The typical Canadian working outside government has no workplace pension plan, but is being asked to put more and more into rich, unsustainable government employee pension plans.
That doesn’t sound fair, does it?
But before we look at the numbers behind what’s going on, let’s be clear that no one expects a government employee to work for peanuts. Government employees deserve a competitive salary and benefits package like everyone else.
However, the problem is the pension benefits provided to the average government worker are far better than those paying for them - taxpayers. It’s time to scale those pension benefits back to more reasonable levels.
Consider that nation-wide,
87.1 per cent of government employees have pensions versus just
24.4 per cent in the private sector.
But here’s the kicker:
81.9 per cent of government employees have what’s known as a defined-benefit pension plan – the richest, most unsustainable type you can get.
Under a defined-benefit pension plan employees put a bit of their pay cheque into the plan each week and the government matches it (or better) – in other words, taxpayers. So if a government employee puts in $4,000 this year, taxpayers would also contribute at least $4,000.
Upon retirement, regardless of how much is in the fund, employees are guaranteed a pre-determined payout for the rest of their lives. Most payouts are based on an employee’s earnings a few years leading up to retirement and their years of service. The payouts also typically rise with inflation over time.
As you can see, this requires the people administering the funds to make an impossible set of guesses: what employees will earn throughout their career, how long employees will live, what will happen with the markets and what the inflation rate will be over time, to name a few.
But if a golden government employee pension plan has say $500 million in its account and owes employees $800 million in pay outs, taxpayers are almost always on the hook to put in more cash to help cover the shortfall.
Across the country, defined-benefit pension plans are in big trouble as nearly everyone doesn’t have enough money for the payouts they promised. The C.D. Howe Institute estimates that the federal government employees pension plan owes an estimated
$227 billion more than it has. The city of Regina owes
$293 million more than it has and the Ontario teachers pension plan is short
$10 billion.
Because of these shortfalls, taxpayers who have no workplace pension plan, and have already contributed to these government employee pension plans, are being asked to put in even more money.
As defined-benefit plans are extremely risky and unsustainable you can see why businesses have moved away from them in droves; 12.7 per cent of private sector workers have them today, down from 31.4 per cent in 1977.
To fix the solution governments should immediately switch new hires into defined-contribution plans. Such plans provide retirement benefits based on what the pension funds can afford. If the plan has $500 million, then that’s what’s available to employees; taxpayers don’t have to pay for any shortfalls.
Under former Saskatchewan NDP premier Allan Blakeney, a number of provincial government defined-benefit pension plans were converted to defined-contribution plans in the 1970’s to protect taxpayers.
It’s time for other government employee pension plans to follow that same step. Now there’s some real “social justice.”
Colin Craig is the Prairie Director for the Canadian Taxpayers Federation
