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Crunch Time Looms For Public-Sector Pensions?
Gwyn Morgan of the Globe and Mail reports, Crunch time looms for public-sector pensions:
The
speedy passage of the bill to end the Canada Post lockout marked the
beginning of a much larger battle to bring burgeoning public-sector
compensation costs under control.
The key issue in the postal dispute
was reform of Canada Post’s inflation-indexed, defined-benefit (DB)
pension plan that guarantees up to 70 per cent of earnings, starting as
early as age 55. The C.D. Howe Institute warns that the unfunded
pension liability for federal workers is some $65-billion higher than
noted in the public accounts. Across the country, financially strapped
provincial and municipal governments face huge and growing pension
liabilities as a wave of baby boomer workers retires.
There’s
also a strong and growing sense of unfairness among workers who don’t
work in the public sector, two-thirds of whom don’t have any kind of
company pension plan. Many of those who do have company plans have seen
them converted to defined-contribution (DC) plans, wherein the size of
their pension depends on what the invested funds provide at
retirement. Implementation of this pay-as-you-go type of plan is the
only way to get government pension costs under control.
Air
Canada’s costly DB pension plan, a legacy of its former Crown
corporation status, was also the main issue in its recent strike. Chief
executive officer Calvin Rovinescu made it starkly clear why the
airline has no choice but to move away from DB pensions:
“We are an airline of 26,000 employees supporting 29,000 retirees.”
Air Canada’s pension deficit is already $2.1-billion, and it will have
to finance another $1.5-billion over the next four years.
The
main issue in both labour disputes may have been the same, but the
reality facing Air Canada and its unions is drastically different than
for postal workers. WestJet Airlines Ltd., Air Canada’s main domestic
competitor, has a highly motivated non-unionized work force, all of whom
are shareholders in the carrier. Rather than a pension, WestJet
employees earn a share of profits. Air Canada must compete, and that’s
simply not possible unless it is able to change to its pension plan.
Failure
to achieve competitive compensation has forced many unionized
businesses into bankruptcy. The result is a precipitous drop in Canadian
private-sector unionization rates, down to 16 per cent. In contrast,
public-sector unionization rates have grown steadily to 71 per cent.
Taxpayer-financed monopoly status has empowered government unions to
extract ever more extravagant wages, benefits and even “no contracting
out” clauses that block competition. Strike-fearing governments have
repeatedly capitulated to these demands. A recent study by the Frontier
Centre for Public Policy found that the wages of federal public
administration workers grew by 59 per cent between 1998 and 2009, twice
as much as across the entire economy.
Public-service
wages and benefits have mushroomed at all levels of government, and
not only in Canada. A report earlier this year in The Economist stated
that dangerous levels of debt and deficits throughout the Organization
for Economic Co-operation and Development are leaving governments with
no choice but “to stand and fight.” Here again, the most urgent battles
will be about pensions. American states have a combined unfunded
pension deficit of some $5-trillion (U.S.) and many European Union
countries also face debilitating pension liabilities.
In
Britain, Prime Minister David Cameron has vowed to reduce the power of
public-sector unions by creating “a new presumption … that public
services should be open to a range of providers competing to offer a
better service. … The state will have to justify why it should ever
operate a monopoly.”
Introducing private-sector competition for
government-financed services should also be a fundamental objective in
Canada. But even if that were done with vigour and determination, there
are parts of government where contracting out is impractical. So what
should the Conservative government do to rebalance the unsustainable
and unfair imbalance between public and private sector compensation?
Here are two simple but powerful rebalancing measures that should be
legislated by Parliament:
Classify public services that do not
face significant private-sector competition to be essential service
monopolies, where strikes are forbidden and union/government disputes
are settled by arbitration.
Mandate that arbitrators must
consider private-sector wages and benefits, including pensions, as
fundamental factors in their settlement rulings.
These are fair
measures, but they would be fiercely opposed by union leaders who never
should have been allowed to extract such excessive compensation in the
first place. The legacy of these excesses is that taxpayers are no
longer willing, and governments are no longer able, to pay for them.
My
trainer showed me no mercy early this morning at the gym so let me be
blunt and to the point. First, take anything that the C.D. Howe
Institute publishes with a shaker of salt. They are a conservative think
tank financed by banks and insurance companies. Even the
right-wing Economist is jumping on the bandwagon warning of the
"debilitating pension liabilities" of public-sector pensions and how
they will crush debt-ridden countries.
There is no question that
we need pension reform to bolster our retirement systems. And
concessions have to come from all stakeholders. Public sector unions
have to understand that people are living longer and they can't demand
gold plated pensions when private sector pensions have been decimated.
They must accept increases in premiums and the retirement age, cuts in
benefits, and cost-of-living adjustments. If they don't, there will be
no public sympathy for them.
Having said this, governments need
to adopt meaningful pension reform building on what already works. We
know public defined-benefit plans are better than private
defined-contribution plans but politicians and policymakers are dragging
their feet, tinkering at the edges, instead of adopting a radical,
wholesale approach which will bolster retirement plans for everyone for
the future, not just for the public sector. Read my comment on why the fuss over pensions to gain a better perspective on what's really at stake.
Companies
like Air Canada now have competent pension fund managers but I believe
that companies shouldn't be in the defined-benefit pension business at
all. They should worry about business and the government should worry
about bolstering our retirement systems by building on what works and by
introducing meaningful reforms to our pension system. Everything else
you read in mainstream media or from "reputable think tanks" is just a
smokescreen. Keep this in mind the next time you read anything claiming
"crunch time for public-sector pensions."
***Feedback***
Bernard Dussault, the former Chief Actuary of Canada, shared his thoughts on this article:
For your information, DC plans are not pay-as-you-go plans (re: “Many of those
who do have company plans have seen them converted to defined-contribution (DC)
plans, wherein the size of their pension depends on what the invested funds
provide at retirement. Implementation of this pay-as-you-go type of plan is the only way to get
government pension costs under control.”) .In fact, by virtue of pension legislation, any registered plan (RPP, PRPP,
RRSP etc.) must be fully funded. By definition, a DC plan is always fully funded
(... what you see is what you get).Only social insurance programs such as OAS and GIS may normally (and
actually are) financed on a pay-as-you-go basis, The CPP is not fully funded but
it is not either in a pay-as-you go (i.e. no funding at all). In such case, we
have to say the plan is partially funded (only about 15% in the case of the
CPP).
»
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Leo, just admit what's so transparently obvious to most of us here; if a policy adversely impacts your own financial interests or those with whom you aspire to associate with, you criticize it, and if has the opposite effect, you support it.
Whether you admit this or not, it shines through in much of your analyses and writings, and it's my humble opinion that this is why you get a lot of pushback from many here.
I don't think your a terrible person, Leo. In fact, you appear to be nice guy and I know that you have had your share of crosses to bear in terms of your health.
But your commentary would be better received in you injected more balance into your analyses on such matters as government-public pension funds symbiosis (which is a hot topic ripe for strong argument to begin with).
Paging Mr. Akak... Paging Mr. Akak...
Leo is at it again...
It's fuckers like you Leo that made me go Galt.
Don't look to me to pay for your life.
Worst part when reading this bile is sensing a smugness that your ilk thinks "If we can just elect a commie"..................
Not one thin dime from me. Not one
"..governments need to adopt meaningful pension reform building on what already works.."
In the last Century Leo, when has Govt ever produced a "meaningful reform" ???
How is the meaningful reform going on solving the US property, banking and healthcare industries? ..after the US Govt caused them
Do you feel a well-worn political solution coming on, one where even more taxpayers money is pissed away having already pissed away vast amounts causing the toxic shambles? When every Govt is a train-wreck in everything it does (met reality yet?) how is it you can remain glued in your delusional wonderland of a brain soaked in hopium (liberal insanity) thinking this patently obvious piece of shit of an institution will come up trumps the next time???
Retirement was a 20th century phenomenon relying on infinite compound interest paper returns in a finite non-paper universe.
Meanwhile, back in the real world.........
Hey Leo,
Is that you standing in front of that truck? Is that Mr. Akak I see, sneaking into the driver's seat and starting it up as you stand there blathering away? LOL
web, if that was true we would have another sterling example of "flat greek" .......happening real fast........
<laughing out loud... my laugh of the day>
Paging Mr. Akak, paging Mr. Akak.
believe me, you don't have to rub that bottle too much to conjure up akak when it comes to this kebecker........
Ya... it's gotten quite personal...
We know public defined-benefit plans are better than private defined-contribution plans...
Uh, yeah - better for those on the receiving end. On the taxpayer end, not so much.
That's kind of the point.
I will repeat what I have said about you before:
You are a fraud and a con-artist.
***Feedback***
Bernard Dussault, the former Chief Actuary of Canada, shared his thoughts on this article:
leo wants feedback? we have feedback too.........
Yes we do... : )
...cuz it worked so well with Social Security?
pablumus extremis
Almost every developed nation is running structural deficits (even Canada) - it just isn't possible to pay an employee for 30-years and then pay them basically the same amount for the next 30-years as a retiree.
Those 8% annualized returns that all funds chase are just chased funds - they aren't there and inflation is the only cure governments see. Pension fund managers exist to take care of themselves (that's human nature so no argument) they don't care about some unknown person in Saskatchewan or Missouri.
Leo, go buy a chicken souvlaki. Pensions are so 19th century. Neither you nor anyone else will ever see a vestige of any pension; and if some grave error should permit you to, the kleptocracy running your country (and many others) will simply tax it away.
Statists need to encourage DB participation as the funds are defacto "coffers" for their unquenchable speding appetites.
This is nothing more than sock-puppet pablum from the Alinsky ideological text book.
Hey genius, the only truth is that defined-contribution plans will accelerate pension poverty. If US public pensions adopted some Canadian pension governance standards and paid their senior managers a hell of a lot better, you wouldn't have as serious problems you're facing now. And I think I will buy some more chicken souvlaki, deeelicious!
yeh sure leo. the problem here is that we don't pay our pension fund "advisors" enough.....yeh right........give me a break.......
the problem is that the laws were changed so that pension funds could get into the stock markets. it worked while it worked but no more. if they had just stayed in low risk things, they would be much better off, albeit the payments to pensioners would be smaller of course, but at the same time, how many people actually think they deserve a beach house in florida? it was always just one big lie and was a big set up to steal the money......always was and always will be. a man can never expect another man to care as much about his money has he does. most people are lazy and refuse to do their own due diligence in investments. they want others to do the thinking for them while they live the "life" well that sort of thinking has gotten them to what point? now the bread cast upon the waters is coming back now. get gold and silver and lots of it......
Am I the only one that finds a description of the Economist as being the "right-wing" bogeyman as laughable?
If you're suggesting that the Economist actually seems to have a pronounced left wing bias, well, you're not alone.
The Economist is an outstanding economic and political magazine, IMO.
It is clearly has editorial content with a definitive Keynesian flavor, but it also allows quite a few more Austrian/von Mises type analyses to be posted by non-Keynesians, as well.
As for its articles on world events, the content is second to none in terms of mainstream publications (it's not really mainstream, though; more niche oriented, catering to policy wonks or wonkish wannabes).
As one example of how fantastic their forecasting can be, here's one example (you may say "well, that's obvious, but it was the minority view back then, and on top of this, their timing, their analysis of the causes of the housing bubble, and the manner by which they predicted the housing bubble would burst was incredibly accurate):
House prices: After the fall | The Economist
Gynn Morgan should be forced to suck every drop of fracking fluid he has pumped into the groundwater tables of North America.
Truth anyone?
1) Defined benefit pensions are defined fraud
2) Therefore, power on reset: Add up all employee, employer contributions, layer returns (loss/gains), create net present value to date.
3) Cut checks or ask for payment.
4) Welcome to reality.
This is the reality, Leo. The rest is just can kicking, and the more the can is kicked, the less money the beneficiaries will ever receive.
Here is some real food for thought: instead of saying "fuck public-sector pensions," you really should be asking "how can we all get gold-plated DB plans just like our elective representatives?"
Exactly what is it that makes you qualified to post? I mean goddamn you are actually imagining that we can extend public sector pensions to the general population. Who is going to pay for this crap Leo?
I'll bite. How? Please explain how we can all get those plans? Explain who will pay?
Thanks.
Screw the pensions, since our govt so admires China and wants to act like them anyhows. Having no govt teat to rely on certainly will raise the savings rate. Whats so wrong with defined contribution plans? Junk me, you do-nothing govt leeches.
Hey Leo:
Here's some food for thought - SUCK IT UP.
The private sector has been getting circumcized for almost 3 years now.
Maybe short haircuts (I'd prefer to see buzzcuts) really are in order for the public sector employees that have been living large with large and generous pension and retirement plans for 40 some years, now, huh?
I'm sure most small business owners in Canada OR the United States would love to be able to retire at 52, with full or nearly full salary and lifetime benefits, free to work another job, EVEN IN THE PUBLIC SECTOR, thereafter.
But we get it - If public employees have to swallow cuts, it digs into the income stream of pension fund managers, who get paid based on the amount of gravy that flows to government employees, and not talent or performance.
And that's why you're so up in arms, in reality, right?
Pension fund managers don't want that big ole' chunk of their gravy train pie to shrink.
Thanks for telling us what to think, statist. Where would we be without you?
The memo is taking a while to circulate through the office so in case you didn't get it yet:
Statism is coming back into vogue.
Nice article, Leo. Keep in mind that the Economist might be right-wing but it influences a lot of 'thinkers'. What they are saying is usually a good tell.
In every article about pensions, there are comments about how, eventually, government will steal private pension funds under some ruse of benevolence. Leo himself presents a picture perfect example:
"Companies like Air Canada now have competent pension fund managers but I believe that companies shouldn't be in the defined-benefit pension business at all. They should worry about business and the government should worry about bolstering our retirement systems by building on what works and by introducing meaningful reforms to our pension system."
(Emphasis added.)