Posted April 18, 2012
The provincial government has taken a major step towards bringing the cost of civil servant pensions under control. It must do the same for teachers and MLAs.
Finance Minister Steele’s vague reference to the public sector pension issue in his budget address was much too modest. Following on the Federal and Ontario examples the proposed legislation represents extraordinary progress.
The draft legislation establishes a new jointly sponsored governance model for the Public Service Superannuation Plan (PSSP) with trustees split evenly between the employers and employees, including representation from non-unionized employees and retirees. Employee contributions will be matched by employer contributions with no requirement for extra lump sum funding from taxpayers if problems arise.
Benefit improvements will be allowed if actuarial valuations show favourable results, but only after extra provisions for future adversity have been set aside. If valuations are adverse the trustees will have to either increase contributions (equally between employers and employees) or adjust benefits or eligibility provisions so that the plan’s valuation is restored to a satisfactory level.
Employee and employer contributions will be capped at the level allowed by the Canadian Revenue Agency. As a practical matter the cap is likely to be lower because employee trustees will be hesitant to ask members for more contributions.
This is the right formula. Employees will continue to have one of the very best pension plans in the province and will be intimately involved in the challenges and opportunities to make the plan work well. Taxpayers will have something very close to cost certainty. The need for enormous “pension adjustment” costs in the public accounts will greatly diminish. (For excruciatingly complex reasons they may not go away entirely, but should average at zero in years after 2017).
The above comments assume that there will be no more ad hoc contributions on behalf of taxpayers (which the Minister calls “refinancing” while most others call it “bailout”) before the new regime comes into effect. And it would be better if future surpluses, which could arise if interest rates revert to historically normal levels, were first applied to repay taxpayers for the $536 million extra payment that the Minister chose to make two years ago. But in total this puts the plan on a sound footing for the future.
The same thinking must be applied to the Teachers Pension Plan for which the most recent valuation shows a deficit of $1.14 billion. The present governance regime leaves this very large and growing problem to be solved in the distant future by taxpayers and younger teachers.
The government has correctly identified the issue. Taxpayers look forward to an equally effective solution.
Related ArticlesPensions in Crisis
- CPP Changes: Don’t Pop The Champagne July 8, 2016
- A Weak Response to the Teachers’ Pensions Plan Deficit June 20, 2014
- Fix the Teacher’s Pension Plan Now May 16, 2014
Voters trying to understand the various positions being advocated for the Canada Pension Plan have every reason to be confused.