Will Public Unions Force California Into Receivership?

Wow
Big trouble in California - As the Public Pension Crisis in California heightens and municipal governments are bracing for the possibility of insolvency, the Full Disclosure Network® presents a special Video News Blog featuring Orange County Supervisor John Moorlach. He is one of the few elected officials in the State with a financial background as a former Certified Public Accountant.

Working Seniors and Canada's Pension Apartheid

There is an excellent article on Canada's working seniors in today's Montreal Gazette

There are some excellent insights into this issue and as the article points out there are some important questions still to be asked.

The break point on the analysis of $49,000 is interesting. This is a group a little higher than the average Canadian wage; a little over $40,000. So there are Canadians retiring with good retirement incomes greater than those still working. 

This $49,000 puts these retirees into the level of pensions in the public sector. For example, the average federal worker earns about $72,000 annually. Fully qualified for a 70% pension they will earn the $49,000 a year pension sited here.

Pension Apartheid
The Brits have coined a phrase called pension apartheid. It is the gap between those retirees in the private sector and those who retire on public sector pensions, such as teachers, government workers, and police.

UK Pension apartheid

This gap exists in Canada as we see fewer and fewer Canadians able to contribute to decent pensions yet the public sector retires as early as 50 (police and firefighters ) and 55 (regular retirement).

Even the public sector unions who benefits from gold-plated pensions recognize the problem.
 Are McJobs Part of Canada's Retirement System? 
The unions tell us the average pension is only $17,000 but they neglect to mention that the this includes pensioners who have been collecting for more than 30 years.

What is new pension today worth? Probably in excess of $40,000 and the workers are entitled to CPP on top.

Private Sector Poverty This gap means that many more Canadians will work in retirement not for fun but for necessity. Unfortunately it is the same in many developed countries.

US -Retirement will be risky for many Americans, says Employee Benefit Research Institute
UK -Millions face retirement in poverty as pension savers decline during recession

Statscan tells us that 18 million workers are in Canada's labour force. Yet only a small portion of these workers have been able to contribute to their personal retirement savings.

In 2008 only 6.2 million workers contributed to their RRSP plans. This is only one third of working Canadians. To be fair in addition, 20% are public employees and have gold-plated plans. Due to the recession these numbers I suggest are falling.
RRSP contributions fell in 2008

Public Sector Prosperity
At the same time as the recession has put many workers into a precarious situation for retirement the public sector has seen their plans flourish and in fact prosper during these times.

Statscan shows the dramatic rise of public sector pensions over the past 20 years. See Chart 4 - Pension assets in employer-sponsored plans by type

Another alarming Stastcan table shows the gap between the public sector plans and private plans. The public sector pensions combined with Government consolidated revenue arrangements show the public sector has about $800 Billion in its pension kitty. The private sector has about the same. However, only about 25% of workers are in the public sector yet they get the lions share?
Statscan - Pension assets by type.

Unequal shares
In 2008 all working Canadians contributed about $34 Billion into their RRSP's. At the same time the taxpayer helped public sector employees funnel about the same or $30 Billion into public sector pension plans. But there are only about 3.5 million public sector employees.
These contribution numbers are available at the Statscan - Pension Satellite Accounts

There is a total workforce of 18 million. So 3.5 million public sector employees were able to contribute the same amount into retirement pots as all working taxpayers. Of course, a bit part of that contribution came from taxpayers.

Golf for Life at 55 Club
As a result the public sector has pensions based on 70% of their retirement income. They are eligible to retire as early as age 50 and if they choose they can collect their pensions plus go back to work and collect a salary as well.

The ones that do not go back to work become part of the Golf for Life at Age 55 Club.
Most of the Golf for Life at 55 Club will have pensions starting at $40, $50 and $60 thousand dollars per year! All fully guaranteed. Guaranteed for life, guaranteed to increase every year, guaranteed to a surviving spouse and best of all guaranteed by Canadian Taxpayers. 

 

Bill Tufts 

Fair Pensions For All

Taxpayers in Deeper Doo-Doo

We have been talking for some time about the liabilities of public sector employee pension plans. They are a stone around the neck of taxpayers and taxpayers are going down. Taxpayers are having to fund these platinum pensions at the same time markets have melted down the value of their retirement nest eggs.

Plummeting Markets
Stock markets have plummeted in North America. Google Finance shows the 10 year rate of return to be -3.95% and the TSX 10 year rate of return is 11.4%. No those are not annual rates or cumulative those are total before MER's or investment management expenses.

A recent Washington Post article points out the problem. Taxpayers Don't Need $2.9 Trillion Pension Overhaul

The trouble is the assumptions that state and local pension plans make for their investment returns are too high.

Arizona's Public Safety Personnel Retirement System expects to make 8.25 percent on its investments this year.Colorado's Public Employees' Retirement Association will make 8 percent. And the Virginia Retirement System anticipates 7 percent returns.

Eileen Norcross of the Mercatus Center at George Mason University in Arlington, Virginia, and Andrew Biggs of the American Enterprise Institute say such assumptions are optimistic, and should be much lower, in the 3 percent range.

Government pension plans across the nation assume they will make between 7 percent and 8.50 percent, with the median for 126 plans surveyed being 8 percent, according to the National Association of State Retirement Administrators. Moving to the lower investment assumptions of corporate accounting would force taxpayers to come up with $2.9 trillion to bridge the gap between assets and liabilities.

In other words, if you want to figure out how much you will need to pay your retirees -- a low-risk liability, meaning, states and localities always pay -- you must put your money in very safe, low-risk assets. When New Jersey discounts its liabilities at 8.25 percent, the state reports that its pension systems are underfunded by $44.7 billion. If New Jersey discounts the liability at 3.5 percent, the rate you can get on U.S. Treasury securities, its unfunded obligation is $173.9 billion.

If you discount the nation's public-pension plans by 3.5 percent, the unfunded liability rises from $452 billion to $2.9 trillion

Leo over at the Pension Pulse had commented on this issue a few days ago. He pointed out in his comments about the article:

I don't know when the day of reckoning will come, but we are on a major collision course and as long as the stock market keeps heading higher, nobody seems to be noticing. But this is long-term structural issue that won't go away, and will require some difficult political choices ahead (look at the UK & Greece). To think otherwise is highly irresponsible and just plain old wishful thinking.

In his blog Leo also lists some links to other very informative reports on pensions. You should check them out.

Bill Tufts
Fair Pensions For All

New from "This is not a Tax" McGuinty

This one is unbelievable!

A new bureaucracy from the Ontario Government has been created called Stewardship Ontario. No not it does not refer to stewardship of your tax dollars!!!. Has anyone seen how much this is costing, how much it will generate in revenues.

Get on board... they will be hiring like crazy!
Stewardship Ontario - Only for those looking for outrageous salaries, golden benefits and platinum pensions. Friends only please!

If it did not hurt so much we would be having fun with this one! Here is a comment left at the CBC article New Ontario 'eco fees' not a tax: minister

I am furious about this newest sneaky tax foisted upon us. Please don't insult me by explaining how it is not a tax. I may be stupid because I live in Ontario, but you don't have to rub it in.

Please explain to me why dish detergent has an eco-tax. Is it a hazardous product? The plastic bottle isn't hazardous and is placed in my blue box, a service (not a tax) that I pay for in my property taxes (a tax, not a service).

Is it the detergent inside the bottle that is the hazardous material? I am already paying for the disposal of this dangerous hazardous material through my water and sewer fees (also not a tax). But if it IS hazardous, why on earth if the province of Ontario letting it get onto the dishes I EAT from, let alone into the water system??!!

Also, since the eco-tax is being applied to my medication, how do I apply for a refund for the portion of the medications I have ingested and which do not need to be disposed of as a hazardous waste? Is there a form that I need to fill out? Is a urine test required to prove the medications were ingested?

And how about the eco-tax on Kleenex. Freaking KLEENEX! This is disposed of in my compostable (green) bin which is costing me a pretty penny on my property taxes, I might add. And they are placing a hazardous product fee on it?!

I AM CANADIAN - TAX ME MORE!! (Lord, I hope KY Jelly doesn't have an eco-tax, too, or this is going to be even MORE painful than I expected!)

Barb S

All I can say is unbelievable!

Bill Tufts
Fair Pensions For All

Where do we go from here?

The IMF just released their predictions for economic growth over the next year.For many parts of the world the situation is rosy but for the developed countries there are many challenges to overcome.

A friend of mine, Lee Fairbanks, from Fairbanks & Cannon Management & Consulting sent me this email. 

 The G20 wants to reduce their deficits by 50% in 3 years - how will they do that? Raise taxes and cut services. That affects all of us - HST on gasoline anyone? Where does the stimulus money come from? Taxes - which we all provide one way or another. Time to face the facts.

Are we in a recession or a depression? Listen to Wall Street expert Bill Bonner explain why stimulus spending will not save our economy because it supports businesses that should be allowed to fail in a free economy: Bill Bonner: Son of Stimulus

 

Or just read the newspaper every day: Cities and States in the US going bankrupt; company and government pension underfunded with no way to recover. "Guaranteed" pensions being cut. Most of those pensions rely on never ending stock market growth. With so much stimulus money pumped into the Global economy we should expect that markets will have risen back to their pre-crash levels. Consider these stats from Jan. 2010  to July 2010:

 

Dow Jones (US) up just 0.14% (virtually flat)

Dow Jones (Europe) down 12.4%

Dow Jones (Asian) down 4%

Dow Jones (Global) down 9.2%

 

In fact - The 10-year return on the Dow Jones and the TSE index is virtually 0% - as in zero, so any money invested there on 2000 has earned no growth in the past 10 years. The TSE is down 7% this quarter - where is your RRSP and your RESP invested?

 

Truth is, today the only wealth you can count on is earned income - after taxes. And with taxes going up and services going down, for most people that spells one thing: tough times ahead.

Lee had asked me where I see future business opportunities. In response to our conversation Lee wrote. 

Bill's facts are undeniable and they point to a future for Canadian Baby Boomers without the current level of "free" health care as they age. Provincial forecasts say that 70% of all tax spending would have to go to health care if the current levels are to be maintained. This is an ongoing increase, rising from 30% in 1981, to 45% in 2004.

Is there a solution?

Several things come to mind:

 1. Stay healthy longer.

2. Make sure you have enough money to buy your own health care when you need it.

3. Diversify your income offshore to capitalize on growth markets with younger populations. (Bill's suggestion).

Bill has an excellent article that uses the Japanese experience (Japan is the first developed nation to face this crisis) to explain where Canada is in this cycle.  - scroll past the headlines to read the article. Look closely at the charts, they are very revealing.

It appears that the IMF numbers show the same opportunities and challenges that Lee and I have identified. The developed nations of the world are collapsing under the weight of aging populations and the legacy, pension and healthcare costs that come with a greying population. 

Emerging Economies 

The emerging economies are poised to produce some stellar growth numbers in 2010 and beyond. You can see from the chart above the areas that are traditional growth drivers benefiting the emerging markets. These can be found in exports, industrial production and retail. 

Brazil - 7.1%
China - 10.5%
India - 9.4%
Mexico - 4.5%

Many of these countries are on track for stellar growth. Mexico grew by almost  7% in the last quarter. Crecerá economía mexicana entre 6 y 7% en segundo trimestre: Santander 

These numbers compare to Canada with an anticipated growth of 3.5% this year and 2.8% next year. Projections for Europe are dismal at only 1% growth. 

Bill Tufts

Fair Pensions For All

Pension Tsunami's Jack Dean on the Growing Wave of Public Pension Debt

Jack Dean of Pension Tsunami



Thanks Jack for all of your hard work towards this very important issue. It looks like we still have a long way to go.


"The whole idea of the pension was to provide public servants with a decent retirement," says Dean.  "It wasn't to make them wealthy, to allow them to retire younger and with more money and be able to go off and play golf while the rest of us supported them.".


Bill Tufts
Fair Pensions For All

The Private Sector and Public Sector Wage Gap

It is alarming in economic times like these that government employees continue to get bigger salaries, bigger benefits and bigger gold-plated pensions than the private sector.

The Wall Street Journal highlights this gap in an article  The Government Pay Bonus. They point out that private employees toil 13½ months to earn what federal workers do in 12:

Pay cuts, layoffs and the highest unemployment rates in decades have reignited a debate over the relative treatment of public and private workers. USA Today reported in March that federal workers earn substantially higher wages than private sector employees who work the same types of jobs.
Nevertheless, salaries are only one part of total compensation. Government employees may also receive more generous health and pension benefits than Americans working for private enterprise. So are federal employees overpaid? Data from the March Current Population Survey (CPS) suggest they are.
Federal employment also carries significant nonfinancial benefits—in particular that layoffs and firings are much rarer. If you think these aspects of federal employment lack value, ask any private employee who is now looking for work. A federal pay premium is unfair both to private workers, who receive less than their government peers, and to taxpayers who must cover the difference. Given our 2.7 million-strong federal work force, the government effectively overbills Americans by almost $40 billion every year just on labor costs.
If Washington demands "painful sacrifices" to make these programs solvent, as the slogan goes, it must first re-establish its credibility. Giving federal workers salaries, benefits and terms of employment comparable to those received by private workers would be a good start.

 In Las Vegas they covered the topic with and article called Welcome to Planet Government where your servants are better paid than you 

“For years, most people who worked for state or local governments accepted a fact of life: Their pay wasn't great. The job security was.
“Now that's gone, too.”
What planet are they on?
The federal wage premium for workers who have the same education and experience stands at 24%, still a windfall for public employees.

“Even using all the standard controls — including race and gender, full- or part-time work, firm size, marital status, region, residence in a city or suburb, and more — the federal wage premium does not disappear. It stubbornly hovers around 12%, meaning private employees must work 13 1/2 months to earn what comparable federal workers make in 12.”

 Of course this is countered by the public sector unions who claim that the gap can be explained. The Canadian Congress of Labour try to explain the gap: 

In its study, the CFIB does not take into consideration factors that explain wage disparities that are known contributors to wage gaps. Such as the level of education of employees, size of employers and presence of a union, job tenure and previous work experience of employees, real working hours and the impact of pay equity

The argument is logical until the actual facts are examined. The union OPSEU did an actual study and the results they found were:

• Roughly 35% of respondents plan to retire within the next ten years. 

• 81% of respondents have an annual income at or above the average income in the general population (which is $39,386). 37% of respondents have an annual income of $60,000 or higher.

• 42% of respondents have college-level credentials, 30% have university undergraduate-level credentials, and 10% have graduate-level credentials.

 The News.Scotsman reported on the problem there. Yes it is the same in Europe as it is in the USA as it is in Canada. The only difference is that in Canada politicians are still too afraid to upset their biggest voting block. elsewhere around the world it is unavoidable. The day is coming where it will be necessary in Canada to end this travesty. 

Politicians and campaigners called for the state sector to take its "share of the pain" after research showed it enjoyed vastly better pay and benefits packages compared to the rest of the economy.

The report also said that public-sector workers enjoy better pensions, shorter hours and earlier retirement than those employed in private industry.
Private-sector employees work 23 per cent longer – the equivalent to an extra nine years and ten weeks

 The CFIB - Canadian Federation of Independent Business has consistently brought attention to this problem. Recently they called for more public discussion of this issue and said it is Time to get really big elephant out of Canada's living room

Add benefits, such as pension contributions, and the gap increases to a shocking 42 per cent. Imagine the public sector howling if these differences were reversed.

Think this only happens in Ottawa? Not so: provincial and municipal wage discrepancies exist, too. In Vancouver, municipal employees get paid 11 per cent more than equivalent jobs in the private sector. Add in benefits and the premium jumps to 35 per cent.
Now you know why your property taxes are so high.Not surprisingly, those in the public sector retire earlier, too -- at an average age of 59, compared with 62 in the private sector and 65 for the self-employed.

How is this even remotely fair when it is the private sector that takes the risks that generate the wealth to pay for these bloated public-sector wages and benefits?

Canada is in big trouble. Its too bad that our politicians and public sector employees don't realize it yet.

Bill Tufts 

Fair Pensions For All 

Government in business to pay biggest expenses - Employees

There is a race on in our society to pillage the wealth of our nations.

We have seen the problems that Legacy Costs have created in our society. They have the potential to divide society between the haves and the have-nots.

A system where a few have a lot and the majority have - or will have - very little indeed....The difference-maker in our futures, says Bill Tufts, is going to be our pension plans. Public or private. Gold-plated pensions versus pensions that might not even hold a coat of yellow paint. ROY MacGREGOR - Globe and Mail.

Hole to Fill 
One interesting situation is occurring in England where two companies begun giving the assets of the company to employees. They have given the assets to their employees to fund pension plan liabilities. Pension plan holes to fill.

These are assets that did belong to the shareholders of the companies but are now being diverted in what Peter Drucker called the "Pension Fund Revolution". It is a form of socialism whereby pension funds control and own most of societies assets and equities. Drucker predicted that by 1985 pension funds would own, in America half of the equity capital on American corporations.

I have covered pension socialism in some of my blogs.

Government's Biggest Expense 
The biggest expense of any government organization is the compensation costs of the public sector employees. It is the commitment made to these employees after they retire that are know as legacy costs. 

Many government organization are top heavy with older baby boomers at the cusp of retirement. Having made gold-plated commitments to these employees, many organization are finding themselves short. This will put huge pressure on increased revenues for these organizations. 

Revenues to a government employee, taxes to us. 

Ontario's Power Trip: The 20% Hydro Grab
The National Post has been running an excellent series on Hydro electricity in Ontario, The author of the series is Parker Gallant. He recently reported on the anticipated 20% increase in hydro costs in Ontario.

In past articles on Hydro Ontario, Parker pointed out the huge cost of employees at Ontario's Hydro organizations.

These organizations have huge legacy costs. Part of the reason is the high compensation paid to employees. Parker covered some of the issues surrounding the compensation at the hydro monopolies. Ontario's power trip: Priced out of the market

Now we see hydro rates in Ontario will be rising by 20%.

Legacy costs
The hydro business in Ontario, all government owned have thousands of employees who are earning in excess of $100,000 per year. Of course most will be entitled to a gold-plated pension as well. On valued at 70% of their earnings. This means at retirement each employee needs in the pension pot close to $1 Million.

It is impossible to fund all of these obligations there fore the taxpayers have pension and future benefits liabilities in these electric monopolies.

OPG, Ontario Power Generation has accumulated $8 Billion into it pension plan for retiring workers. Last year the employees contributed 23% of required pension contributions or $75 million into the pension plan compared to taxpayer's contribution of $ 254 million. 

Currently there is a liability for future employee benefits of $1.5 Billion. If the plan were to wind-up tomorrow or convert to a defined benefit plan there is a $2.8 Billion liability.
OPG Financial Statement - See note 12 for pension and benefit liability details.

For taxpayers the OPG returned a profit of $ 88 million.

It has become apparent that the number one concern of a generation of soon to be retired baby boomers is the commitment taxpayers have made to their legacy costs. The focus of these government operation now is not how to make our society better, or how to make our economy more competitive. It is how can we get more revenue to make sure that the gold-plated legacy costs of the public sector is covered.

Bill Tufts
Fair Pensions For All

Ontario for Sale ...

Yesterday Christina Blizzard from the Toronto Star reported on the sale of what is called Supercorp. It is an amalgamation of LCBO, Ontario Power Generation, Hydro One and the Ontario Lottery and Gaming Corporation. Liberals may pawn crown jewels

Combined these organizations are a large part of the economy of Ontario. Ontario Lottery is on track for $2 Billion in revenues this year. LCBO will be in excess of $4.5 Billion and OPG is on line for about $5.6 Billion in sales.

Monopoly Businesses  
These businesses should be very profitable for Ontario taxpayers because they are in highly regulated monopoly industries. They can dictate their own prices and profits. For example, OPG had a drop in electricity sales of 15% last year. This year they will be raising electricity rates in Ontario 20%. You can bet your ass...ets that if consumptions comes back rates will not go down.

The biggest expenses of all these organizations are the costs of their compensation packages. This includes salaries, benefits and of course gold-plated pensions.

Bright idea
Now the Ontario government wants to liquidate these assets for some quick cash.

Who will buy? Blizzard knows the implications

The only big investors with enough cash are public sector pension funds, such as Ontario Teachers’ Pension Plan and OMERS, the municipal employees’ plan.
Do you really want pension funds running monopolies? Since half the money that goes into those funds comes from taxpayers, aren’t we buying back assets we once owned — with our own money? Taxpayers put money into the pension funds. The funds then turn around and buy liquor stores, casinos and power companies with our money

 The Toronto Star reports:

McGuinty’s government is facing a $19.7 billion deficit this year. If the super corporation is worth $60 billion, selling a 20 per cent share could yield $12 billion from institutional investors such as the Ontario Teachers’ Pension Plan.

One bonus to all this is that McGuinty will have the cash to eliminate the pension shortfalls at Ontario Teachers. They will be able to use the cash they garner from the sale to fully fund the $17 Billion Shortfall at the teachers pension plan.

Imagine that, just before an election.

Bill Tufts
Fair Pensions For All

Bankruptcy - Coming to a City near you

Many US cities are starting to look a bankruptcy as an option to deal with the crushing weight of the cost of pensions, benefits and wages for city employees.

In America's 7 junkiest cities CNN highlights

cities' operating expenses continue to soar; pension and debt payments don't go away. And as their credit gets worse, the cost of borrowing for municipal projects -- such as sewer plants and roads -- just gets more expensive.

"The fiscal stress is severe in cities around the country, and it's likely to stick around for at least a couple of more years," 

The first major city in the US to go bankrupt was the City of Vallejo in California.

In 2008, Vallejo, Calif., was nearly broke. Faced with falling tax revenues, rising pension costs, and unmovable public-employee unions, the city was unable to pay its bills and declared bankruptcy

Like other municipalities, its public-sector unions had driven its budget deep into the red. A report issued by the Cato Institute last September noted that 74% of the city's general budget was eaten up by police and firefighter salaries and overtime along with pension obligations. The average city in the state spends 60% of its budget on those things.

lavish pay and benefit packages were a root cause of the city's problems. In Vallejo compensation packages for police captains top $300,000 a year and average $171,000 a year for firefighters. Regular public employees in the city can retire at age 55 with 81% of their final year's pay guaranteed. Police and fire officials can retire at age 50 with a pension that pays them 90% of their final year's salary every year for life and the lives of their spouses.

It was thought that going into bankruptcy was a way to get out from under the stranglehold that the public sector unions had on the city and taxpayers in Vallejo.

The city found out it was not that easy. The city has also cut funding for a senior center, youth groups, and arts organizations and has done little to restore an increasingly decrepit downtown, develop waterfront properties, or attract new businesses.
But when it came to voiding those contracts on pensions—a major driver of public expenses—the city blinked. The "workout plan" the city approved in December calls for cuts in services, staff and even some benefits, such as health benefits for retirees. However, it does not touch public-employee pensions. Indeed, it increases the pension contributions the city pays.  

Vallejo turned out to be a test case for many American cities. Now 2 years later many cities are finding the crush of the employee compensation packages unbearable.

In R.I. an receiver was appointed to look into the finances of Central Falls.Once again a major factor has been the high cost of pensions for its city workers. Now both San Diego and Sacramento are looking at bankruptcy as an option to end its fiscal pain. 

We have followed for a long time the outrageous concessions that have been given to city workers. They include platinum pensions and gold-plated benefits but now it seems that the breaking point has been reached. Taxpayers are on the hook and public sector unions will not budge even if it means bankruptcy.

Epic Battle 
Now the battle for unions to preserve their entitlements has begun. It appears bankruptcy may be no solution.

That leaves bankruptcy as probably the most effective tool in the drawer for lowering pension obligations. But if officials are unwilling to demand pension concessions in bankruptcy, there will be few choices left to balance their budgets other than support from the state that itself is facing steep budget deficits, or local tax hikes that could undermine local economies and thereby drive down tax revenues over the long term. That's a sobering thought in what is an already struggling economy, and an argument for government officials to be much more stingy in granting pension increases in the first place.Greenhut

Talk of municipal bankruptcy has not escaped California's politically powerful public employee unions. A number of them are pressing the legislature to pass a bill that would require local governments to get the approval of a state board before filing for bankruptcy. Since the board could be stacked with union-friendly appointees, bankruptcy pleas could be rejected or delayed.Rueters

It will be interesting to watch this battle between public sector unions and taxpayers. But I think I know who is going to lose.

Bill Tufts
Fair PensionsFor All

Canada's faltering demographics

An interesting article from the Okanagan gives us a preview of Canada's future.

The Okanagan valley located in British Columbia is Canada's retirement haven. More than a quarter of the population in the valley is retired. They have pensions or retirement funds as their main source of income. Region feels strain of demographic shift

This article was based on an analysis by Michael Brydon who is a director with the Regional District of Okanagan-Similkameen.

Brydon highlights that: 

unearthing an “empirically untrue” general assumption regarding the Okanagan-Similkameen’s economy: that it is based on agriculture and tourism. Brydon found that pensions and investments account for more than a third (33%) of the income in the district while the combined wage income from farming, accommodation and food services was no more than 6.5 per cent of the regional total.

The implications of this are staggering. This is the future face of Canada.

This analysis brings into question the issues of the sustainability of our whole society. How can we as a society support ourselves when the production of society is less than our consumption?

My question is based on the premise that those in retirement do not add any value to society but are consumers of society. They do not add anything to generate wealth but consume wealth. They consume recreation, long-term care, hospital services and prescription drugs.

The products and services that our retired population consume are one time items that add no long term value to our society, the capital stock of our society.

The article points out:

“If you go back to the 1950s and ‘60s there was huge public investment in elementary schools. Then 15 years later there was huge investment in universities ... Then the baby boomers went kind of quiet for a couple years but now we are getting back to a situation where public investment is required again.
“We know it’s coming. The question is: How do we plan for it?”

The most popular blogs I have written shows the serious state of Canada's demographics.
Tales from the other side of the aging catastrophe

Thank God we have saved some money into our pensions. It is this capital that will be save over the next 20 years. Lets hope we have saved enough!

Bill Tufts
http://fairpensionsforall.blogspot.com/

An Epic Pension Struggle

St John N.B has been having problems with its pension plan for several years. You would think that a problem like this would be easy to solve but it has proven very stubborn and expensive for taxpayers.

This case shows the fundamental problems with a system where politicians negotiate with public sector employees using taxpayers money. It is always the taxpayers who are getting the shaft.  

Mayor, city manager say changes necessary for long-term sustainability of plan

No matter how good the fund's investment returns are doing this year, city officials seem determined to reform the municipal employees' pension plan that's already sucked an extra $20 million from taxpayers.

 "Everybody knows this is important, from present employees to past employees, for people who are on pensions and will seek them in the future," said Mayor Ivan Court, who is also chairman of the city's pension board of trustees. "It's a national and international problem. But it's something that has to be addressed and we're all working to reach that goal."

With the news earlier this week that the pension fund of the province's 49,000 civil servants has posted a healthy rate of return of 19.94 per cent - much higher than the four per cent target - there is speculation the city's plan has had a similar rebound. The markets are still jittery, but they are doing much better than they were a year ago, when pension funds around the world were hammered.

Without enough growth in Saint John's pension fund, provincial legislation forces city taxpayers to pick up the shortfall. City manager Patrick Woods warned earlier this year that without significant reform, $10 million extra could be charged in 2011, a huge burden for a small city. Over the last several years, about $20 million extra has already been charged.

This is pretty straight forward. The plan has a problem now lets fix it. But here is where it gets nasty for taxpayers. You would think that since they are the ones funding the plan they would have a say but no...

Court, (the mayor) however, wouldn't reveal the municipal fund's latest figures, saying there was still a media blackout on such information until all the parties involved agree to a series of reforms. A special committee, which includes representatives from common council, civic unions, the city's managerial and professional staff, and retirees, has been meeting regularly for the past few months to come up with a reform package.

You can see how bad the shafting is going to be. The city sets up a committee to examine the issue and only include employees and ex-employees who will be benefiting from the plan. Of course they will inform the taxpayers when they have received a satisfactory agreement.

Let me see. The taxpayer is funding the pension plan. City managers who benefit from the plan sit down with city union members who are on the plan to make a deal?

Cuidado 

This is the Spanish word for careful!!!

This whole affair started a couple of years ago when a city councilor, Ferguson uncovered the huge problems with the city pension plan. He spoke out against the situation. Then same team decided that they did not like what the councilor said and decided to sue him. Ferguson wins latest skirmish with pension board.Ferguson ended up mortgaging his house to pay for the lawsuit. As far as I know three years later the case is still before the court. Of course if Ferguson wins the city (taxpayers) will have to ante up for damages.

This situation has provided me with lots of amusement and has been very typical of public sector plans. The only difference here is we have a newspaper not afraid to cover the issues. There is a list of interesting article pertaining to the case. All demonstrating the inherent conflicts of interest that benefit a small group of public employees at a huge expense to taxpayers.
Is the city solicitor in conflict of interest?  
Mayor could land in courtPension 
Two councillors qualifying for public pensions say they're not hypocrites

Pension Bid to draw newspaper into lawsuit turned down

City Manager writes himself juicy deal for retirement perks 

 You can see the twists and turns this case has taken and is still no closer to resolution. But the end is very predictable. Public sector employees aided by their union will hold taxpayers in St John hostage for millions of dollars. 

Bill Tufts - http://fairpensionsforall.blogspot.com/

Manitoba Taxpayers hit with triple whammy

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The taxpayers in Manitoba will be paying dearly as a result of an agreement signed with the provinces nurses. Manitoba nurses to take 2-year pay 'pause'

The triple whammy comes as the provincial government gets its election campaign prepared for next year. An elections is scheduled for October 20100.

Public sector unions are always a huge threat to any government at election time and unions use this power to their advantage to negotiate new contracts. Finally, the pressures on heatlhcare spending costs in Canada are huge and increasing at an alarming rate. Workers in healthcare will be able to write their own tickets.

They three factors combined to give Manitoba nurses a pretty sweet deal. A government up for election, a powerful public sector union waiting one year for a contract settlement and third-party taxpayer's money to fund the party.

All this comes at the expense of taxpayers of course.

Gold Plated Pensions 

The nurses have what is  know as a gold-plated pensions. It is based on a formula of final salary. This means that they are ENTITLED to a pension worth 70% of their final salary, based on an average of past 5 working years. It is integrated with CPP so that combined with CPP the income replacement is 70%.

This year a nurse starts at $62,500 per year. A retiring nurse in Manitoba will earn in excess of $100,000 per year. What this means is a pension upwards of $70,000 per year. All guaranteed of course, guaranteed for life, for the life of a spouse, now guaranteed to increase every year (indexed) and best of all guaranteed by taxpayers.

Costly Pensions 

Gold-plated pensions of this nature are estimated to cost 34% of annual salary. Nurses pay about 25% of this cost on an annual basis, the taxpayers match that amount and future taxpayers pick up the shortfall. Because not even the annual costs are covered the HEPP, hospital workers pension plan in Manitoba, has a shortfall of $400 Million. HEPP annual Report - Page 17

So rather than wrestling this issue to the ground the Manitoba government like many before them has refused to deal gold-plated pensions. They have given into the pension demands of a powerful public sector union in hopes that it will bring them victory in the next election. Note: Someone had better check what other public sector contracts are due before October 2011.

Sadly, this process shows the dysfunctional nature of the system. Politicians using taxpayers money to favor a powerful voting block in contract negotiations.

My hope is that one day, somewhere one politician will stand up and say no more taxpayer abuse.

Bill Tufts
http://fairpensionsforall.blogspot.com/

N.B. Pension analyse shows Public - Private disparity

An interesting article about the stats of New Brunswick's pension plans shows the huge amounts that taxpayers have funded into these plans. It also shows how public sector employee groups expect taxpayers to continue the pension funding party.

It is a party that taxpayer fund but never attend!

N.B. pension funds bounce back

New Brunswick's 49,000 teachers, judges and civil servants can breathe a sigh of relief because their pension fund is back in the black.

But that doesn't mean the Liberal government's $749-million deficit will be any smaller this year.
That's a major improvement from 2008-09, when the pension funds lost $1.7 billion, or just over 18 per cent, in the global stock market meltdown.Sinclair said the annualized four-year return for the three funds is 1.77 per cent and since the inception of the New Brunswick Investment Management Corp. in 1996, the return is 6.5 per cent.

"Most importantly our annualized real return (after adjusting for inflation) since inception is 4.46 per cent, exceeding the target of four per cent set by the actuary," he said in a media release.

"These returns have been achieved in spite of the adverse effects of the prior year's global financial crisis."
Sinclair said unlike some pension funds, the corporation wasn't forced to sell holdings during the downturn to meet obligations to pensioners.

The corporation's net assets under management as of March 31 were $8.341 billion, up from $7.029 billion as of March 31, 2009.

The increase in net assets under management resulted from $1.384 billion in net investment valuation gains, plus $150 million in special funding payments from the province, less net pension payouts of $223 million.

The overall gross rate of return for the three funds was 19.94 per cent.

 These plans combined are almost a billion dollars short. The shortfall exists despite heavy duty contributions by taxpayers into the plan. 

Last year the employees in the pension plans contributed $111 Million and the taxpayers contributed $269 Million. The plan is still $ 750 Million short. Page 39 of a horrible report! 

The contributions work out so that the employees pays just a small portion of the total retirement funds required. Taxpayers pick up the rest!

The contributions for the general public service is 32.5 cents on the dollar for teachers it is 25 cents and for judges just 16 cents of every dollar required. CFIB calls for at least a 50% contribution

Already taxpayers have contributed the largest portion into these pension plans. The plans have $8.3 Billion in them for 49,000 workers. This works out to an average of $170,000 per worker. 

At the same time in New Brunswick taxpayers have an average of less than $ 40,000 in retirement vehicles. 

It looks like taxpayers in New Brunswick are getting the shaft!

Bill Tufts
http://fairpensionsforall.blogspot.com/

The best way to rob a bank is to own one!

Check out this excellent video from PBS
http://www.pbs.org/moyers/journal/04032009/watch.html
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Pension Apartheid

There was a recent election in the UK. One of the key election issues has been Pension Apartheid.

The Daily Mail in the UK reported that Pension Apartheid is:

The huge bill taxpayers face to pay for the pensions of the country's 5.8 million public sector workers. ...This means that public sector workers can retire relatively young on generous sums whereas private sector workers have to retire later and get less money.

 Canada is suffering Pension Apartheid as well.

Unfortunately in Canada no one has been able to put together the annual cost of public sector pensions. It must be staggering as cities, provinces, universities, hospitals and school boards all funnel tax dollars into the pension plans of public sector employees.

Statscan Pension Satellite Account
In a report from Statscan in 2007, the size of Canada's Pension Apartheid was reported. Canada's Pension Apartheid 

This is one of the graphs from this report. We can see that Canadians have funded billions of dollars into public sector plans at the expense of their own defined contribution plans or RRSP's. In fact, two of the bars in the chart show the public sector plans. 

The bar called Government Consolidated Revenue Arrangements is the pensions for high income earning public sector employees. Like the one recently uncovered for the retiring 47 year old Police Chief of Montreal. He is entitled to a $135,000 a year pension, a pension with a cash value of around $2.2 million. 

The Government Consolidated Revenue Arrangements are a form of taxpayer abuse. They have special rules which the public sector have created for taxpayer funded pensions, for themselves. Read the note on the table

These supplementary employee retirement plans were set up to provide pension benefits to (public sector) senior employees beyond the maximum permitted registered pension plan benefits as set out in the Income Tax Act.

 Total Contributions 
 The total value of pension assets in Canada, are covered in a confusing table produced by Statscan. Pension assets by type. 

There are about 3.6 million public sector employees. With $805 Billion public sector workers have an average of around $230,000. In the private sector there are about 13 million workers. They had a total of $1 Trillion in pensions and RRSP's. This means an average of $80,000 in retirement savings for private sector workers. 

For every 1 dollars that taxpayers have been able to save in their retirement pots they have funded the accumulation of 3 into public sector pensions. Several reports over the past month have shown us that many hundreds of billions more are required to bring public sector pensions up to full funding. 

Who is going to take the initiative to end this Pension Apartheid?

Pension reform coming together

Recently Johnathan Chevreau covered a report issued by one of Canada's self-regulatory financial organizations, IFIC. $ 1.7 Billion reasons

It is interesting to see how pension reform is all coming together.

The investment industry in Canada has been fighting the claim that the MER's they charge are too high. We know the impact of the these MER's on the long term value of retirement plans.

The gap between the haves and the have not's is too big in Canada to ignore.  The gap between the gold-plated public sector pensions and private sector taxpayers.

These principles are directing Canada towards some sort of pension changes.

The insurance industry and banks are fighting to keep control of the investment industry in Canada. It is their business and their bread and butter.

We have seen the implementation of the additional mandatory level of pensions in the UK. The Canadian insurance industry is touting a model based on the Kiwi Saver. It is know as a "soft" mandatory pension.
http://www.kiwisaver.govt.nz/

A Canuck Saver would be a similar program. It would have mandatory enrollment with an opt out option.  At the base level the employer, government and employee each put in a one-third contribution. Best of all the insurance industry and banks still manage the funds.

The Canadian insurance industry needs a model whereby they will continue to manage the funds. They are proposing to do it for under 100 BPS or 1%. This is a long way from the 2.5% they charge in MER's now. This means the advisors will be cut out of the commissions they receive today. Advisors will be forced to go to a fee for service model.

The model for additional retirement savings is based on a CPP type plan. Where the retirement income is Defined Benefit.The current level of coverage with the CPP is 25% replacement income up to the YMPE limits. The current discussions call for increasing the YMPE limit from around $47,000 to $100,000. Also an increase of replacement income up to 50% is being debated.

It will be hard to see how Canadian savers will find extra money for either of these options. For example, as a self-employed individual I contribute 9.9% of my income into the CPP. Both these options would double my contributions.

The government could give any increases to mandatory retirement savings to a large pension plan (OMERS, OTPP or the CPP) to manage but this would mean cutting out the current financial industry services. Of course IFIC wants to defend their turf. As well they should!

Politicians are aware that the financial services industry is the largest driver of GDP in the country. To upset the apple cart too much would be very dangerous. When looking at the country's GDP we see that Canada has a GDP of $1.2 Trillion.

Statscan GDP Table -www.statcan.gc.ca/.../t100430a1-eng.htm

Total GDP $ 1.2 Trillion - (based on this report, there are different ways of calculating GDP)
Financial Services - $ 256 Billion
Gov't (Public admin, Education, Health Care) - $ 217 Billion
Manufacturing - $158 Billion (down from $180B 2 years ago)
Oil, gas and mining - $51 Billion

Financial services and government administration have been the only two sectors growing over the past 2 years during the Great Recession. Financial services are essential to the future growth of our economy.

The public sector pension gap needs to be eliminated.
It is ridiculous to think that the average $157,000 that high income Canadians have in non-registered funds is adequate. If the $100,000 earner wanted a replacement income of  70% it would be gone in two years.
On the other hand a public sector employee earning $100,000 is  guaranteed 70% replacement income on his gold-plated pension, when fully qualified. This would means $60,000 per year coming from a public sector pension. CPP ($11,200) picks up the other 10%.

A private sector employee in order to generate a $60,000 a year pension would need a retirement pot of $960,000.

Canadians have diverted hundreds of billions of dollars into public sector plans. Statscan showed about $ 800 Billion in 2007. www.statcan.gc.ca/.../5213171-eng.htm

Lets put all Canadians public sector and private sector on the same retirement income level. A replacement income of 50% would be a good compromise between the 25% CPP pays and the 70% gold-plated plans public sector pension. Diverting some of the tens of billions Canadians currently fund into public sector plans would help provide a better retirement for all Canadians.

Keep watching!

 A recent article on Bild.com outlined the anger that Germans felt towards bailing out Greece.

Greece has an economy that is melting down because of the inability of the government to control public spending. German anger at paying for luxury Greek pensions.  

Europe - Germany vs Greece 
One of the more interesting point in the article is the disparity between the pension system in Germany and the one in Greece. 

That means that with a broke Athens seeking outside help, Germany and the rest of the EU aid givers must start pouring cash into the bottomless Greek pension pit... 

Canada - Public Sector vs Private  Sector

In Canada we can make the same analysis with retirement. The private sector  would have a system similar to Germany and the public sector has a plan similar to Greece

Canadian taxpayers must start pouring cash into the bottomless public sector  pension pit...

	Public	Private
Earliest years of work to earn full pension:	30	Non-existant
Proportion of wages as pension: pension vs CPP	70 %	25 %
Contributions required for employees based on Salary* :	8.5%	9.9 %
Total accumulation in pension plans **	$805 B	$ 314 B
Pension increase 2010:	3 %	0.4 %
Average Ontario Teachers Pension vs. CPP	$40,000	$11,210
Average retirement age vs. self-employed	59	65
Percentage covered by gold-plated pensions	80%	18%
Minimum pension age:	50	60
* contributions based on current federal government contributions required and CPP required for self-employed. http://www.tpsgc-pwgsc.gc.ca/remuneration-compensation/apr-sam/apr-sam-2-5-1-eng.html ** Statscan report: Pension assets by type of plan at market value 2007 http://www.statcan.gc.ca/pub/13-605-x/2008002/t/5213171-eng.htm

How much retirement income is needed?

The debate over double dipping teachers has raised some valid points. In the Toronto Star there was an article about this Canadian teachers and their fat-cat pensions


How much is sufficient retirement income?
Consider this:

1. A public sector pension valued at $40,000 a year would require you or I to have a RRSP or pool of money set aside of about $640,000 to cover this amount of income. How big is your RRSP? 
2. The $40,000 does not include the CPP that a public sector employee will earn. This is another $11,000 per year.
   
3. The target on a public sector is 70% of income. This year the highest earning teachers will retire with an income of $95,000 generating a $66,500 pension including CPP. The $40,000 that the OTTP sends out includes teachers who have been retired for 30 years or more. A more accurate number would be what is the average new pension this year?
   
4. The average working Canadian earns a little over $40,000 per year.
   
5. The single largest expense for Canadians after taxes is the cost of housing. In Canada 85% of seniors over 65 have their home mortgages paid off. In the higher income groups it is probably larger. This in itself is a 30% reduction in the cost of living.
   
6. There are dramatic reductions in the cost of living for retirees. They pay no more CPP contributions 4.95% of YMPE income. No more EI premiums, cost of clothing for work, transportation and lunch allowances.
   
7. The average Canadian has an RRSP value of $25,000. 
8. Finally on the issue of fairness the public sector employee will have paid  a contribution of between 7% to 9% for a 70% pension. A self-employed person will have paid 25% of income for a 25% CPP pension. 

Double Dipping Teachers earn $108 Million over and above pensions

 The CBC reported that Ontario has rules which allow teachers to work as supply teachers up to 95 days in first three working years after retirement without it affecting their pensions. It is known as double-dipping because teachers are also earning pensions at the same time they are being paid. 

No clampdown on Ont. teachers' 'supply work'

Double dipping is a problem for taxpayers that is going to be more and more prevalent in the next few years. As the baby boom starts to retire, especially the public sector, and being faced with a worker shortage, government organizations will need retired workers to fill in. 

What allows double dipping is the fact that many teachers are eligible for pensions at age 55. They will receive a pension valued at close to 70% of their retiring wage, including CPP. For teachers in Ontario, with a career ending income of $95,000 per year, this means a pension of about $66,500 per year including CPP.

So the double-dipping is a bit of extra pocket change. 

Teaching is Big Business 
In Ontario the education budget accounts for17.5% of all provincial spending. Healthcare accounts for 37%. In 2009 this meant that about $20 Billion was spent on education.

Some education taxes are collected as part of municipal property taxes. They are a significant chunk of most taxpayer's property tax.  For example in my hometown of Hamilton the revenues coming into the Hamilton Wentworth District School Board in 2009 were $495 Million. This compares to about $1.3 Billion for the city budget at the City of Hamilton

Of course spending on schools never goes down. It continues going up, up and up despite the fact that enrollment in schools in Canada is falling like volcanic ash. In order to justify increased spending every year school boards have come up with many creative ideas. The most popular current one is smaller class sizes.

BC school spending rises despite declining enrolment 

MB: Less Students, Skyrocketing Costs, Reform Needed

Where is all this money going?  

Like all government organizations the biggest single cost of education is the compensation package paid to the employee of the system.  In school boards across Canada 80% of all revenue coming in goes to the compensation package.