A Tale of Two Pensions

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

It is reported in Big pension plan pressed to fix funding woes that:

Canada’s biggest private sector, multi-employer pension plan hasn’t fixed mounting underfunding problems or clearly informed members about possible reductions in benefits.

The Financial Services Commission of Ontario will not comment publicly about persistent troubles with the Canadian Commercial Workers Industry Pension Plan (CCWIPP).

The commission’s letter charged that the plan has not told more than 300,000 members that their pension benefits are “seriously underfunded” or what they would get if the plan had to be wound up.

Canada’s biggest private sector, multi-employer pension plan hasn’t fixed mounting underfunding problems or clearly informed members about possible reductions in benefits, government watchdogs reveal in internal correspondence.

The commission’s letter charged that the plan has not told more than 300,000 members that their pension benefits are “seriously underfunded” or what they would get if the plan had to be wound up.The letter also suggests that, without more action, approval of a funding improvement plan to stabilize the CCWIPP may be in jeopardy.

CCWIPP has 350,000 active and deferred members and provides pensions to another 20,000 retirees and their spouses. A group of trustees representing the United Food and Commercial Workers union and more than 300 employers, including major grocery store, chains runs the plan.

The commission began pressing the plan for action last year after learning that it had a funding deficiency of $760 million on the basis of an actuarial value of $1.68 billion in assets and total liabilities of $2.44 billion at the end of 2008. CCWIPP will release its 2009 actuarial report by the end of September. CCWIPP notified members that they could face cuts in future benefits ranging from 15 to 50 per cent. The moves do not affect existing retirees. Active members will face a 40 per cent hit on future benefits if employers and the union cannot negotiate significant increases in contributions. 

 All defined benefit pensions in Canada are under serious strain. What makes them painful is if they are in the private sector or the public sector.


Canada's Largest Public Sector Pension

Statistics

• 175,000 teachers in elementary and secondary schools in Ontario
• 114,000 pensioners – includes survivor pensions
• Plan originally created in 1917
• One of Canada’s largest payrolls, paying $4.4 billion in pension benefits annually

Financial

• Net assets: $96.4 billion (December 31, 2009)

Benefit Design

• Defined benefit plan: 2% x years of credit x average “best-five” salaries = annual pension 
• Targeted replacement income of 70% of final 5 years. Highest retiring salary of teachers $ 102,000
• Unreduced retirement with 85 factor (age plus qualifying years = 85)
• Partial years count as full years for determining the 85 factor,
• Members can repay refunds and buy back service for leaves 
• Indexed up to 8% per year 
• Indexation is 100% of CPI 

 Private and Public Sector Disparity 
A quick look at these two pension plans shows the hoodwinking that has been put on Canadian taxpayers. Last year Canadian taxpayers funded about $30 Billion into public sector pension plans.

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

                       Comparison Chart 

                                                                    Private Sector         Ontario Teachers

                                                                     CCWIPP                      OTPP

                          Assets                            $ 1.68 Billion                $ 96.4 Billion

                          Workers                           350,000                          175,000

                          Retirees                             20,000                          114,000

                          Total Members               370,000                          289,000

                          Avg Assets                       $ 4,500                         $332,000

                          Avg retiree pension         $ 6,450                          $ 38,596

                          Employer contribution   $139 Million                $ 2.72 Billion (taxpayer)

                          Normal retirement           Age 65                            Age 55

                          Pension shortfall           $ 760 Million                   $ 17 Billion 

                          Special taxpayer

                          Contributions 2010          $    000                        $ 500 Million 

                            

 Notes: CCWIPP Annual report

             Teachers at a Glance

             OTPP annual Report 2009

             Ontario Teachers' Plan projects $17B shortfall
             Horrible deal for Ontario teachers - $102,000 per year 
            

Pension Envy 
This example shows why most taxpayers in North America are suffering from pension envy. Jonathan Chevreau covers the issue of pension envy in his article Don't count on Ottawa to fund your retirement.

Boomers still toiling in the workplace will need a sense of humour as they try to suppress a new phenomenon I call pension envy. This compares to contemporaries who retired in their 50s with the gold-plated, annuity-like defined-benefit pension plans enjoyed by most government workers in retirement.
There is “an alarming disparity between the pension coverage of employees working in the public and private sectors.”

This comparison between two of Canada's largest pensions, one private sector and the other public sector show why so many of us suffer from pension envy.

Bill Tufts
Fair Pensions For All