Are Union Pensions Bankrupting America?
Bill Tufts
Fair Pensions For All
Now more than ever pensions have become a major issue for our society. This crisis has been building for several years. This blog is an attempt to stay on top of the current issues surrounding pensions. Our main feature is a regular update of the news headlines about pensions. We are in the process of setting up http://fairpensionsforall.net/
(millions)
Newfoundland and Labrador $ 8,457
Prince Edward Island 1,584
Nova Scotia 13,319
New Brunswick 8,353
Quebec 142,847
Ontario 193,589
Manitoba 12,253
Saskatchewan 3,638
Alberta -23,738
British Columbia 28,037
Total Provincial Debt 388,333
Table 15- Canada Federal Debt 582,472
Total Combined $ 970,805 Billion
Gaudet places debt reduction above all. He argues “federal plans for deficit elimination are too timid. Better fiscal health means shedding some spending.” In December, however, the IMF released a report that suggests it was generally pleased with the way Ottawa is handling the economy, aside from warnings about health-care spending and possible sluggish growth.
“Canada has weathered well the global recession, reflecting a strong economic and financial position at the onset of the crisis and a sizeable macro policy response,” the report says. (That macro response was largely stimulus, and thus deficit, spending.)
It says the “financial system has avoided systemic pressures amid the global turbulence, thanks in good part to strong supervision and regulation.”
None of that pablum for Gaudet. So averse is he to deficits, he’s pushing a drastic plan to balance the budget in short order.
The bottom line is that the government's current plan to return to balance is based on slowing the growth of federal spending increases over the next five years, while hoping revenues catch up as the economy continues to recover.
Interestingly, when the plan was announced in last year's budget, The Globe and Mail noted that the Conservatives had "launch[ed] an age of austerity." The National Post applauded the plan as a "genuine effort to restore balance to the nation's books."
Forgive us for being a little more realistic, but the current plan calls for spending to increase at a rate less than population growth and inflation in every year between 2010-11 and 2014-15, something the Conservative government has not managed to do in the five years it has been in office.
A true austerity plan aimed at balancing the budget would have taken a page from former prime minister Jean Chretien and finance minister Paul Martin's 1995 plan. The reforms by Chretien/Martin eliminated a deficit much larger than the current one (4.8 % of GDP compared with 2.8%), within three years.
Chretien and Martin's 1995 plan proposed cutting program spending by almost 9% over just two years to get a handle on federal spending. These weren't reductions in spending growth. These were actual reductions in spending.
Even more impressive is that Chretien and Martin outperformed their goal and reduced spending by 9.7%.
Canada, on the other hand, has a public debt problem that could be more serious than the one south of the border.
Bill TuftsThe Canadian federal government likes to go around the world crowing about its low public debt. Not true. Canada’s federal government certainly cleaned up its act since 1996 when its debt to GDP ratio hit 68.4%. Today it is 45%.
But that’s only half the story.A simple extrapolation of their deficits will land them in the same category as Greece or 130% of GDP if their cultures of spending don’t change.
Canada’s debts are at a ratio of 90% of GDP mostly due to chronic overspending by Quebec and Ontario. Their profligacy is in stark contrast with Canada’s three westernmost provinces.
The Canadian Labour Congress (CLC) is looking for the culprits that stymied the enhancements to the Canada Pension Plan (CPP).
The CLC publicly announced that in late December 2010 the group filed two Access to Information requests to seek internal government and external lobbying materials related to the CPP and private sector pooled registered pension plans.
“Last summer, Jim Flaherty said that improving the CPP was the best way to ensure the retirement security of Canadians,” says CLC president Ken Georgetti. “But the minister has changed his mind and now favours vastly inferior private sector plans. We want to know who got to the government, and we hope this Access to Information request will provide that information.”...
“They were going to go ahead with a two-pronged approach to retirement security, and a significant part of that was an enhancement to the Canada Pension Plan,” he says in the clip. “It seems to me that the power of the financial services industry just showed how quickly they can change the mind of a government that was persuaded by facts, to turn them around and reward these banks that actually put us into the depression we have found ourselves with regard to our economy.”
This is an important time for pension reform in Canada.
Next month in Kananskis the finance ministers of Canada are getting together to develop a plan for improving Canada's retirement security system. One the table are two proposals, one to improve CPP and the other to add an additional, or supplementary plan on top of the CPP.
Organized Labour Plan
The public sector unions are in support of boosting the CPP pension. They are correct that something needs to be done and this plan will be a bonanza for them.
Public sector unions already have the advantage of being able to get full pensions, when qualified, as early as age 55.
As we know know the result was indeed the supplementary pension top-up or as we call it now the Pooled Retirement Pensions Plan.The CLC has put together a good analysis of their position and the problems for Canadians on the CLC website. Retirement Security for Everyone . They have also provided a good overview of the statistics in each province. What Do They Mean for each Province?
The key point for this initiative is that the CPP changes public sector unions recommend will have a windfall effect on public sector pensions. Public sector plans are currently integrated with CPP, their plan to double CPP will greatly reduce the pension shortfalls that many public sector face today.
I must confess when I first saw the zeal with which this proposal was being promoted by government worker unions, I was perplexed. Weren’t these the people with the generous pension plans? The plans that have very early retirement provisions, indexed to inflation so their real value never declines, and that include extended health benefits that the rest of us can only dream about? Why would these entitled folks even care about CPP, which was only designed to provide a fairly basic level of retirement support — $11,000 annually at best?
And then it struck me. All public-sector pension funds in Canada are in a major deficit position. Simply put, they don’t have enough money to fund the promises they have made to existing and future retirees. And yes, fellow private-sector taxpayer, you and I are on the hook for these deficits.
At the federal government level alone, current deficits are about $200-billion — big bucks. Provinces and municipalities are experiencing a similar pension tsunami. If the public-sector unions succeed in convincing governments to substantially increase CPP premiums, then the deficits that currently exist in public-sector pension funds will be sharply reduced. And that will in turn lessen the pressure to make major structural changes in public-sector pensions to bring them in line with their private-sector equivalents, perpetuating the pension apartheid that currently exists.
The fact is, the financial situation for many states is dire. Like the federal government, they are getting clobbered by rising health costs. Unlike the federal government, they have a massive problem of lavish retirement benefits for public employees. The Pew Center on the Statesunderfunded these plans by $1 trillion. estimates that state and local governments have promised $3.35 trillion in benefit plans and have
In some states and localities, it is not uncommon to see pensions of 2.5%-3% of a worker's final salary, times the number of years worked. At 3%, a worker can retire in his or her 50s, after 33 years of service, and continue drawing the same income. With deals like this, plus retiree health benefits, New York City now spends $144,000 a year for a sanitation worker, according to the Manhattan Institute think tank.
These lavish deals are draining money from core services, including teachers in the classroom, cops on the beat, prison beds, libraries and parks. In some states, even cuts in these programs, plus tax hikes, aren't enough to balance their budgets.
It is time for a major rethinking. An obvious solution is one that most Americans know well — 401(k)-type savings plans. Their widespread usage would make it harder to hide liabilities from taxpayers while reducing "pension envy" between private and public sector workers. At the least, such plans should be universal for new state and local hires.
A prime reason that pension costs have spiraled out of control is that spineless public officials can satisfy an important constituency by creating liabilities that won't come due until well after they leave office. When that important constituency is organized labor, which can apply political pressure and, in most states, bargain collectively, this possibility soon becomes an imperative.
Let's be clear: Underfunded pension systems resulted from unprecedented losses of asset values caused by reckless behavior on Wall Street and the refusal of some politicians to make their required payments. As recently as 2007, pension funds had, collectively, 96% of the assets required to meet future expenditures. But Wall Street drove America's economy and retirement security into a ditch. And now both pension and 401(k) accounts alike must be rebuilt.
As Bill McGurn points out in a recent Wall Street Journal column, public sector unions don’t just have to worry about a taxpayer revolt. They also must be concerned about a mutiny among private sector unions. Private sector unions with insight into corporate balance sheets and market competition recognize that $1 million pensions are unrealistic burdens to place on employers. Attempts to change the subject and blame “corporate greed” simply do not resonate. Put simply, it is difficult to conceive a way to address the current – and projected – state fiscal crisis without dramatic reductions in state and local employee benefits.
Have you heard St. Thomas-Elgin General Hospital CEO Paul Collins retired last year?
As it turns out, Collins' retirement lasted perhaps a day or two and then Babcock and the board rehired Collins and installed him in his former post at the same compensation, almost $205,000 in 2009, at the same time he is collecting his pension.
The whole idea of the pension was to provide public servants with a decent retirement when they left public service. It was not to enrich them or to make them wealthy, to allow them to retire younger, with more money, to go off and play golf while the rest of us supported them. This attitude is growing out there in the public. People are beginning to realize what has been done and they are not happy about it.
Pension Tsunami - http://www.pensiontsunami.com/
Many Canadians will never be able to save enough to afford a comfortable retirement yet are forced to contribute into the pensions of the public sector. Most public sector employees will retire at a young age with gold-plated pensions far in excess of most Canadians' retirement savings. We cannot let this pension apartheid continue. CFIB states ....