Canada's Pension Options

It appears that most Canadians have recognized that Canada has a retirement crisis that needs to be fixed.

The debate is focused on two options. These are included in an article from the Globe and Mail entitled  Upgrades to Canada Pension Plan likely to miss fall deadline.

Governments consider ways to boost retirement savings
Option 1: Building on CPP; Option 2: setting up supplemental, private-sector-run plan
Federal and provincial officials are working on two options to encourage Canadians to save more for retirement. Finance Minister Jim Flaherty announced in June that a majority of provinces supported both of these options in principle.

Option 1: Enhancing the Canada Pension Plan in its current form. This option has the benefit of simplicity because the CPP already exists and has a solid reputation. Any increase in retirement benefits must be paid for by higher premiums. Several unions want benefits to double, but Mr. Flaherty has suggested the changes would be more modest. Alberta opposes this option, warning it will cost jobs and take away consumer choice.

Option 2: Creating a supplemental pension plan run by the private sector. This option aims to help workers who are self-employed or work for a small business that does not offer a company pension. The challenge with this option is that it does not currently exist, so private-sector firms will need to be found that are willing to run the system at low cost. Officials are also grappling with how to ensure there is proper oversight so that prices are fair for consumers. There is also a debate about whether companies of a certain size should be required to offer this on an “opt-out” basis to ensure the program has enough members.

  Yesterday the Globe and Mail updated the debate aver this issue in Pension reform won’t be easy, Jim Flaherty warns 

“This is not something that will happen quickly,” he said. “We have to first of all agree on where we’re going and make sure everybody’s happy with that. We already have at least one dissenting province and as you know there’s a quota rule in there, and I don’t know what the position of Quebec is.”

Reforming CPP requires the support of two-thirds of the provinces representing two-thirds of Canada’s population.

Alberta Finance Minister Ted Morton supports this private-sector option, but remains strongly opposed to enhancing the existing CPP.

Mr. Morton told The Globe’s editorial board earlier this month that he fails to understand why broad enhancements to CPP are on the table when several studies have shown the problem of insufficient retirement savings is primarily limited to middle-income earners who work for small private-sector employers.

“So why, when you have a fairly narrowly defined retirement-income problem that needs to be solved, why do you come in with a CPP hike that hits everybody?” he asked rhetorically. “And particularly, why do you do it when we’re trying to come out of a recession and job creation is probably the most important thing governments are doing. In the end, it’s a payroll tax.”

Canadian pension expert Keith Ambachtsheer, who warned in September that the talks have fallen behind schedule, has recently offered another update.

Mr. Ambachtsheer, the director of the Rotman International Centre for Pension Management, said opinion appears to be coalescing around the idea of paying for benefit enhancements for middle-income earners by increasing the Year’s Maximum Pension Earnings (YMPE), which is currently set at $47,200. Under that scenario, CPP premiums would not increase for those earning less than the maximum, but those earning above the YMPE would pay CPP premiums for a longer period until they hit the new maximum.

“And there are those who continue to argue that ‘don’t fix what isn’t broken,’ and that we should instead focus our attention fully on the ‘private pension innovation’ path,” writes Mr. Ambachtsheer.

“There is increasing recognition that even the ‘raise the YMPE’ path has considerable implementation challenges attached to it.” Questions remain, he said, over how high to raise the YMPE, how to integrate with current [defined benefit] plans, how to test and explain intergenerational fairness and how to deal with serious disappointment by many when they realize that, whatever is done, it will only have major impact decades from now.

The increased CPP program is endorsed by Canada's public sector labour unions who have already accumulated pensions worth in excess of $800 Billion. This contrasts with the CPP which has assets a little over $ 129 Billion. NUPGE - The top ten reasons to expand the Canada Pension Plan

 Expanding CPP will go a long way to improve the financial security of Canadian seniors.

Like all public programs and services, CPP is an important tie that binds us together as a nation. It is an expression of our collective commitment to one another and to the fundamental principle that all citizens have the right to income security and dignity.

We must seize the opportunity that exists today and demand that our political leaders across the country embrace this most sensible, affordable and effective approach to improving retirement security for all Canadians.

The Supplementary pension is one that has been implemented in other countries around the world. The UK is in the process of introducing the NEST program and New Zealand has plan called the Kiwi Saver. James Daw does a good job looking at some of the options available for the supplementary plan. Pension gap gets less air than long guns

Sweden, Norway, the United Kingdom and New Zealand — have done recently to promote increased savings at a reduced cost, and what Saskatchwan pioneered in 1986.

Sweden started in 2000 to require workers to contribute 2.5 per cent of pay to individual pension accounts to provide benefits beyond its public pension plan.

Norway opted to require employers to offer defined-contribution pension plans for employees, and contribute 2 per cent of pay on incomes up to about $150,000.

The United Kingdom is set to require anyone without an occupational pension plan to contribute 4 per cent of pay up to about $55,000 a year to individual pension accounts administered by the government starting in 2012. It will require employers to contribute 3 per cent of pay by 2017 and the state will contribute 1 per cent.

New Zealand, which had a more generous version of our tax-supported Old Age Security pension but nothing like our tax-deferred RRSPs, started a Kiwi Saver program in 2007.

Workers were enrolled automatically and, unless they opt to drop out within the first eight weeks, are to contribute 2 per cent of salary (or up to 8 per cent if they wish), while employers are to contribute 2 per cent by 2011. The government offered cash and tax incentives to promote savings, but these were reduced after a change of government.

Both plans will be a significant hike in payroll taxes for Canadian businesses. Will the cost outweigh the benefits of implementing either option?

What About the Public Sector?


It may appear surprising that the NUPGE (National Union of Public and General Employees) has anything to say about the pension issue. They have negotiated gold-plated pensions for their members at taxpayer's expense.

Public sector plans in Canada have accumulated $800 Billion in assets for the benefit of their members. And appear to be in the postion to pay out many multiples of what the average Canadian will get from the existing public CPP, OAS and GIS plans.

Ambachtsheer alludes to this in his comment

Questions remain, he said, over how high to raise the YMPE, how to integrate with current [defined benefit] plans, how to test and explain intergenerational fairness and how to deal with serious disappointment by many when they realize that, whatever is done, it will only have major impact decades from now.

He realizes that currently public sector pensions are designed to pay out 70% of retiring income. Of this a portion is covered by the CPP and the rest is picked up by the pension plan.  By doubling the amount paid by the CPP, shortfalls in public sector pension will be dramatically reduced or eliminated.

For example a government employee retiring on a $100,000 income will expect  a pension of $70,000 per year. The pension will be covered by CPP payments of $11,208 and the remaining $58,792 per year will be picked up by the pension funds. By doubling the CPP to $22,416 the pension only needs to cover $37,584.

In the above example the pension would need about $ 940,00 to cover the pension for the government employee. By doubling the CPP portion the amount required by the pension plan drops to $761,000, a difference of $179,000.

So you can see the motivation for the public sector to be behind this move.

The taxpayers is out of pocket for gold-plated pensions either with the status-quo or the supplementary plan. It is just that the supplementary plan is more politically expedient for the public sector pension plans. The shortfall is covered by CPP payments rather than the unions having to fight government to cover pension
shortfalls.

Many public sector pensions will now have actual surpluses. What do you think will happen to those pensions with  surpluses?

A) The surpluses are returned to taxpayers

B) The unions will fight for more pension enhancements? ie. earlier retirement ages or higher payouts?

It appears the options have been set for pension reform.

Will it really eliminate the problem of Canadians living in poverty? The average CPP payout today is around $ 6,060 per year. A doubling will bring them to $12,120.

How many retired Canadians can live off $12,120 per year mount?

Either way the public sector will still be getting gold-plated pensions.

Bill Tufts
Fair Pensions For All

Opportunities for Canada's pension funds

The UK is under severe financial distress, or so thinks the current government.

As a result the British government is looking at ways to lessen their financial problems. Like all governments in times like these they look at selling assets to help pay for the high costs of the public sector and its pension liabilities. One way the UK is looking at raising funds is by selling the forest of Britain. Most of these forests will end up in the hands of Canadian pension funds. 

  

MSN picked up the news and reported on it in Britain plans huge sell-off of forests in bid to cut deficit 

LONDON — Britain's government will soon unveil plans to sell around half of the woodlands it oversees, paving the way for a huge expansion in holiday resorts, golf courses and commercial logging operations, The Sunday Telegraph reported.

 

Environment Secretary Caroline Spelman will unveil the plans to dispose about 50 percent of the 748,000 hectares (1.85 million acres) of forest within days, according to the newspaper.

Laws overseeing so-called ancient forests, such as the Forest of Dean and Sherwood Forest, are most likely to be changed to allow companies to cut down trees, according to the Telegraph.

"We are looking to energize our forests by bringing in fresh ideas and investment, and by putting conservation in the hands of local communities," a source close to the Department for the Environment Food and Rural Affairs (Defra) told the newspaper.

A third of the land will be sold before 2015, and the rest by 2020, a government source told the newspaper.

Legislation dealing with forests dates back to the Magna Carta, which was forced onto King John in 1215 and formed the basis for English law, the newspaper reported.

Boon for Ontario Teachers

One pension fund ready to jump at the opportunity is the Ontario Teachers Pension Plan (OTPP). they rub their hands together over opportunities like this. These investments produce high level and long term profits. Best of all they do not have to disclose any of their dealing with these assets. They come under the umbrella of private equity. 

Ontario Teachers has privatized many assets that are capable of producing 20% to 25% returns. These are fantastic returns in times like this.

OTPP already has a big foot in the door in the UK.It has purchased many former government assets already and will be eager to get more onto their books. 

Teachers Private Capital 

Teachers has made a big purchase of New Zealand forest and will be familiar with the steps need to acquire the forests of the Britain. Ontario Teachers Buy New Zealand Forests 

A group including Ontario Teachers' Pension Plan and Boston-based Prudential Timber Investments Inc. agreed to buy 106,000 hectares of trees from Fletcher Challenge Forests Ltd. for NZ$725 million ($469 million) 

Foresters such as Fletcher are selling forests to concentrate on more profitable timber mills and distribution as the local dollar's surge, 23 percent this year, erodes the value of export log sales. Investors such as AMP Capital Investors (New Zealand) Ltd.'s Nat Vallabh say the North American funds can take a longer-term view of their investments. 

The forest ``is regarded as one of the best plantation forests anywhere in the world,'' said Ian Jolly, a New Zealand spokesman for GMO Renewable Resources, investment adviser for Harvard Management Co. New Zealand has 1.8 million hectares (4.4 million acres) of forest

 As well as forests Teachers is familiar with assets in the UK.

2010 - £150m bid for Acorn Care and Education

2010 - Ontario Teachers’ Pension Plan buys British national lottery operator

2009 - Bristol international Airport positive for Teachers 

2005 -Ontario Teachers' and AIG Highstar Capital II to acquire InterGen

It has several other investments in the UK as well. So expect to see more activity in these types of acquisitions. It has no shortage of cash from Ontario taxpayers. 

Teachers has over $96.4 Billion accumulated assets for its 289,000 teachers and retirees. This contrasts with the Canadian Pension Plan (CPP) that which has $129 Billion for 18,000,000 working Canadians. 

Bill Tufts 

Fair pensions For All 

UK makes dramatic pension changes

The UK sees their system of government as being in big trouble. 

Today they made changes that attempt to turn the tide for the UK. For starts the UK slashes 490,000 jobs amid deep budget cuts

The British government announced deep budget cuts Wednesday, as it tries to fight what its finance minister called "the largest structural budget deficit in Europe."

The changes will include "ruthless privatization" and will leave "no stone unturned in our search for waste," Chancellor George Osborne told lawmakers in the House of Commons.

The government will slash 490,000 jobs from the public payroll over four years, he said.
But the cuts will also be guided by the principle of "fairness," he said, adding that "those with the broadest shoulders will bear the greatest burden."

He specifically named banks when saying "those with the most should pay the most," amid widespread British anger at bankers.

But Osborne's predecessor warned against trying to cut the deficit too quickly.

"If the private sector doesn't come in and take [government spending's] place, you run the risk of derailing the economy," said Alistair Darling, who was chancellor until the Labour Party lost elections in May.

The long-awaited cuts follow a "comprehensive spending review" by the new British government, which came to power in May.

Paying interest on government debt currently costs 44 billion pounds ($69 billion) a year, the Treasury said in outlining the spending review -- more than defense, policing, housing or transportation.

The government forecasts public spending peaking this year, then falling to 2003-04 levels by 2015-16. That will still not quite balance the budget, it predicts, but will come close to doing so.
It announced deep cuts to the defense budget on Tuesday, with the armed forces losing 10 percent of uniformed personnel in the next five years.

As we have seen around the world the biggest costs associated with running governments is the cost of the compensation packages for the Protected Classes.

The first place to start in cutting the cost of government is the gold-plated benefit packages for the public sector. In North America and in Europe the biggest challenge has been that the politicians have given themselves the best pensions of all. 

Cut MP Pensions 

Politicians know that any changes they put onto the peon class will affect their pensions. Therefore no pension changes have been made in most jurisdictions because it will affect the  retirement packages of the politicos. So it is promising to see that first place the UK government has started is at the top. MPs’ final salary pension scheme to end

During the Comprehensive Spending Review, Chancellor George Osborne told the Commons that the current final salary scheme for members of parliament will have to end.

Osborne said: “It is clear that the current final salary pension terms for MPs are not sustainable and we anticipate that the current scheme will have to end."

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “I think what he was doing there was demonstrating that the MPs will be the first wave of public servants to face reforms of their pensions.

“He was seeking to diffuse any criticism Sutton’s review and making it clear he is putting MPs in the front line of any suffering that is going to be experience by publically paid employees in respect to their pension rights.”

 The Telegraph reports that:

It was “not sustainable” for the generous final salary scheme, which means MPs can retire on more than £30,000-a-year after only 20 years’ service, to be continued.

At present, MPs are able to contribute as much as 12 per cent of their salary into the fund. 
The Treasury is paying out more than £8 million a year for their pensions – the equivalent of around 18 per cent of their salaries. MPs qualify for the pension even if they are voted out of office after only a few years.

In a report this summer, the Senior Salaries Review Body recommended that MPs’ pensions be switched from final salary to an amount based on their average career earnings.
It also suggested that the pension age be increased from 65 to 68, with a contribution rate of 5.5 per cent of pay.

Mr Osborne said: “It is clear that the current final salary pension terms for MPs are not sustainable and we anticipate that the current scheme will have to end.”

 Higher Pension Age
We have seen the protests that have rocked France over moving the pension age from 60 to 62. The UK has taken the dramatic move of increasing the age of retirement faster than previously planned.

State pension age will rise to 66 by 2020

All Britons under 57 will have to wait until age 66 before they receive their state pension, Chancellor George Osborne confirmed today.

The pension age for both men and women will rise to 66 by 2020.

It marks a considerable acceleration from the 2026 target set by Gordon Brown's Labour party before this year's General Election but is slower than the 2016 date hinted at by the Coalition earlier this year.

Announced as part of the cuts in the Government's Comprehensive Spending Review, the new reforms mean that all Britons born after 6 April 1954 will have to wait until they reach 66 before claiming the state pension.

For women, the rises will happen far more rapidly than expected. From 2016, the women's state pension age be increased so that it reaches 65 (equal to the male age) by November 2018.

Then, between 2018 and 2020, the state pension age for both men and women will gradually rise to 66.He said 'Raising the state pension age is what many countries are now doing. It will save over £5bn a year.'

Healthier lifestyles better medical care now sees the average British male live 77 years, and female until 81.

Back when the state pension age was set at its current 65 level in 1925, only a third of men and 40% of women were expected to live to see their 65th birthday.

Official statistics project that by 2034 the number of people aged 85 and over will be 2.5 times larger than in 2009, reaching 3.5m and accounting for 5% of the UK population.

Public spending has already rocketed by nearly £14bn since 2005/06 when the 'babyboomer' generation of post-war children started to retire. It had been expected to increase by another £4bn by 2012.

Higher Public Sector Pension Contributions

The public sector is expected to shoulder a fairer share of the cost of their gold-plated pensions. Public sector faces higher pension contributions

Workers in public sector pension schemes are likely to be asked to make higher contributions to their retirement funds in the future.  

There has been much public anger over the size of pensions that some of the higher paid in the public sector – such as politicians – receive in retirement.

The reach of public sector pension schemes in the UK is significant, with about one in five people entitled to some form of public service pension.

However, the rising life expectancy over the last few decades has stretched the public sector pension system to breaking point.

Somebody retiring now can expect to spend 40% of their adult life in retirement.

"This has driven up costs - by a third in the past decade - and these extra costs have fallen almost entirely to taxpayers," said Lord Hutton.

"The final salary link in public service pensions is inherently unfair and can lead to high flyers getting almost twice as much back in pensions than those on more modest earnings for the same amount of pension contributions."

These are the types of changes that need to be made to public sector compensation. It will be another matter to see if they are allowed to pass. Based on the protests in France the UK may see it own bit of pension outrage. Survey finds half of UK public sector workers ‘prepared to strike’

The public sector may have no alternative to major protests if they want to stay on the taxpayer funded gravy train. But then again the MP's may be too happy to acquiesce if they think they can keep their pensions as well.

Are the MP's and public sector in the same boat? In any professional services business this type of transaction would be considered conflict of interest.

Bill Tufts 

Fair Pensions For All

Police and firefighters cost $180,000 per year in San Jose, California

 The Economist reports on the pension crisis in America in a recent article Hard-pressed American states face a crushing pensions bill  

CHUCK REED is the Democratic mayor of San Jose, California. You might expect him to be an ally of public-sector workers, a powerful lobby in the Golden State. But last month, at a hearing on pension reform held by the Little Hoover Commission, which monitors the state’s government, Mr Reed lamented his crippling public-pensions bill. “City payments for retirement benefits have tripled over the last ten years even though our workforce has declined dramatically, and we have billions of dollars in unfunded liabilities that the taxpayers must pay,” he said.

Mr Reed estimated that the average cost to his city of employing a police officer or firefighter was $180,000 a year. Not only can such workers retire at 50, but some enjoy annual pension payments greater than their salaries. They are also entitled to cost-of-living increases of 3% a year, health and dental insurance for life and lump-sum payments for unused sick leave that could reach hundreds of thousands of dollars.

 Now the problem is making headlines, especially in California, where taxpayer groups have been highlighting the generous pensions of some former employees. More than 9,000 beneficiaries of CalPERS, the largest state retirement plan, receive more than $100,000 a year.

The stage is set for conflict between public-sector workers and taxpayers. Because almost all states are required to balance their budgets, any extra pension contributions they make to mend a deficit will come at the expense of other citizens. Utah has calculated it will have to commit 10% of its general fund for 25 years to pay for the effects of the 2008 stockmarket crash. But attempts to reduce the cost of pensions are being challenged in court and will be opposed by trade unions, which still have plenty of members in the public sector.

New Jersey provides a prime example of America’s pension difficulties. In August the Securities and Exchange Commission (SEC) charged the state with fraud for misrepresenting the underfunding of its pension plans to municipal-bond investors. This was the first time a state had been charged with violating federal securities laws. It settled the case without admitting or denying the SEC’s findings.

A study by Ms Norcross and Mr Biggs outlines, using the Treasury yield as a discount rate, how New Jersey has run up a pensions deficit of $174 billion. That is equivalent to 44% of the state’s GDP, or more than three times its official debt.

Understated Liabilities

 The Wall Street Journal reports that a major part of the problems are the accounting rules that are applied to pensions. An article today shows that Cities Hide Pension Liabilities

 Many of the largest U.S. municipalities are understating the true size of their pension obligations by using inappropriate accounting methods, leading to $574 billion of unfunded pension liabilities, according to a study released Tuesday.
Those unfunded pension benefits are in addition to $3 trillion of unfunded liabilities that the study's authors have said exist among state pension plans.

Supersized Superannuation - Canada's Problem 

Earlier this year the CD Howe Institute released its analysis of the underfunded situation in Canada. They called the report Supersized Superannuation: The Startling Fair-Value Cost of Federal Government Pensions This report shows that Canada has a serious problem with its plans.

As long as bureaucrats and politicians have a retirement that is dependent on these gold-plated taxpayer funded plans; this problem will be kicked down the road.

It is hard to change the system.

The public sector unions have take municipalities and states to court to have any pension changes overturned. The courts have upheld the pensions in their current form. They cannot be changed for existing employees.

Of course the unions have a point when they feel they are the scapegoats for a broken system. Especially when the financial institutions that were bailed out by taxpayers are abusing taxpayers.

Another indication of our broken system is the bonuses that Wall Street are taking home this year. Wall St. soaking up record bonuses shows that executives of financial companies are expected to receive a record $144 billion in pay and bonuses this year.

Someone has to pay these bills of course. It will be taxpayers everywhere who are responsible for bailing out both incompetent corporations and pension shortfalls.

Many will not be able to sustain this burden.More seniors spending golden years in bankruptcy

Bill Tufts 

Fair Pensions For All

Let the Good Times Roll

Let the Party Continue!

There is a party is for the benefit of Canada's public service and the taxpayer is invited. Maybe I should say the taxpayer is mandated to attend and buy tickets.

An article this week in the National Post shows how Ottawa Overstimulates the Civil Service.

So who benefited most from Ottawa’s billions in stimulus spending over the past two years?

Indeed, the biggest winners likely have been public-sector workers, not surprisingly. In just the last year, public service employment rose across the country by 3.4%, half or more of the increase the result of jobs created to hand out stimulus cash.

So while there is scant evidence that all the billions spent stimulated many private-sector jobs – the original purpose of the money – there is plenty of evidence it created lots of new jobs in government overseeing the non-jobs being created in the public sector. Governments aren’t much good at creating employment, except for more government workers.

It takes roughly four government employees to do the work of three private-sector ones. That, in a nutshell, is why it costs more to hire government workers and why a burgeoning public sector is a burden on taxpayers, particularly now when taxpayers can’t afford the extra strain

Public Debt Exploding  

The cost of the party is becoming very expensive. As government revenues fall the costs of growing the public sector with gold-plated pensions and benefits soars! There are no taxes coming in so the money is borrowed for future generations to pay off. We call it public debt. 

As the National Post said these giant public pension funds and unions are “wealth confiscated bygovernment…using money taxed from all their constituents.” And why not – all government employees AND elected politicians will be the beneficiaries at our expense.

The Canadian Finance Minister released his expectations for the next three years in Canada. Basically it is a nightmare, a real disaster for taxpayers. But the goodies continue to flow for the public sector party! 

Ottawa posted largest deficit ever last year

The Canadian Taxpayers Federation also reacted negatively to the update, urging Ottawa to cut spending in order to balance the budget sooner.

Even by Ottawa's accounting, the government will add $171 billion -- or $10,277 per taxpayer -- to the national debt before the books are back in black, the group calculated.

"A family of four tax-filers will have to pay off almost $41,000 due to this spending binge," said Kevin Gaudet of the anti-tax group.

We saw in the past three years that government had to bail out banks and financial institutions that over extended themselves in bad credit. At least the governments were there to bailout the banks and financial institutions when the party got out of hand. 

But who will bail out the governments? 

We are all in it Together

It would be nice to think that in times like this all Canadian would pull together to get the country out of the mess it is in. Something like the times of hardship in the 1930's that had all Canadian pull together to create the country we have today. 

Unfortunately it is every man for himself today. The public sector employees and politicians have made sure that they have set aside enough money to fund themselves into the Golden Years. 

The public sector has set aside $800 Billion to fund their retirements. This is more than the total value of the 

$ 275 Billion Canada has in the country's infrastructure. The $1 Trillion in debt Canadian governments have accumulated has not gone towards building roads, airports, waterways, hospitals or schools, things that would benefit all Canadians. 

Canada's debt has gone into the retirement pots of the Protected Classes. (Schwarzenneger's term)

Injury to Insult

You would think that the  public sector might look at our situation and say "we need to help out". However, this will not happen and Canada's pension system is on a crash course to destruction.

In Fredericton one politician tried to make a very simple and very moderate change. Of course his idea was beaten and ridiculed into defeat by a very vocal union membership. Fredericton council backs off pension reform

These public sector defined benefit plans are a Ponzi Scheme on their way to collapse. You would think that the unions would be prepared to give the taxpayers a little bit of a break. But instead they are determined to break the taxpayers! 

My editorial letter was printed in the newspaper about this issue.  See - Let's look at the numbers

Bill Tufts 

Fair Pensions For All

Public-Pension Deficits: How Big? Can They Ever Be Paid?

       

A day of reckoning for public pensions

A recent article in the Christian Science Monitor highlighted the current precarious state of public sector pensions plans. A day of reckoning for public pensions

Federal workers earn 20 to 30 percent more per hour than their private sector counterparts. And where local, state, and federal government workers really come out ahead isn’t just in pay; it’s in the benefits. Most private sector workers can only dream of getting the generous lifetime pension and health benefits typical of government service.

These dream benefits are fast becoming a nightmare for taxpayers. Federal pension payouts roll into the $13 trillion national debt. Washington seems little concerned about that, because there’s no urgency to balance the budget.

But most state and local governments are required to produce balanced budgets, and they find themselves increasingly hard-pressed to satisfy their pension obligations

Unlike private pensions, state and local government pensions are typically 100 percent guaranteed. In California, for example, 12,000 public employees are guaranteed annual pensions exceeding $100,000 apiece. Private employer pensions, by contrast, do not have an automatic draw on government treasuries. Even the most generous ones are insured up to a benefit cap well below $100,000.

Local and state officials find themselves between a rock and a hard place: insatiable public employee unions and tapped-out taxpayers. The unions are a formidable political force, which is why public pensions have gotten out of hand in so many states. But at some point the bill comes due. That reckoning is fast-approaching and will be excruciating in many places.

Government at all levels has kicked the fiscal can down the road for far too long. Where public pensions are concerned, many jurisdictions are running out of road. Taxpayers should demand that their states honestly assess public pension plans, accurately measure the assets and liabilities, and take steps to provide fair benefits to public employees that limit taxpayers’ liability. 

 It is interesting to note the biography of the writer of this article: Elaine L. Chao, who served as US Secretary of Labor from 2001-2009

Inevitable solution
An article looking at one pension fix in the US provides excellent insight into the pension problem.
Pension Primer

While there are any number of possible fixes for this complex problem, the solution will fall short if it fails to move state employers away from traditional pension benefits and toward a defined contribution system such as the 401(k).

That idea is likely to infuriate the unions that represent state workers. For generations, they've argued that pensions are the reward public employees should receive for wages that consistently fall short of their private-sector counterparts. And they're likely to point out that 401(k) accounts have lost value as much or more than pension funds in recent years.

Public employees may prefer the state-guaranteed pensions of the past — and, to be fair, most aren't getting rich off current benefits, no matter how unaffordable they've become to the rest of us. That may not sound appealing to those who have devoted their lives to government service, but it's an unavoidable reality. If Maryland's system is to be fixed, defined contribution plans are going to have to play a far larger role in the future.

These recommendations are applicable for all public sector pension plans.

It does not matter where the pension plans are. The same principles and problems exist for them equally. In Canada there is a currently debate on pensions in Fredericton. Government will face pressure to change rules

It really is too bad so much time is wasted in the public forum on these discussions. All public sector plans should be converted into defined contribution. This bring about the end of the fairness discussion.

It would allow governments everywhere to focus on discussions that would benefit all citizens and not just those on the public dole. 


Bill Tufts 
Fair Pensions For All 

Pensions a Heated Political Issue

Police riot in Ecuador over compensation!

Earlier in the year I wrote an article entitled Canadian pension news headed for top spot in 2010

It turns out that it indeed pensions are a very big issue in the news this year. A recent article confirms the importance of pensions on the political scene and provides a good assessment of the current situation. Pensions become a heated issue in 2010 politics

Pensions aren’t exactly a staple of election year politics in America. But after three years of heightened attention to the underfunding of public pension systems, candidates across the country are offering a variety of proposals to strengthen financing. The debate is certain to carry over to the 2011 legislative sessions that begin in January.

On the state level, public pensions are a key issue in the race to succeed Governor Arnold Schwarzenegger, a Republican who was one of the first elected officials nationally to recognize the depth of the pension funding problem. His proposed reforms, which included rescinding a benefit increase, failed in part because of opposition from California’s strong public employee unions. 

Battle for entitlements!!! 

The battle is one where the public sector is unprepared to give up its gold-plated taxpayer-funded defined benefit pension plans. 

This week in Ecuador there was a Golpe de Estado or Coup Detat as the President was kidnapped. He was kidnapped by policemen who were angered over the government cutback of their wages and bonuses. The army fortunately supported the President and rescued him safely. It seems that public sector employees refuse to give up their entitlements.Ecuador recovers after police rampage against pay cuts

Read the comments from Governor Arnold Schwarzenegger in the previous section (they are referenced in links). He clearly outlines the problems of these pensions for taxpayers and the barriers to reforming these pensions. 

Schwarzenegger's comments are repeated by a very astute county executive who in Milwaukee County presented the county budget. Walker has a message on several issues that all politicians should here. However, he is especially accurate on the pension and public sector compensation issue.

Create Balance between Public and Private Sector Benefits
Now, probably the most critical part of this budget addresses the need to create a balance between the benefits received by public and private sector employees. We can not and should not maintain a system where public employees are the “haves” and the taxpayers footing the bill are the “have-nots”.

Wages and benefits comprise more than 49% of the county budget, and the cost of benefits is growing at an alarming rate. Delivery of necessary services will be affected if these costs are not controlled. We can not simply tax our way out of the challenge.

Many private sector workers in the county are seeing their wages and benefits frozen or cut to preserve jobs. Retirement contributions have been suspended and employee contributions for health care have increased. It is hard not to expect the same from those in government. Just ask the employees at Harley-Davidson.

This budget again includes the wage and benefit reforms adopted in the 2010 Budget.
While we have taken actions in the past to help control costs, we must take additional steps to help balance the escalating cost of public employee benefits for taxpayers, now and in the future.
This budget includes major reforms such as:

· Asking county workers to make the employee contribution to the pension system,

· Ending the step increase for wages,

· Redesigning the healthcare plan for non-union employees and retirees to lower costs, and

· Eliminating furlough days for employees who helped balance the budget with the wage and benefit reforms.

I want to thank the unions and the non-represented employees who helped balance the budget by accepting reasonable wage and benefit reforms. This budget protects their jobs and relieves them from furlough days.

For those who do not help the county balance its budget, we include a fall back provision. If the wage and benefit reforms are not met, the 2011 budget will be balanced with furloughs and potential layoffs. Public safety and direct patient care will continue to be exempt from these potential changes.

In tough times, people all across our county are making sacrifices to keep people working. County government should be no exception. Together, we must hold firm and make the tough decisions that will ultimately make Milwaukee County stronger.

This is very impressive, a politician who is not afraid to say what everyone knows.

Bill Tufts

Fair Pensions For All

More Pension Comparisons

I read with interest an article about the head of the  CPP plan touring on a Public Relations campaign. 

Canada Pension Plan at $130B and climbing

The writer commented that at $129 Billion it is the largest the CPP has ever been and it is expected to grow to $464 Billion. This plan is for the benefit of 18 million Canadians? This equals a little over $7,000 for each working Canadian taxpayer.

I challenge you to think about this ...
There are 3.6 million public sector employees in Canada. The assets of their taxpayers funded pension funds are valued in excess of $800 Billion. This equates to over $200,000 for each working public sector employee in Canada.

Around $30 Billion flows into the government employee pension funds annually.
How much were the annual contributions into the CPP plan?

The CPP is expected to grow to $464 Billion in 20 years.
What is the expected future growth of the public sector pension plans?

Both the CPP and the public sector pension plans are funded by the taxpayer. Yes I know I will get lots of complaints that the employees in the public sector fund their own plans. But they fund only a small portion.

You may want to consider an analysis and compare the CPP with the public sector pensions. The  conclusion may change from ...

Relax Frederictonians, your Canada Pension Plan benefits still will be there when you retire and for your children when they retire.

Part of  the analysis might include the question of asset ownership. The total public assets for bridges, roads, ports airports etc. in Canada as estimated by Statscan is around $275 Billion. Less than one half of the assets that are in only the public sector pension plans.
It appears that slowly the pension funds in Canada will be devouring the infrastructure of the country. You note the purchases of MacQuarrie and ownership in over 500 Canadian companies. At one time this would have been called socialism; the country's factors of production being owned by the government itself.

It is interesting the majority interest in Skype. The public sector pensions restrict themselves almost exclusively to monopoly markets. They obtain 20% to 25% returns at the expense of taxpayers everywhere. If it is not a monopoly market, they have the assets to quickly buy up enough to make it a monopoly. Take commercial real estate in Canada, it is almost exclusively owned by pension funds.

Question the source of the information that was given. Do you think Denison is relying on the CPP plan for his retirement or is sheltered in one of the gold-plated public sector plans.

References: 

http://www40.statcan.gc.ca/l01/cst01/govt62a-eng.htm
http://www.statcan.gc.ca/pub/13-605-x/2008002/t/5213171-eng.htm - Note the GCRA are for the super sized pensions in the public sector.

Bill Tufts

Fair Pensions For All 

Pension disclosure

Recently in California I had a chance to meet with Jack Dean. Jack runs a blog called Pension Tsunami he is also one of the key forces behind the California Foundation for Fiscal Responsibility they run the website California Pension Reform.

Jack was responsible for helping to uncover some of the worst pension abuse situations in California. His efforts also led to better monitoring and understanding of the pension debate. This debate has turned into a national issue. One of the key tools for pension reform is the disclosure of the levels of pension paid to retired public sector workers.

The Wall Street Journal reported on the efforts to disclose the problems behind public sector pensions. Fury Over Public Pensions Sparks Disclosure Lawsuits

Several state and local retirement funds have balked at disclosing the pensions of individual government workers, triggering lawsuits that claim taxpayers have the right to such information.
The showdown comes amid growing scrutiny of public-sector pensions as voters, many struggling amid the recession, increasingly question how tax dollars are spent in states and cities facing budget shortfalls and service cutbacks.

The California Foundation for Fiscal Responsibility, a group that advocates for pared-back pension benefits, sued the San Diego County retirement fund in August after it refused to provide the names of retirees collecting annual pensions of $100,000 or more. While other counties have released similar information, San Diego maintains that state law prohibits it from doing so.

In New York, the fiscally conservative Manhattan Institute's Empire Center recently filed lawsuits against New York City's police and firefighters' retirement systems, after the funds refused to release retiree names and pensions. Three other city funds have released the information, the center says.

The police fund considers the release of members' names "potentially dangerous" to former officers, who could face retribution for their work, as well as an invasion of privacy, said Jesse Levine, senior counsel at the New York City Law Department. The department is "in the process of resolving" the request regarding the firefighters' fund, Mr. Levine said.
Newspapers have also been denied requests for pension data in states including Ohio, where the legislature is considering spending millions to shore up the public retirement system.

"Taxpayers should have a good understanding of how the system works," said Doug Oplinger, managing editor of the Akron Beacon Journal, one of the papers rejected in a request for information besides specific names.

Some advocates of disclosure say the funds are hiding behind legal arguments to avoid scrutiny, especially in the wake of the recent Bell, Calif., controversy that revealed the city's administrator was earning close to $800,000 a year. Based on that salary, it has been estimated that he stands to collect at least a $600,000 annual pension from the California Public Employees' Retirement System, or Calpers. He stepped down in late July amid a public outcry, and his pension is on hold pending a review by Calpers.

California State Controller John Chiang recently announced he is requiring all California cities and counties to report compensation for current public employees, which he plans to post on his website in November.

"When does it stop being the public's money," he said, "and when does it start being [state workers'] money?" 

 The initiative of the CFR has led to fights in other states over the disclosure of pension information.  

• An advocacy group sued the San Diego County pension fund for refusing to provide the names of retirees with annual pensions of $100,000 or more.
• The Manhattan Institute recently filed lawsuits against New York City's police and firefighters' retirement funds for refusing to release retiree names and pensions.
• Five Ohio pension funds rejected a request for pension data from a coalition of eight local newspapers.

The success of these fights have been mixed in terms of the information  or disclosure that has been passed along to taxpayer groups. But one thing is clear is that the disclosure that has occurred  has uncovered lots of pension malfeasance.

Public or Private
The debate rages on whether the personal pensions received by retirees should be disclosed.

Pension disclosure has permitted the uncovering of taxpayer abuse. The most blatant case is in Bell City California. California city manager's pension could top $30 million Other debates and articles are listed here. 

Find them, fire them
New Hampshire Retirement System thumbs its nose at public
Public pensions: Our right to know
Ohio public pension system must undergo public scrutiny
Hundreds of former NYC educators pulling in six-figure pensions, even scandal-riddled principal

Canada needs this pension disclosure

In Ontario the Sunshine Act shines light onto the salaries of public sector employees. Most employees will collect more in pensions that they earned in salary. Many will collect pensions for longer than they were employed.

Ontario has dozens of retirees earning over $200,000 or $300,000 per year in pensions. There are thousands, if not tens of thousands (including all levels of government) who earn  more than $100,000 per year in pensions, in Canada.

The limit for disclosure under the Ontario Sunshine Act is $100,000 This same bright light needs to be shined onto pensions as well.

Bill Tufts
Fair Pensions For All

Pension Apartheid in Canada - Nortel vs OMERS

Yesterday our blog looked at the huge difference between private sector and public sector pensions. Today another example has been exposed. Lets look at the OMERS (Ontario Municipal Employees) pension plan and the pension plan for Nortel. 

OMERS and the Ontario government shocked cities across the province with the news that pension costs at all city halls have to rise to fund an expected $6 Billion shortfall in the pensions for city employees. The taxpayer abuse was reported in the Ottawa Citizen, Municipal pension shortfall could affect property taxes. 

There was no debate about the increases or media discussion. It is a fait accompli, taxpayers must ante up for the Protected Class! OMERS Pension funding shortfall 

Pension Apartheid

At the same time the Finance Minister in Ontario turned down an opportunity to resurrect the Nortel pension plan that is suffering a $2.5 Billion shortfall. Duncan warns Nortel pension scheme too risky

Finance Minister Dwight Duncan has killed a scheme to give Nortel retirees the right to have their $2.5 billion pension plan run by a private firm.

Ontario Finance Minister Dwight Duncan has officially put the kibosh on a controversial scheme to allow Nortel retirees to have their $2.5 billion pension plan run by a private company.
The provincial government, which has faced noisy protests at Queen’s Park by former workers at Nortel Networks Corp., had been concerned the move would be too risky.

“It is difficult for us to endorse an unproven financial sponsorship model which could put at risk the most vulnerable of the Nortel plan members, retirees, and other beneficiaries,” Duncan wrote in a letter to Nortel Retirees and Former Employees Protection Canada (NRPC).

 In another report Duncan noted: 

Duncan also pointed out that the Ontario government added $500 million to the province's Pension Benefits Guarantee Fund last year, knowing about half of it would be needed to help Nortel workers. The fund guarantees pensions of up to $1,000 a month when companies close.

It is sad that workers at Nortel will be protected to a maximum tune of $1,000 per month. We saw yesterday the Ontario Teachers plan with a $17 Billion shortfall provides an unlimited guarantee to its employees. 

It looks like the Protected Class has once again protected its interests over those of taxpayers. 

Bill Tufts 

Fair Pensions For All

A Tale of Two Pensions

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

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

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

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

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

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

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

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

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

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


Canada's Largest Public Sector Pension

Statistics

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

Financial

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

Benefit Design

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

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

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

                       Comparison Chart 

                                                                    Private Sector         Ontario Teachers

                                                                     CCWIPP                      OTPP

                          Assets                            $ 1.68 Billion                $ 96.4 Billion

                          Workers                           350,000                          175,000

                          Retirees                             20,000                          114,000

                          Total Members               370,000                          289,000

                          Avg Assets                       $ 4,500                         $332,000

                          Avg retiree pension         $ 6,450                          $ 38,596

                          Employer contribution   $139 Million                $ 2.72 Billion (taxpayer)

                          Normal retirement           Age 65                            Age 55

                          Pension shortfall           $ 760 Million                   $ 17 Billion 

                          Special taxpayer

                          Contributions 2010          $    000                        $ 500 Million 

                            

 Notes: CCWIPP Annual report

             Teachers at a Glance

             OTPP annual Report 2009

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

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

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

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

Bill Tufts
Fair Pensions For All