Another Pension Bailout?
Posted June 7, 2010
Reporters and other keen observers know that a news release late on Friday usually means that the government hopes it will not get much attention.
Thus on April 30 there was a little reported story that the Teachers Pension Plan is to receive a modest extra payment of $1.5 million from the province because it is in deficit. This looks very small compared to the $536 million payment into the Public Service Superannuation Plan (PSSP) announced a few weeks earlier. The associated financial reports were only released in May and a much darker picture becomes evident.
Unlike the PSSP, the Teacher’s plan has received a number of prior extra payments, totaling over $400 million. So the accumulated total extra payments for the two plans is closing in on one billion dollars, or more than four years worth of the HST increase just imposed.
The financial statements for the Teacher’s Plan reveals a deficit at the end of 2009 of $1.274 billion. The April 30 letter from the trustee contained this optimistic statement:
“It will definitely take some time to recover from the effects of recent market conditions and restore the funded status of the plan, but it is moving in a positive direction.”
Most readers would conclude from this that it will only be a matter of time until investment returns solve the problem. In fact the most likely outcome is that it will get worse. The deficit calculation assumes that future investment returns will be consistent with historical averages. So it is equally likely that actual returns on invested assets will be better or worse. But because the plan is under funded, there will be no investment return on the $1.274 billion of assets that are not available to be invested.
So who owns this very large problem? As things stand taxpayers are responsible for half of it. Under an agreement between the teachers and the province, the pensions starting on or after Aug 1 2006 only receive indexing if the plan meets certain funding criteria. In a year (such as 2009) when funding is inadequate the taxpayer makes extra payments into the fund equal to half the value of the indexing that those pensions did not receive. Of course most of the pensions being paid started before Aug 1 2006 so the current year’s down payment was small—only $1.5 million. But it will grow very rapidly as more and more of the pensions are affected by the provision. If investment returns are consistent with historical averages taxpayers will end up with extra payments into the plan equal to half of the current deficit—$637 million—plus interest.
This is outrageously unfair to taxpayers, most of whom have no pension plan at all.
The current collective bargaining agreement between the teachers and the province expires on July 31, 2010. The next agreement must put the province in a position that restricts taxpayer liability to regular payments into the pension plan—which amount to almost 10% of salary, matched by the teachers. Provisions for early retirement and inflation indexing will need to be adjusted to bring the plan to a sound financial position. The resulting plan would still be among the most generous in the province.
Taxpayers have already made extra contributions to these two public sector pension plans of almost a billion dollars. It is time for taxpayers to get some relief.
Related ArticlesPensions in Crisis
- The Teachers’ Plan Deficit Needs to be Addressed May 18, 2018
- CPP Changes: Don’t Pop The Champagne July 8, 2016
- A Weak Response to the Teachers’ Pensions Plan Deficit June 20, 2014
Voters trying to understand the various positions being advocated for the Canada Pension Plan have every reason to be confused.