Laurentian Medical College makes cut backs on staff to pay for pension

There was an article in the Sudbury Star that shows the increasing danger of gold-plated pensions.

24 jobs cut at Northern Ontario School of Medicine. 

NOSM is operated by Laurentian University in Sudbury. It is unacceptable for the people of Ontario at a time when there is a strain on our health system and a shortage of qualified health care employees to be cutting back staff to pay for gold-plated pensions.

This came out on the same day that the province released its Sunshine List and shows over 240 staff at Laurentian earning over $100,00 per year. This is up from just 180 in 2008. Each one of these positions comes with a pension worth 70% of this income.

One manager at the University earns $304,000 which does not take into account the gold-plated pension. A manager will be entitled to a pension valued at $212,000 per year or 70% of his final salary when fully qualified. This type of pension has a cash value of about $3.4 Million.

Last year the college contributed $ $11.7 Million into their staff pension funds. This amount is up from $5.9 million in 2008, an increase of $5.8 million or 98%. If used to hire additional administration staff at $50,000 per year, this amount would allow for an additional 116 staff members.

Management decides to allocate this money in pensions and benefits rather than hire more staff. This was not money going into enhanced student services but to bolster the personal pension accounts of managers.

We are now seeing the conflict plaguing all government organizations.   It is the choice between more services for students or more gold-plated benefits for management and staff. Being forced to cut back and create savings where do you think the money will come from, compensation packages or services.

It appears that the students and taxpayers of Ontario will lose on this one.

Bill Tufts
Fair Pensions For All

Is the Air Canada pension plan too rich?

.
In 2009 the Air Canada pension plans were short $2.9 billion despite the fact between 2004 and May 2009 the company had pumped $1.7 Billion into the plan. 

Now they are requesting money from Canadian taxpayers. With Ministers, high level officials senior government officials and Members of Parliament. All of whom have gold-plated pensions funded by you. 

What do you think their response was? I you know please send me an update.

See the video here.

The Conversation Continues

Bill Tufts 

Ontario Teacher's Pension to Hit the Wall in 2014.

From the archives a member of the Ontario Secoundary School Teachers Federation (thanks Joe)



Despite hefty contributions and huge asset accumulations there is a crisis and it will hit in 2014 with a vengeance!

Bill Tufts
Fair Pensions For All

Working on pension issues

I have not had much time to be posting news to my blog. Does someone want a job? 

It is a very sad week for me as my brothers wife passed away unexpectedly yesterday. She was the mother of 5 boys. May she rest in peace and God be with my brother and his  family.

Pension News

It was a busy day today. I got a call for a CHML radio interview from an article written in the Hamilton Spectator. Then there were two other editorials, one in the National Post and one in the St John Telegraph Journal. Then just now another request for interview from a show in Halifax on the MLA pension issue in NB.

Here is a copy of a radio interview on a local radio station CHML 900 in Hamilton
http://www.900chml.com/Station/BillKellyShow/Audio.aspx

There was a live radio interview the Rick Howe Show from Halifax.  It was on teh new New Brunswick pension proposal. 
http://www.news957.com/inside/staff/124014--rick-howe

It was referred off this editorial in the St John Telegraph Journal
http://telegraphjournal.canadaeast.com/opinion/article/1389230

Also there was an editorial that was printed in the National Post.
http://www.nationalpost.com/todays-paper/CUPE+numbers+base/4446407/story.html

Hamilton Spectator
http://www.thespec.com/news/local/article/502317--wages-and-benefits-strangling-city-budgets
 

Your keeping busy blogger 

Bill Tufts

Fair Pensions For All

UK pension comparison

 

Chart from Statscan 2007 Note: RRSP assets in Canada total about $700 Billion

I received an excellent analysis and comparison of pensions in Canada and the UK.

Bob Parsons had written to me in response to the blog I wrote about the Hutton pensions report that was released in the UK. There are big difference between the public sector plans in Canada and those in the UK.

The UK pensions are not pre-funded and are paid on a pay as you go basis. This has created huge problems for the UK as the economy has slowed down and there has been a choice to be made for politicians between services and the compensation packages of the public sector.

It feels like the taxpayers is losing as the public sector and politicians dictate where our tax dollars go. Most taxpayers feel it is going directly into the pockets of the elected officials and the civil service.

As I am doing some research for my book I ran across a report from the BNAC back in 2009 that provided a good comparison between the UK, USA and Canada. Basically all systems are in trouble and the UK is the worst off of all. British-North American Committee (BNAC) report

One of the reasons that the systems has gotten out of balance was described in this short editorial letter Market Balance Needed

On to Bob's letter. Thanks for sending this excellent letter Bob

After seeing the post you made on Lord Hutton’s pension report I became curious to find out what type of pension plan public servants in the UK have compared to our federal government pension plan.

I printed off the nuvos pension scheme guide pamphlet. Here are some of the things I discovered.

1. In the UK employees can opt out of their pension plan. We can not do this in Canada. (Section 5 Do I have to join nuvos?)

2. They only pay 3.5% we pay over 7% for superannuation and CPP which in my case last year was resulted in me paying  9.25%. (Section 9 How much do I pay?)

3. They build up pension value at 2.3% a year compared to our 2% for the Canadian Federal Government public employee pension plan. (Section 17. How do you work out my pension?)

4. They use the Retail Price Index which provides a much higher rate of increase than the Consumer Price index we use. (Section 18. Will the pension I have build up in value?)

5. They can earn a pension up to 75% of base salary while we can only earn up to 70%. (Section 21 Is there any limit to the size of my pension?)

6. They base their pension the highest of
a) Your pensionable earnings in your final year, or
b) your highest pensionable earnings in any of the last 10 scheme years: or
c) your highest average of three consecutive years’ pensionable earnings.

Ours is based on the best 5 years. (Section 21 Is there any limit tp the size of my pension?)

7. They allow you to take part of your pension as a tax free lump sum. We can not do this (Section 22 Can I take a tax-free lump sum?)

8. They are allow to collect their pension while continuing to work, although you have to 75 to do this. We can not do this. (Section 29 What if I want to work beyond my pension age?)

Even with Lord Huttons recommended increase in contributions for employees they will be paying far less than we are here in Canada.

Some other factors you have to take into account is that we have started to fund our pension plan since 2000. We have build up net assets of over $50 billion. The fund has being growing at a rate almost twice as much as the federal government is paying for public service pensions on an annual basis. I believe the UK is still a pay as you go scheme. So we are in much better shape.

In 2009 federal government paid 1.01% of total government expenditures on public sector pensions. (Public Accounts 2009, Public Service Pension Plan Report 2009). In terms of GDP it is below .2% of GDP. Your colleague Leo over at Pension Pulse ran an interesting article on the UK public servant pension plan. He showed a graph that showed that their public sector pensions were more than 1.6% of their GDP which is more than 8 times ours.

I had a quick look at several US state public servant pension plans. They have costs between 3 to over 6% of total expenses. In many states employees do not pay anything toward their pension costs and in the ones that do I could not find any that contribute anywhere near as much as we do. Even Scott Walker is not asking his employees to contribute anywhere as much as federal employees in Canada have to pay.  In every state I looked at they do not collect full income taxes on pensions, must do not collect any.

I read your proposed solution, which is to copy the US federal employee pension plan, which is based on three elements. The first is an indexed defined benefit pension plan which is I think based on 1.1% of earned income each year. The second element is Social Security which is also an indexed defined benefit plan. The third element is a defined contribution plan in which the US government matches employee contributions up to a certain level. To be fair to public servants in Canada you need to increase the first element to make up for the fact that Social Security pays far more than CPP if you want to have equivalent pension plans in both countries.

The bottom line is that public employees in the UK currently get one hell of a better pension for 3.5% of their pay than we do here in Canada. Our pensions also pale in comparison to those at the state and federal level in the US. We pay a lot more for less pension benefits.

Bill Tufts
Fair Pensions For All

Net worth continues to climb - but for whom?

There was an article today in the Globe and Mail that shows that Canadians are still in deep trouble on household debt

 Net worth continues to climb
Wealth in Canada continues to rebound from the great crash. 

Overall household net worth increased 2.2 per in the fourth quarter to $6.2-trillion, following on the third quarter's 3-per-cent climb, Statistics Canada said today. 

On a per capita basis, that's an increase to $181,700 from $178,200.
"The gain in the Standard and Poor's/Toronto Stock Exchange composite index of about 9 per cent in the fourth quarter was reflected in rising values of household equities (including mutual funds) and pension assets, albeit at a slower pace than the previous quarter," the statistics gathering agency said.

This is good news for those Canadian who has some savings and pensions but for the great unwashed masses this really means nothing. 

The last Statscan report on Inequality in wealth shows some pretty grim statistics. Although the numbers were from 2005 not too many Canadians who has seen much of an increase in their personal wealth. The trend is the wealthy continue to get wealthier and the rest... well not as well. 

• Between 1999 and 2005, the median net worth of families in the top fifth of the wealth distribution increased by 19%, while the net worth of their counterparts in the bottom fifth remained virtually unchanged.

• As a result, the top 20% of families held 75% of total household wealth in 2005, compared to 73% in 1999 and 69% in 1984.

• Part of the growth in net worth among families in the top 20% of the distribution was fuelled by increases in the value of housing.
  

  • In both 1999 and 2005, the vast majority of these families (at least 95%) owned a house. During the six-year period, the median value of their principal residence rose a solid $75,000, reflecting sharp increases in housing prices.

  • In contrast, the value of holdings on a principal residence changed little among families in the bottom 20%. At most, 6% of these families owned a house during this time.

  Here is a chart from Statscan chowing that the top 10% of Canadians control almost 60% of the total wealth of the country.  I am afraid that this will part of the reason for social unrest in North America.
  

  

  
  

  Maybe this is what Michael Moore was ranting about in this video from the Wisconsin protests.  Michael Moore says 400 Americans have more wealth  Please listen to Part 2 of the video as well, it comes on automatically.
  
  
  

  Here he is interviewed in a very interesting video on The Rachel Maddow Show. Last Saturday there were in excess of 100,000 protesters in attendance at the Capital Hill in Wisconsin 

  
  

  As we do research for our upcoming book there are more and more instances of commentators suggesting a complete meltdown of our economy. One similar to what has happened in Japan. But the chances are we will not be able to borrow to the extent of 200% of GDP that Japan has. Japan has borrowed this money to sustain their standard of living.

  
  

  

  The Japanese stock market is down 75% since it's highs in 1989 

  Courtesy Seekingalpha.com

  Hang the rich: Great war inevitable, pundit predicts

  Richard Worzel - Revolting Civil Servants

  Stephen Gray  -Are we seeing political treason?

  Bill Tufts 

  Fair Pensions For All

Landmark Report on Public Sector Pensions

In the UK a special report on pensions looking into the sustainability of public sector pensions has been released. 

Pensions Commission

Lord Hutton a former Labor minister in the UK released the report that shows that the current system of public sector employees pensions is not fair to taxpayers or adequate for employees in its current form. 

He is urging that profound changes be made to the system for it to be sustainable in the long-term.  His point of view is that we cannot continue on as were are and major changes are required.

The UK has a pension system that is very similar to the one that Canada has for its public sector employees. It is based on the same plan design and very similar pension formulas. The report would be the star of a good road map towards changes here as well.

Hutton examined whether the current system is fair to employees and fair to taxpayers. What he discovered is that taxpayers are responsible for most of the future risk associated with these types of plans. These risk include investment; inflation; salary; and longevity risk.

There are also several gaps in fairness between what the public sector gets in pensions and what government workers get or should I say don't get. 

The two major recommendations were made in the report.

·         The public sector should move from a final salary pension scheme to one that is based on a career average

·         The age of retirement should be the same for all taxpayers both in the private sector and the public sector.

The UK has seen a similar trend in pension coverage. In 1997 about 30% of employees had access to a DB plan with overall coverage including DC edging 50%. By 2010 those numbers had dropped dramatically with only about 10% of employees in DB plans and overall coverage about 35% including DC plans.

About 80% of the public sector in the UK has a defined benefit final salary pension plan.  

The report outlined several key principles along with extensive discussion on each of the main points.

Affordable and sustainable - As employees get closer to retirement age their wages rise dramatically and the value of their pensions do as well. A greater cost falls onto taxpayers as the wage levels rise 

In final salary schemes, members will have paid contributions to the scheme based on something similar to their average salary, but will receive benefits based on their final salary. Taxpayers will pick up the cost of the difference between average and final salaries and members will benefit where final salaries are higher than average salaries. This effect will be particularly visible where people have experienced rapid salary growth. In average salary schemes, members bear more of the risk – salary levels throughout a member’s career will determine their income at retirement as well as their contributions to the scheme.

Adequate and Fair - There is a big gap between those at lower pension wage level in the public sector and those at higher levels. This is unfair because high income employee receive almost twice the value of their contributions than lower income employees do.

The report points out the there are many risks associated with pensions over the long term including investment risk, inflation risk, salary risk and longevity. The current system puts most of the risk on taxpayers for future funding .

Supporting productivity:- It is interesting that the report points out the "golden handcuffs" created by defined benefit plans prevents labour mobility within the economy. It recommends that more flexibility would be better for the economy

Supporting productivity:- It is interesting that the report points out the "golden handcuffs" created by defined benefit plans prevents labour mobility within the economy. It recommends that more flexibility would be better for the economy

Transparent and simple: - The report complained that there is little transparency on the cot of PS pensions. that taxpayers have no way of estimated what the costs are associated with a PS pension.

Transparency and effective oversight of public service schemes is required for public service workers and taxpayers to have confidence in the system and improve the quality of debate about the future of public service pensions.

This report is the basis for a good formula that would make Canada's pension system fairer and more sustainable., as well.

Focusing on fairness there were many interesting observations made by Hutton.

The report points our the generational risk in the current DB plan. For example, as the real costs of DB plans become apparent the younger employees pick up more burden.

For example, the OMERS pension plan offered its members a multi-year contributions holiday. As well since the early 2000's contribution rates have doubled. The early members in the DB plan paid at the old rates but new members will be paying much higher rates for most of their careers.

The sustainability of the system was questioned. It recommended some sort of a cap on taxpayers contributions into the plans. For example in Ontario the cost of taxpayers contributions into it's biggest 3 plans has grown by 400% over the past decade. At the same time pension plan shortfalls have not diminished. OMERS is on it's way to projected $8 Billion shortfall and Ontario Teachers is still sitting on a $17 Billion shortfall. 

The Commission recommends that public service employers take greater account of public service pensions when constructing remuneration packages and designing workforce strategies. to accrue further benefits in the present schemes for many decades would be unfair and inequitable to the new members coming behind them.

There is clear evidence that the administration of pension schemes can benefit from

economies of scale, particularly where existing schemes are below 100,000 members.

This bodes well for the creation of Canada's new PRPP. The report shows that the costs of administering a plan can drop to one-quarter the costs when comparing administration costs at small plans and large plans 

 

One of the complaints that Hutton has was that during his investigation he found that there are big gaps in transparency and a lot more needs to be know about public sector pension plans. In this way both the employees and taxpayers can have confidence in the system.

There should be a fairer sharing of risk between government (and ultimately

taxpayers) and scheme members.

In a recent OMERS report they highlighted the value of a employee pension.

A member who retires at age 60 with 32 years of service and “best five” salary of $48,000. Total contribution of $50,000 was matched by employer. Total payment to member and surviving spouse, including inflation, is $960,000

Part of the report included benchmarking the UK against other systems in the world. The BBC summarized a few of these plans and they provide an interesting analysis.

Public pension schemes elsewhere

• ·         France: Public sector workers typically retire before 60, but there are plans to bring them in line with the private sector, who by 2012 will need 41 years of contributions with benefits based on the best 25 years' salary. There are also plans to raise the retirement age from 60 to 62.

• ·         Sweden: Payments are based on earnings across the career not just the final salary, with an automatic link between benefits and life expectancy.

• ·         Netherlands: Private and public sector schemes are similar, each with defined benefits. Dutch typically pay 1.75%-2% of earnings for each year of contributions.

• ·         Chile: Mandatory defined-contributions in public and private sectors. Employees pay 10% of their earnings, with top-up benefits for the poorest 60% of pensioners.

• ·                 Greece: Retirement age raised from 60 to 65, and minimum contributory                   period on full benefit up from 37 years to 40 by 2015.

 Here is an excellent interview in video on the BBC with Hutton. Here what he says about the issue

 Lord Hutton Explains Pension changes 

 

Bill Tufts 

Fair Pensions For All

Tuitions rising over the cost of sky high salaries

 This picture is the scene in Thunder Bay over rising tuitions.

I have been very busy the past few weeks writing with Lee Fairbanks our upcoming book on pensions. Our deadline for completion of the original manuscript is April 1st. Therefore I have not had much time to devote to my blog.

There were a series of articles about education that caught my eye. All about rising salaries and compensation paid the staff at universities.

It highlights the cost to society of having a shadow workforce that gets high and a large benefits package but never has to show up for work. These are retired public sector employees.

Students were protesting over the rise in tuition at Lakehead University. There are some very interesting insights into the situation written by someone from the next generation. The very ones saddled by the cost of this shadow workforce, paid very handsomely by taxpayers and do not work.

                                       So what do we do now? 
                                 
                                       Board ignores alternatives to tuition hikes

                                       University faculty demand salaries, forcing tuition rates through the roof.

                                       No really... we are fairly paid ... except for that double a few years ago 

                                       From the same Victoria newspaper 

This all ties in very well with the excellent video on the sidebar with Bill Gates talking about the current challenges to education. I urge you to watch it.

Bill Tufts 

Fair Pensions For All

Leo's Pension Pulse

My friend over at the Pension Pulse Leo Kolivakis has run a very successful and insightful pension blog since 2008. He always has very informative insights and discussions into the pension world. 

I sent him an email yesterday that he had analyzed by the former Chief Actuary of the Canada Pension Plan (CPP), Bernard Dussault. Leo posted his response to my email. It makes for very informative and interesting dialogue.

Put Leo on your blog list as he does an excellent job and for the past 3 years had made a post on pensions every day, even the weekends!

Day of Reckoning on California Pensions?

I hope you enjoy this discussion 

Bill Tufts 

Fair Pensions For All

The Pension Monster comes to Canada

Like the great Ogopogo monster in the Okanagan Valley in BC there is a monster that everyone knows is out there but it is rarely ever seen. 

Today the Pension monster surfaced in Montreal in an article from the Montreal Gazette. The article is 

Island mayors to ask Quebec for pension relief

Montreal Island's two most senior political leaders are planning to ask the provincial government for a special law to help curtail the growing local tax burden associated with municipal pensions.

This is an unusual move because most politicians in Canada get a ride on the monster as well. It is a personal conflict of interest for politicians to castigate the monster because he is their friend as well, most city politicians have a pension funded by taxpayers. 

According to their plan, people who are currently receiving a municipal pension would not be affected. Only current and future municipal employees would see lower benefits - but not retroactively.

Current employees would keep whatever entitlements they have built up over time, based on years of service already accumulated. But changes would be made over time to reduce benefits going forward.

The problem with pensions they way they are designed today is that they are unsustainable and unfair to taxpayers. 

In Westmount, employees with 30 years of service can retire at age 50 with 75 per cent of the average of their last three years of earnings. This has encouraged a lot of early retirements in Westmount, which is why the westend suburb now has almost as many retired workers on its books (236) as full-time equivalent employees (295). Soon, Westmount will be like General Motors, with more retired than active workers.

Part of the problem is that pensions are based not on what the city or employees contributes but on what the employees earn when they retire. Employee compensation in Montreal has been skyrocketing like all governments at all levels across Canada. 

Another article in the Gazette shows how this happened. So much for economies of scale

The spending of the island's municipalities rose from $2.7 billion in 2002 to $4.1 billion in 2011. That's a jump of 50.1 per cent -21/2 times the inflation rate.

Salaries have gone up by 29 per cent, well above that 20-per-cent inflation rate. How, you ask, can this be? Hasn't the Tremblay administration been holding increases to no more than two per cent a year? Yes, but that does not tell the full story. Ways exist to get around it. One is "grade inflation:" People get new titles, qualifying them for raises. Another is overtime. A third is arbitrators' rulings. Last year, for example, an arbitrator gave police a 1.5-per-cent "metropolitan premium" because their work was more difficult than that of other Quebec police.

But benefits -mainly pensions -are growing far faster. As the table indicates, they've grown by 126 per cent since the merger. A major reason is the 2008 recession, which inflicted great losses on pension funds. Provincial law requires municipalities to compensate for these losses. Prodded by Trent, the Tremblay administration plans to appeal to Quebec to reduce municipalities' need to compensate so generously.

But another reason for this 126-per-cent rise is that municipal pensions are far more generous than those in the private sector. Firefighters, for example, earn $65,585 after 41/2 years' service; they can retire after 30 years with 73 per cent of salary and after 41 years with -incredibly - 100 per cent.

There are solutions but is there political will? 

The current practice of paying out generous defined benefit pensions is unsustainable fiscally - and unsupportable politically, Trent said. Two thirds of Canadians don't have any pension plan at work at all, he noted.

"Why should they, through their municipal taxes, be supporting these very generous pension benefits?"

Taming the Beast 

We have all seen the monster and we know that the ride he provides for some is very comfortable, but like most monsters, for the average person he is very dangerous. 

I was recently invited to a conference in California about pension reform. There was a lot of discussion on how to tame the beast. One idea focused on the ability of municipalities to go bankrupt in order to off load the legacy liabilities they have. Another large part of  the discussion surrounded the extent to which pension can be rolled back or more appropriately made more sustainable. 

One word of warning is that implementing new rules for future employees will not control costs for the city. The articles above mention that new employees coming into the system are not being hired as full time employees but as contractors. This trend will continue. 

Because of the ponzi like nature of  defined benefit pensions the need fresh contributors  coming in to be sustainable.

Benefits must be amended for existing employees. 

A top labour lawyer at the conference examined the concepts that will allow for the changing of future benefits for existing employees. part of it is on vesting rights. 

Vesting - Vesting means that you are unconditionally entitled to receive the pension you have earned under the pension plan, whether that benefit is payable now or sometime in the future. 

Accrual - refers to the level of benefits that the employee has already earned based on the number of years employees have worked.

Example 

Before I begin my analysis let me say that I respect the hard work of police and firefighters across our country. It is part of what makes our democracy strong.

We only need to look across the world to see what is happening in other countries to appreciate what we have here. I am only talking about effective pension management solutions, not denigrating any public sector worker. 

Lets look at the firefighter above. Assume we have a firefighter who has worked 15 years. Assume he is earning $70,000 per year.  

The usual formula for pension accrual for "public safety workers" is 2.33% for every year the employees works. 

Based on his current employment record he has vested his pension with 15 years of working, So based on the formula he will get 2.33% X 15 years equals 35% of his income. He has accrued 35% of his income and this is vested because he has completed this amount of time. 

The future earning he has will accrue at the same rate 2.33% and each year that he works becomes another year of "vested" service. 

What the big question in Canadian law is "Can the future accrual rate be changed?" 

The firefighter when he first began working he had an accrual rate on his pension based at 2%. Changes over the last 10 years have boosted the accrual rate to 2.33%. When the change was made all of his past service was changed to the new accrual rate. This boosted the liability substantially for all municipalities across Canada because the change was made retroactive for all the years public safety employees had already worked. 

In this example say a firefighter had been with the city for 25 years. Under the 2% accrual rate he had a vested pension worth 50% of his salary but the day after the pension changes were made he had a pension worth 58% of his earnings. At 30 years the number was 60% versus 69.99%. 

Pension earnings in Canada's public sector have always been based on a target replacement ratio of 70% of the worker's salary. So the firefighter above at 30 years working had the target pension at an accrual of 2.33% compared to the old plan where he would have had to work 35 years to get the 70% replacement pension. 

Confusing I know. 

Potential Solutions 

In California the solution that Jeffrey Chang presented was that future accrual rates can be changed but the vesting had to stay in place. This seems like a reasonable solution. 

Convert DB to DC 

The first solution would be to change the nature of the plan convert it from a defined benefit (DB) to a defined contribution. It is only the public sector that has DB plans based based on these generous accrual rates. The employee would be vested to his current DB portion but any future pension would be based on a DC plan accumulating future pension contributions. 

Hybrid - Multi-Tier 

Why should the public sector employee get a pension substantially greater than the working Canadian's average wage. Give them a base of say 50% replacement income and any additional contributions they or taxpayers make go into a DC plan. So they would be guaranteed the 50% but any portion over and above would be calculated on a DC formula. 

Eliminate Final Pay Formulas 

The example for the earnings of the firefighter above is understated. They used a salary estimate that is estimated on the average wage of a firefighter in Montreal. Based on the salary grid and on seniority a firefighter going into retirement has a much large salary. It is the final years that are used to calculate the pension. In the private sector it is done on a career average basis. This opens the door to much abuse in order to raise salaries in the last few working years to enhance pensions. Why use only the last 3 or 5 years of salary to base the pension?

Cap Pensions

What is a reasonable limit for pensions? Our work shows that a formula base on the average working wage is a good solution, Why should a public sector employee retire at age 50 earning for the rest of his life substantially more than the average working taxpayer. A moving formula could be say 1.5 times the average Canadian working wage. This should be more than reasonable pension income. Earlier this week we wrote about an Ontario worker who is currently on track for a $750,000 per year pension, of course funded by taxpayers. An alternative would to be to place a dollar cap on pension for example $95,000 per year. Currently across Canada at all levels there are tens of thousands of retired government workers earning in excess of $100,000 per year in pensions.

Raise the Retirement Age

Canadians in the past had a targeted retirement of age 65. A majority of workers today will work far past that age and a minority will be working into their 70's. Why should the public sector retire as young as age 50? 

Eliminate Double dipping 

Many of those retired firefighters will continue working after they retire with no reduction in their pensions. Even more insulting many will return to government to continue working.

The conclusion is that changes have to be made. The longer we postpone the changes the more painful it will be for taxpayers and employees. 

Taxpayers will suffer big drops in the services that government can provide as they struggle to pay employee legacy costs. 

For employees the risk is great too. Many have 40 years to go in retirement. This is a long time and there are many financial challenges that face Canada in the years ahead.

We need to move to pensions that are fair for all and sustainable. 

 

Bill Tufts 

Fair Pensions For All

Weekend funnies

Today's headlines are so funny you have to laugh. 

London Ontario -Police swell sunshine list by 68%

Paramedics in Ottawa ecstatic over a salary increase of 13 % despite wage freeze in Ontario

Disillusioned over 4.4% wage hike in Edmonton 

St Albert - Councilors and employees approve themselves big wage increase

In Regina out-of-scope healthcare employees get 18.8% or $70,000 raise.

It is ironic I had just finished writing a letter to the Leader Post. The letter pointed out the game of leapfrog being played by the executives that had just given themselves handsome raises. I wrote that

Despite all of the wordsmithing about out-of-scope employees, salaries significantly "under market" and comparing it to pirates in Alberta salary increases of 20% or $70,000 per year are a taxpayer rip-off. How much did they pay consultants to get a report that justified these types of increases?

Don't expect it to end anytime soon. Consultants will soon be reporting to healthcare executives in Alberta that Saskatchewan just got raises valued at 20% and they should be getting the same. The it will be Saskatchewan's turn again. It's just a game of leapfrog that keeps putting taxpayers further and further behind.

 The Leader Post article stated that 

The health regions, the Saskatchewan Cancer Agency and SAHO worked with The Hay Group, a management consulting firm, to do the market review, which indicated that some pay ranges (bands) were no longer competitive. A broad range of out-of-scope health-care jobs include administrative positions, nursing supervisors, program directors, vice-presidents and CEOs.

Then the next report I saw that was the cause for uncontrollable laughter. It was the report  from St Albert. This is where the councilors and employee both went to the taxpayer trough. 

And how did they justify it? 

Council approved a compensation review implementation plan and a compensation philosopy policy, both in reaction to a compensation report delivered by the Hay Group in November.

Be watching for the next report.... I wonder how much taxpayers have to pay for these consultant reports. For some they are priceless.

Here is another update on a report done by the same group in Vancouver. City staff survey produces $92,000 bill

Rob Ford commissioned the same group to make a compensation report. Here is what the report by the same group said to the mayor of Toronto Councillors should reject raise, budget chief says

Nothing New  
This game is going on for a long time.  My only thought is what are these guys thinking?


Across North America government are suffering financially. Taxpayers have suffered job losses, reduced wages and a significant portion of wealth was lost in the stock markets. Yet 
the cities listed in the above headlines continue on like we are still living in boom times. 

When will they bump up against the ceiling of reality? Or maybe they believe the following article and think they can turn the ship around with more spending? 
  
Government budget cuts pose threat to recovery

Deep spending cuts by state and local governments pose a growing threat to an economy that is already grappling with high unemployment, depressed home prices and the surging cost of oil.

Lawmakers at state capitols and city halls are slashing jobs and programs, arguing that some pain now is better than a lot more later. But the cuts are coming at a price — weaker growth at the national level.

Across the country, governors and lawmakers are proposing broad cutbacks — lowering fees paid to nursing homes in Florida, reducing health insurance subsidies for lower-income Pennsylvanians, closing prisons in New York state and scaling back programs for elderly and disabled Californians.

"The massive financial problems at the state and local levels 

But those same governments cut spending at a 2.4 percent rate at the end of last year. And economists predict they will slash their budgets by up to 2.5 percent this year — potentially the sharpest reduction since 1943. The deepest cuts are expected to occur in the first six months of this year.

The worst cuts so far_ 3.8 percent — came in the January-to-March period of 2010. That was the sharpest quarterly drop since late 1983, when the U.S. economy was recovering from a severe recession. Most economists think the cutbacks this year will exert an even bigger economic drag than last year.

Many governors, including those in Florida, New York and Colorado, are pursuing tighter budgets. Their proposals include laying off public workers and teachers, reducing spending for education and health care, and ending some social services. They're also targeting public pension funds and health insurance plans and seeking larger contributions from public employees.

State and local budget experts fear the cutbacks will intensify this year. States are struggling to close budget gaps of about $125 billion for the upcoming budget year, according to the Center on Budget and Policy Priorities.

State and local governments have cut more than 400,000 jobs in the past two years. Budget pressures will force an average of 20,000 more job cuts each month for the rest of this year

Bill Tufts 

Fair Pensions For All

Ontario Hydro - Abusing Taxpayers

It looks like electric rates are rising again in Ontairo. The OPG wants an increase of over 6%. They made the 6% look like a bargain as they originally were asking for a 9.6 per cent rate increase. Don't be deceived about it being over green energy or a $18 Million fine they had to pay.

It is about the machine feeding itself. The rate increases are due to outrageous compensation packages paid by OPG. My recent blog on Hydro Ontario showed how most of the cost of running the organization was associated with the huge labour costs. 

Well there is a sister to Ontario Hydro called OPG. It employs about 12,000 across Ontario. Over half of these employees or about 7,900 showed up on the Sunshine List for 2009. This is the list of earners on the government dole making in excess of $100,000 per year.

The Sunshine List only shows the salaries of these employees. It does not include the total compensation they receive in pensions and benefits. For most of these employees the taxpayers of Ontario will kick in another 35% towards these fringe items.  So that a employee that shows up with $100,000 on the Sunshine List is costing the taxpayer around $135,000,

Assuming that the employees on the Sunshine List earned just $100,000. their total compensation cost you as a taxpayer over $1 Billion. Of course there are all those employees not on the list probably earning close to $100,000 and many on the list far exceed the $100,000 threshold.

Obscene Compensation
The number of employees on the Sunshine List from OPG is an insult and affront to Ontario taxpayers. But they are just small fish compared to the big Kahunas. (Joe M keep me posted on this),

A 2009 compensation report from OPG shows the real damage to taxpayers of the irresponsible use of taxpayer money to fund the personal pension plans of those running the organization.

Although the numbers seem to be fraudulent and put out as some sort of a joke, I think they are real. That makes them even more horrifying. We can see why Clitheroe wanted to sue taxpayers over her paltry $350,000 a year pension.
Statement of Executive Compensation - OPG

The first portion of the report on page 7 shows the pension and compensation values of the senior executives. A new President and CEO was awarded a 3 year agreement beginning in 2009. That is all the time he will need to become faboulously wealthy and get onto the next government appointed job.

His total compensation was $1.591 Million in 2009. It only shows as $1.011 Million on the Sunshine List  for the same year. This compensation appears to be only for half the year as the outgoing CEO and President made $1.717 Million the same year as well and $3.451 Million the previous year. Of course the outgoing President only shows earnings of $2.475 Million on the Sunshine List the same year he made the $3.451 million.

Thats not all 
There is lots more pain to come for taxpayers. The employees working for OPG have a long list of special benefits they are paid. None of these benefits are paid to the private sector but are part of the public sector collective agreements. They include a laundry list of goodies such as retiree health care plans (for those who retire before 60, they still get benefits), sick time payouts, vacation leave payouts and termination severances.

The total liability on these benefits is close to $2 Billion. See page 125 of the OPG Annual Report  

In 2009 the company contributed $ 271 million into the company pension plan. Since the wages are so low at OPG employees only contributed $ 86 Million into the plan.Most companies in the private sector split the cost of pensions with their workers. At OPG employees contribute only 24% into their gold-plated plans.

Oh by the way. This is not enough money for the pension fund. They are figuring these rates at 7% rate of return for the pension fund. Any guesses who will be covering future shortfalls?

OPEB's or Other Post employment Benefits are escalating at OPG. They are a debt paid to employees who no longer work there but participate in the other benefits. Can you imagine your employer saying here is your gold watch but we are going to pay for your health benefits for the next 10 or 15 years? As you leave we will pay you for 20 years worth of sick days you did not take. We know it is hard to take 10 sick days a year.

More to Come
If you are not feeling ill already go to page 8 look at the value of the pensions for the executive. The NEW CEO is "entitled" to $750,000 year or $62,500 per month at age 65. Of course, this amount will increase every year and probably by the end of his contract will be close to $1 Million. That is $1 Million a year in pensions payments for retiring.  

One executive member has already accumulated in excess of $4 Million in pension entitlements. One would think that someone earning $750,000 a year could save for their own retirement. How do you spend all that money? You would not have to save any of it for retirement, that has already been taken care of by taxpayers.

This is the real reason Clitheroe tried to sue Ontario taxpayers for a $33,000 per month pension. She had pension envy.

Bill Tufts
Fair Pensions For All

"Boot Camp" Examines Pension Cloud over Government Budgets

Over the past week I was in California.

It was  chance to get away and do some work writing for the upcoming book I am writing with Lee Fairbanks called Pension Plunder.

I was invited to the Bootcamp by Jack Dean the publisher of Pension Tsunami.

Jack works with California Pension Reform CFR and they were the hosts for the event. California provided a nice break from winter and the Bootcamp provided me with a good reason for a get-away

I had a chance to share lunch with Marcia Fritz the founder of California Foundation for Fiscal Responsibility  and Scott Baugh Former Republican Leader, California Assembly. It was a very interesting day and provided lots of insight into issues that elected officials and city managers have in dealing with the aging time bomb. 

The seminar was a sell out and there were an additional 350 people listening to the program live over the internet. There were a wide range of people in attendance from self proclaimed unions thugs to elected city councilors, mayors and taxpayer groups.  At lunch we were joined by the City Manager and an elected official from Loma Hills California. 

The event was presented to better help key decision makers better understand the pension tsunami and hear about timebombs set to go off for municipalities around California.  The biggest surprise were the costs of OPEB's (Other Post Employment Benefits). 

Although the focus of the event was California all governments at all levels have identical problems when it comes to the issue of employee entitlement packages. A lot of discussion was had around the changes that have to be implemented in order for the system to survive. 

Marcia told me the biggest challenge of the issue is understanding exactly what the problem is and making people aware.  There is a lot of myth and misinformation out there about the problems that exist and the Bootcamp was a great way to start to begin the discussion on what needs to be done. 

The feature speaker was Girard Miller and he had some very interesting perspectives. His presentation was called The Power of No. He has written many articles and papers about pensions and the key issues surrounding reform. Poor Pension Math

I hope that in future blogs I will be able to share some of the details of the information that we heard. There was a wide range of experts and they focused on those issues that can make a big impact for taxpayers and their employees. 

"Boot Camp" Examines Pension Cloud over Government Budgets

 Lawmakers Head to Pension Boot Camp

Bill Tufts 
Fair Pensions For All