Posted April 30, 2012
More than a year ago, Finance Minster Steele correctly observed that investment returns would not by themselves fix the problem in the Teachers Pension Plan. In fact, the Plan’s position is more than $500 million worse than it was a year ago.
The deficit is $1.655 billion (more than $125,000 per teacher) even though governments have over the years made almost as much in extra payments to the Teachers Plan as the $536 million gratuitous bailout provided two years ago to the Public Service Superannuation Plan. The Teachers Plan is only 71% funded and there is now even less chance of this problem being fixed by investment results.
Further delay will only add to the burden in the future. This will ultimately be heaped on future taxpayers and younger teachers who will find themselves paying much larger contributions for smaller benefits. A teacher retiring this year may have had a salary of only $10,000 when she started and may have as many future retirement years as past working years. A plan where teachers can expect to receive more dollars in retirement than during their working career is simply not sustainable.
Government’s effective response to the PSSP challenge points the way forward for the Teachers Plan. A new governance model is needed under which:
1)The only funding responsibility of government is to match member contributions up to the Canada Revenue Agency maximum, and
2)The jointly appointed trustees are required to bring the plan into a break even position by a combination of funding and benefit adjustments.
This model is not something that will be achieved by negotiation. It must be implemented by legislation, as has been done for the PSSP.
Getting to balance will not be easy. It will require some combination of restrictions on inflation adjustment, gradual increases to the minimum age to retire with unreduced pension, and increased contributions.
The trustees need to be given time to consider alternatives. If they cannot reach agreement the initial choice may need to be made by binding arbitration (currently in vogue), but always within the constraint of the two conditions listed above.
If investment results exceed expectations and interest rates rise the trustees will have the enjoyable experience of providing improvements to members.
As with the civil servants this will still leave the teachers with one of the very best pension plans in the province.
The government should have dealt with this as part of the 2010 contract negotiations. As has been shown further delay just makes things worse. The government should follow its own lead as well as those of Ontario and Canada. The time to act is now.
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.