpayers

I was recently asked to do a series of interviews with the CBC Radio. They asked me to be interviewed on public sector pensions in Canada.

The CBC has been sensing a rise in animosity between the private sector and the public sector. They wanted me to discuss this across Canada in several morning call in shows.

It was important to be prepared and I wanted to do some research. The CBC was speaking about the "private sector vs the public sector".

In my blog I was seeing a rising sense of hostility towards the public sector by taxpayers.

Several situations have pushed this issue to the forefront. Strikes in Ontario in the cities of Toronto and Windsor. The release of Sunshine Lists across Canada and the resulting outrage. As well there have been several media articles discussing the gap between public sector and private sector compensation levels.

One media interview I found to be quite interesting. It was an interview on CBC's The Current between Catherine Swift and the President of CUPE. The link to it can be found here Labour Concessions - CUPE

Several articles have come out questioning the intentions and motivations of the public sector unions.
Notable: * Political Garbage in the Ottawa Citizen
* Globe and Mail's - Unions Living in Dreamland
* McParland: The shared greed of fat cats and public sector unions

As I investigated the connection between unions and what is happening I looked to Statscan and the numbers behind unions. Union Membership in Canada — 2007 There is indeed a correlation between the unions and gold-plated pensions. It appears they are symbiotic.

The Statscan union analysis hows that most of the unions in existence today are in the public sector. The public sector ones are monsters indeed, in terms of size and membership.

Check out the CUPE web site. Here are some of the words they use to describe the works they do on behalf of members.

our Strategic Directions 2007 – 2009 policy paper is a multi-million dollar commitment to fight privatization in all of its forms, wherever it arises across the country. Privatization is our biggest threat and we must always fight to protect public sector jobs and services.

we resource all strikes and we fight back against all regressive government attacks on members. This is the history of our union, a history of which we are all proud.

During this time we have waged and won important battles on the picket line. Some of our strikes were large; some were small.

All of this meant we were able to make contract improvements, fight concessions and stand tough against employers and governments

So-so-so-Solidarité Reminiscent of the chant many non-Quebeckers first heard at protests against the Free Trade Area of the Americas in Quebec City

CUPE’s National Defence Fund provides support to locals who are mobilizing to defend members’ jobs, rights and collective agreements and to promote quality public services.

Those challenges include longer, bigger and costlier strikes and many fightback campaigns

“Strikes,” said Genereux, “are about holding out for as long as you can, until you win.”

Convention created a new National Strike Fund, agreeing that six per cent of per capita would be set aside for strike pay and benefits,

Resolutions were also passed to extend the Defence Fund Levy and the Solidarity Levy in order to assure support for an increasing number of longer strikes.

It sounds like a union at war. They have amassed a huge war chest and they are read for battle. Who are they battling with?

Canadian taxpayers.

The need for transparency in public sector pensions

A group of business leaders called British North-American Committee examined public sector pensions in the UK Canada and the US. The fruits of their labour is a report called The need for transparency in public sector pensions

Gold-plated pensions extinct in private sector
They began by recognizing that "private companies have considered the rising costs of existing defined benefit provision and decided that the benefits to their companies are often outweighed by the costs and forward liabilities involved." They then looked at public sector pensions to determine the cost to taxpayers.

Part of the analysis was to provide a baseline for the value of the liabilities that existed within these plans and the future liabilities that need to be funded. Their results discovered that in Canada public sector pensions at all levels of government has liabilities of $513 Billion and the public sector plans have accumulated $323 Billion of assets to offset the cost of these liabilities leaving a shortfall of $190 Billion.

I will have to investigate these numbers they appear short of what is actually in these plans. For example, Ontario Teachers had $110 Billion in it last year. As well in Ontario HOOP (Hospitals) and OMERS (Municipal) had another $60Billion and these are only a couple of the many public employee pension plans in Canada.

"In all three countries, the public sector employs a significant proportion of the workforce. Most of the public sector employers in all three countries offer defined benefit pensions (mostly based on final salary) to their employees, and in most cases these are still open to new employees, and also to new pensions accruals for existing employees. This contrasts with the position in occupational pension provision by the private sector in these countries, where many, if not most, defined benefit pension schemes are now closed to new entrants. Some private defined benefit pensions are also now closed to new accruals by existing employees.
The abandonment of defined benefit pensions by the private sector has occurred rapidly, and largely within the last 10 years."

Lack of disclosure to taxpayers on cost of these plans
One of the challenges the group faced in examining the pension was that "Pension finances are notoriously opaque, and indeed this has made the collection of data on the three countries’ public pensions difficult."

If the assumptions of the report are accurate and the methodology seems comprehensive. They have identified why public sector pensions plans have landed into the crisis that exists today. The government's pension assumptions show that the value of the liability of the plans as it exists today is 12% of GDP. A more accurate estimate based on the analysis of the report shows a true cost at 25% of GDP.

Remember these figures are just for plans covering those working in the public sector. This is for teachers, municipal and provincial workers, fire fighters and police. These pension plans are the ones considered gold-plated. These pension retire substantially earlier that the rest of the workforce and the pensions are a guaranteed income into retirement. Not like most pensions based on a pool of accumulated money which is then drawn down in retirement.

Huge expropriation of taxpayers dollars still fall far short
Although mention was made that Canada has "funded pensions" the funding into these plans has fallen far short of requirements. This was outlined in the report and the analysis shows that contribution into these plans are about half of what they need to be. For example, the federal pension contribution required is estimated by the group to be 45.5% of the income of plan members. However, members are contributing far less than 10% into these plans and the taxpayers is funding the other 35%.

Calculate what your RRSP fund would look like if you contributed 45.5% into every year that you were working. Hence the term gold-plated.

These assumptions have resulted in contributions rates into these plans that are far below what is actually required to fund the full liability that exists today. For example, most provinces estimate a contribution requirement into their pension plans of 14.1% when in reality the real contribution requirement is estimated to be 27.5%. The federal pension contribution required is estimated by the group to be 45.5%.

Public Policy Considerations
"Unfunded public pension liabilities represent a transfer of value (spending power) from a future generation of taxpayers to the current generation of public employees (and by implication, a transfer to the current generation of taxpayers). This decision is made by the current generation, but paid for by future generations.

There is constant electoral pressure to minimize the current tax burden for the electorate, but to make promises of future public expenditure. In the case of public employee pensions, these promises benefit only a small proportion of the electorate, and so it is very important that the promises are known and understood by those who will have to pay for them, and (ideally) paid for at the time of the promise, rather than, say, thirty years’ later, when the promise matures.

The public employee pension schemes in all three countries studies suffer from a strong element of wishful thinking in their choice of discount rate to calculate liabilities"

The report contains some very comprehensive information on public sector pensions in Canada. As well are included some definitions of the concepts that policy makers need to know about.

Billions of Dollars Pouring Into Public Sector Pension Plans

I have been approached with a lot of questions and have had a few radio interviews
as a result of the article last week in the Globe and Mail. In feudal age of pensions, renaissance must come

Some of the questions have been centered on how much money is being poured into pension plans and how badly affected were the public sector pension plans.

It is estimated that last year public sector pension plans in Canada lost $100Billion.

It is hard to grasp how much money is being funneled into these plans. There are a few major plans and lots of little ones spread around the province. We do know that many of your tax dollars over the next few years will be pumped into these plans.

One item on the last Ontario Budget that received no public debate was the commitment of the government to make extra or supplementary payments into the public sector pension plans. In the Ontario Budget 2009/10 additional payments into pension plans amount to $10.6 over the next 4 years. This has already been budgeted and I am sure much more will have to be made available to stop the hemorrhaging. See Table 20 of the budget. These are just "bonus" contributions.

These contributions are in addition to the billions funneled into these plans by all of the government organizations in Ontario.

One example in my back yard is McMaster University. As of the last actuarial report the plan had assets valued at $1.059Billion and a shortfall of about $90Million. Last year the contributions into the plan were by employee $ 12,698,000 and by the university $41,562,000. This was before the market crash which potentially wiped another $200,000,000 from the plan. The details can be found in the Annual Report at Page 38.

In addition the annual report shows future employee liabilities at $222Million. These would be for such things as the sick leave policy the City of Toronto is debating in its strike.

This is typical of most public sector plans. Huge contributions are being pumped into the plan to try and make up previous shortfalls. Then the markets smacked these plans by around 20% last year. Now they are facing huge shortfalls. For example, the estimated pension shortfalls and the future employee benefits liability are close to Half a Billion dollars. This on a budget of revenue coming in at $730Million.

This is only one of many taxpayer funded institutions in my neighborhood. This is a typical picture. The only question is how long can the hemorrhaging last for?

The Inconvenient Truth

The National Union of Public and General Employees recently came out with a letter on policy statement regarding pensions. They were responding to an article by The Globe and Mail called Canada's Growing Pension Puzzle

The letter presented some interesting perspectives about public sector pensions. It also presented some serious misinterpretations about the current system of pensions for public sector employees.

The letter commented that the article played on "a convenient untruth: that public sector workers have a huge advantage over most others because they have cushy pensions provided by, or backed and guaranteed by, the taxpayer." Unfortunately for taxpayers this is a a truth that is substantiated by the public sector pension plans themselves.

The Ontario Teachers Plan states in regards to its almost $20Billion shortfall that "Responsibility for ensuring a defined benefit pension plan remains fully funded lies with the plan sponsor, usually the employer... " This sounds like it is backed by taxpayers.

The comment also points out the "huge advantage" that the public sector has with the pensions and benefits they are paid with taxpayer dollars. This sentiment is part of a report from the Canadian Chamber of Commerce that comments "With public sector jobs offering higher pension benefits, it can be argued that the current pension regime affects not only private sector competitiveness, but also its ability to attract and retain labour."

Another contentious point from the letter was an assertion that public sector employees pay their own pensions. In fact, the subtitle of the letter was "Public sector workers pay 8% to 9% of their income to finance public pension plans". As we saw last week the PSP - Federal Government Employee Pension Fund requires contributions of 4.9% of annual salary up to $46,300 and 8.4% of annual salary above this amount.

So the numbers just don't make sense.

The NUPGE in their PR campaign states that the public servant pays 8% to 9% of their own pension. To be fair in many pensions this is the contribution rate. However, this assumes that the employees are picking up half the cost. The CD Howe Institute in research for a pension paper discovered that the actuary for the Federal Government pension plan calculated that a contribution level of 30% of income is required to fund a gold-plated or defined benefit pension plan. Sorry but 8% comes up way short of the full amount required.

Part of the argument for the gold-plated pension is that "Their benefits were bargained for, and trade-offs were made along the way. For example, public sector workers traded off other benefits and greater wages to finance their pensions." This makes for a good argument if it were true but the CFIB Canadian Federation of Independent Business shattered this fantasy with their report called The Wage Watch. Public sector employees have a large gap between their pay and that of the private sector. Not only do they get gold-plated pensions they get better benefits and higher pay to boot.

As the letter moves onto the next section it asks "Have you ever heard of a Retirement Compensation Arrangement? RCAs are pension plans for business owners and senior executives, allowing companies to pay out exorbitant pensions to retiring executives. With an RCA, business owners and executives have an opportunity to increase their contributions to a retirement program beyond regular RRSPs and pension limits."

Have you ever heard of a Supplementary Pension Arrangement? SRAs are pension plans for government employees, allowing taxpayers to pay out exorbitant pensions to retiring public servants. These are the pensions that pay over an above the current pension limits. In the public sector this is about $135,000 per year but many pension plans have set these up for many city employees and provincial employees.

No most people don't know what a RCA is nor do they know what a Supplementary Pension is.

It appears that indeed pensions are a puzzle and the public sector unions obviously are missing several pieces.

Costs of Public Sector Employee Pensions

The Question?
Simply, are government pensions fair and sustainable? Legacy costs continue to be a major issue for the Canadian economy. Legacy costs are the expense that businesses have as an obligation to fund retirement plans and health benefits of retired workers. These costs have been a major barrier in the recent efforts to keep many Canadian businesses solvent. The problem of legacy costs has been highlighted for Stelco, Air Canada, General Motors and many other Canadian companies.


BACKGROUND
Most Canadians save money in a pension plan or an RRSP to accumulate savings for retirement. Whatever is available in the fund at retirement will produce the retirement income. In contrast, the federal sector pension plan, like other public pensions, is a defined benefit plan that provides an inflation protected salary, based on years of service and.the average of the salary of the worker over the last five years of service. Assuming that a public sector employee works the full 35 years of maximum of pensionable service, a public sector employee is guaranteed an income in retirement of upwards of 70% of their final working salary or wage. This income replacement is guaranteed for life and guaranteed to increase every year.

If legacy costs at businesses are a problem for the Canadian economy, what about public employee pensions?

There is a huge difference in the type of pension plans that the public sector has and those of the private sector. Defined benefit plans are considered to be the gold-plated plan.

In Canada there are a total of 4.5 million defined benefit pension plan members. In the public sector there are about 2.5 million defined benefit pension plan members. This leaves 2 million DB plan members in the private sector. In Canada, 85% of private sector workers do not enjoy defined benefit plans; they are almost exclusively public sector plans. The few remaining gold-plated plans that do exist are causing serious difficulty for Canadian companies.


Public Employee Pensions
Most Canadian have no guaranteed pension at all. In one Ontario public employee pension plan, the average annual pension is $42,000. In addition most pension members are also eligible for full CPP Canada Pension Plan of $10,980 per year. This amount is guaranteed for life, eligible for annual increases and will a major portion pay to a surviving spouse for life

In order to fund these retirement income requirements governments in Canada have created huge pension funds, funded by Canadian taxpayers. For example, one of the largest in Canada the Ontario Teachers Pension Plan has accumulated over $110 Billion in assets. Statscan estimated in Ontario the total value of infrastructure at $90Billion. This includes roads, bridges, power plants, water treatment systems, airports and many other public works. Since 1990 Ontario taxpayers have funded more into this single pension plan than its entire infrastructure. This is only one of several huge pension plans in Ontario.

The National Post recently asked… “Why do these giant public pension plans exist? … They are, essentially, wealth confiscated by governments… using money taxed from all their constituents. The rest of the public pension investment activity is on behalf of unionized monopoly government service providers — hydro workers, police, municipal employees, and teachers. All are set to receive relatively lavish pensions paid for by Canadian taxpayers who have no comparable pension plans.”


Statistics Canada estimates that a pensioner living on $40,000 of pension income has the equivalent income of a “working” Canadian earning $52,000. This is accounted for by the fact there is a dramatic cost of living drop in retirement. The biggets factor is that most Canadians have paid down their mortgages, for many working Canadian this is 30% of income. Also there is a lower tax burden on pension income when compared to working income. For example no CPP contributions are made and there are no contributions for Employment Insurance.

The most recent Statistics Canada figures show the average Canadian earning scarcely $40,000 per year. Since the average salary of government workers are higher than the the average of their private sector counterparts, assuming that these workers work for 30 – 35 years, they can expect to retire with relatively comfortable with pensions higher than the average working Canadian wage.


Contribution Rates
There exists a huge gap between what public sector employees receive for their retirement benefits and what other Canadians receive. Most Canadian businesses feel overtaxed and they along with all Canadians fund most of the public sector pension costs.

A self-employed businessperson pays CPP premiums at 9.9% of his income with the hope of receiving a $10,980 a year CPP pension (this reflects employer and employee contributions, based on a maximum income level of $46,300). Under the current CPP model, the public sector would be expected to match the employer contribution of 4.95 % of income, based on a maximum salary of $46,300. Currently a public sector employee funds into their pension at a rate of 4.9% of annual salary up to $46,300 and 8.4% of annual salary above this amount. The federal actuary has estimated these types of plans cost 33% to fund fully. This means the taxpayers is funding an additional 24% to 26% of public sector incomes into these plans to pay for public sector pensions.

Many small business owners are at extreme risk of under funding their personal retirement plans. Yet, these same business owners are paying taxes to fund government pensions, allowing workers to retire at a luxurious level of income.

“Pension Shortfalls”
Many of Canada’s public employee pension plans are in “pension shortfall”. This means that on top of the billions accumulated in these funds more money is needed to fully fund the income to retired public sector employees.

This is not fair for taxpayers and the system needs to be reformed.

Pension Informercials

Anyone reading this blog will know the difference in value between a public sector and private sector pension plan. The public sector employee generally retires with a pension fund value in excess of $1,000,000. The average private sector employee has about $125,000 saved for retirement.

Pension Infomercials
As I study the public sector plans I am sometimes staggered by the audacity of the public sector pensions reporting on their plans.

Here is a pension plan site that had me chuckling with it's audacity. It is the pension site for the BC Municipal Pension Plan. They have a series of videos explaining the pension plan to members. The video called A Paycheque for Life is a real blast! A blast to taxpayers. Just click on the pictures under the video screen to watch the videos. They are only a few minutes long and well worth watching.

This is just like one of those late might cheesy informercials. Check out some of the phrases:

There are many reason why people work... You work every day knowing your future pension cheque gets bigger and bigger

Every mouse click, every email you answer, every shift you work ... that retirement cheque is growing

You are adding to a guaranteed paycheque for the rest of your life. You stop working but the cheques keep coming GUARANTEED

The video entitled There are Lots of Places Your Money Can Go would be like a comedy except it is such an insult to taxpayers.
It includes such greats as:

You can be like this guy and stuff a pile of cash into a hole in the ground

A plan that will always pay you more than you will ever contribute into it!

Best of all you investment is guaranteed for life. now that is something you can take to the bank!

Do you think the guy golfing at the end of this video was working???

Here is one that I ran across last week. This is the annual report for the Alberta LAPP pension. Check out picture of the rainbow on the cover of the report! the only thing missing is the pot of gold. LAPP Pdf Annual Report

Almost time for pension reform

An article from the UK states MPs must set example on pensions They have the same type of pension as our MP's.

Lets hope that once the current batch of MP's trigger their pensions they will consider the inevitable task of pension reform. Most of our current MP's are just a short time away from their gold-plated pensions. Election unlikely until Bloc gets its pensions

Pensions are sure to be a major issue in the next upcoming election. This from the The CEO of the Ontario Teachers' Pension Plan