According to Alex Laurin, pension expert at the C.D. Howe Institute (a non-profit third-party public policy think tank), the risks are much more dire than government forecasts. While Ottawa’s initial projections put its unfunded pension liability at $150 billion, Laurin argued that number is, in reality, closer to $270 billion.
The C.D. Howe Institute released a report in April, co-authored by Laurin, which noted assumptions behind calculations for the unfunded liabilities actually puts the number much higher.
"It’s all about where the risk falls. The risks are clearly on taxpayers," said Laurin. "Now that this is established, the funding policy should try to fully fund the pension promise."
He cited New Brunswick’s pension model — a shared-risk program — as an attractive rubric to address funding concerns, but called the federal government’s newly proposed target benefit model a baby step in the right direction.
"The funding risk is different, it’s allocated differently," Laurin went on to say. "With target benefit plans, the risk falls entirely on the members. Since the risk is allocated differently, there will be no funding problems because taxpayers will be protected…You take risks — and at best, you don’t profit."
Despite calls for, and recent moves towards, restructuring, labour leaders in the public sector maintain the plans are sustainable as-is, but that better oversight — particularly by a third-party advisory board — would improve their functionality.
According to Robyn Benson, national president of the Public Service Alliance of Canada (PSAC), the defined benefit pension plan is far from extinct. She cited the Air Canada model as one example. The airline reported a massive solvency deficit of $3.7 billion but, earlier this year, wiped that liability out. As well, federal government employees have made changes to address these concerns over the past few years, including pushing retirement ages later.
Benson said that as they currently stand, the pensions are 98 per cent funded.
"There’s an improvement in the investment returns and an increase in the long term interest rates," she explained. "People need to realize the average pension is about $27,000 a year and we’ve continually increased our contribution rates — we’re headed to the 50-50 mark soon. It’s about dignity and respect, it’s about knowing what you’re going to have."
As for the federal government’s recent proposal for voluntary target benefit models for its employees at Crown corporation and federally regulated businesses, Benson is wary.
"The target benefit pension looks, at first blush, very much like a defined contribution plan. You won’t know what you’ll be retiring on," she said. "Certainly I think the government has launched an unprecedented attack on retirement security. If they want to push target benefit plans, I think that’s going to be very, very difficult."