Lavish public pensions bleeding government dry: Fraser Institute

Looming pension crisis demands alternative funding schemes
||Last Updated: 09/24/2013

Lavish public pension plans are bleeding the government and taxpayers dry, suggests a new study from the Fraser Institute.

According to the report from the public policy think tank, defined benefit pensions (typically held by public sector employees) have forced provincial governments to bailout the shortfalls in those plans.

“Ultimately, the cost of public sector pension plans are borne by all taxpayers because tax dollars pay the government’s contributions as well as government employee salaries,” said Mark Milke, author of the report and senior fellow at the Fraser Institute’s Calgary office. “If governments want to get pension shortfalls under control, they should take a page from the Saskatchewan NDP government of 1977 and convert all public sector plans to defined contribution from defined benefit.”

In the study, Milke noted Alberta, Ontario, British Columbia, Manitoba, Nova Scotia, Prince Edward Island and Newfoundland and Labrador have all been forced to increase public sector contributions to make up for the red ink.

For instance, back in 2002, Alberta’s provincial government made what was supposed to be a one-time payment of $60 million to fund shortfalls of its teachers’ pension plan. But after taking over complete liability, the government paid out an additional $1.2 billion to the fund in 2009.

Not surprisingly, public sector unions have slammed the study, calling it a red herring.

Paul Moist, national president of the Canadian Union of Public Employees (CUPE), said defined benefit programs are recovering from a global financial crisis which saw interest rates rise and left pension plans with major funding challenges.

“Defined benefit pensions are not a frivolous perk, and portraying them as excessive or gold-plated ignores the value they have for workers and the overall Canadian economy,” he said. “Efficient and secure defined benefit pension plans are an essential part of Canada’s pension system. Replacing them with inferior alternatives – such as defined contribution plans – will drive down all pension benefits. Abandoning (defined benefit plans) is shortsighted and irresponsible of any employer, public or private sector.”

Moist went on to say solving the pension crisis could be done through expansion of the Canada Pension Plan (CPP). By gradually increasing contributions from employers and workers, CPP benefits could double – and be accessible for the millions of workers without a retirement savings plan.

For Milke, the solution lies in an antiquated Saskatchewan model.

“Saskatchewan stands as the one province that foresaw the looming problems with defined benefit pensions in the public sector,” he explained. “By moving to defined contribution plans, the 1970s-era NDP government took the necessary steps to protect future generations of Saskatchewan taxpayers.”

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