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Public Sector Pensions:

Options for Reform from the Saskatchewan NDP

by Mark Milke, PhD, and Gordon B. Lang, FCIA, FCA

Registered pension plan coverage inCanada

87%coverage

Public sector

Private sector

24%coverage

September 2013

Public Sector Pensions:Options for Reform from the

Saskatchewan NDP

by Mark Milke, PhD, and Gordon B. Lang, FCIA, FCA

Fra ser Insti tute 4 www.fraserinstitute.org

ii 4 Public Sector Pensions: Options for Reform from the Saskatchewan NDP 4 September 2013

Contents

Executive summary 4 5

Intro duc tion: Two impor tant sets of data 4 9

Part 1: Trends in private and pub lic sec tor registered pen sion plans 4 10

Part 2: Tax pay ers and pub lic sec tor pen sions 4 17

Part 3: Long-term rem e dies for pen sion short falls from Sas katch e wan’s NDP 4 32

Rec om men da tions 4 38

Addendum: A discussion of Targeted Benefit plans 4 40

Ref er ences 4 41

About the authors 4 55

Acknowledgments 4 56

Pub lish ing infor ma tion 4 57

About the Fraser Institute 4 60

Edi to rial Advi sory Board 4 61


Exec u tive sum mary

This pa per ex am ines two sets of data: 1) reg is tered pen sion plan cov er age in Can adabe tween 1974 and 2011, and 2) the re cord of ma jor pro vin cial pen sion plans since theyear 2000 con cern ing con tri bu tion rates and plan-spe cific bail outs.

On the first set of data, there is an obvi ous diver gence between devel op ments inthe pri vate sec tor and the pub lic sec tor sta tus quo, both in the pro vi sion of such plansbut also in the type (i.e., defined ben e fit or defined con tri bu tion). For exam ple:

4 In 2011, just over six mil lion Cana di ans were enrolled in some type of reg is tered pen -sion plan (RPP). In the pub lic sec tor, 87.1% of employ ees were cov ered by an RPP, upfrom 75.5% in 1978. In the pri vate sec tor, just 24.4% of employ ees were enrolled in anRPP in 2011, down from 35.2% in 1978.

That diver gence only reveals part of the story. A sig nif i cant dif fer ence is also evi -dent in the type of reg is tered pen sion plan offered to those still in such plans.

4 In 1974, of those enrolled in a reg is tered pen sion plan, 98.8% of pub lic sec tor work erswere in a defined ben e fit plan, which had decreased to 94.0% by 2011. In the pri vatesec tor, 88.0% of pri vate sec tor work ers were in a defined ben e fit plan in 1974 but thatdeclined to 52.3% by 2011. In the pri vate sec tor, sig nif i cant growth has occurred indefined con tri bu tion and “other” reg is tered plans.

On the sec ond set of data, a look at major pro vin cial pub lic sec tor pen sion planssince 2000, it is clear that ear lier actu ar ial assump tions con tained in pub lic sec tor pen -sion plans were too opti mis tic, and that had con se quences for pub lic trea sur ies. As the sec ond set of data shows, increased con tri bu tion rates and/or bail outs for pub lic sec tor pen sion plans have been the norm among the major plans and not the excep tion.

Since the year 2000, tax pay ers in most prov inces have seen repeated increases inthe con tri bu tion rates to pub lic sec tor pen sion plans, this to ame lio rate pen sion fundshort falls. Spe cif i cally:

4 Tax pay ers in Alberta, Brit ish Colum bia, Man i toba, New found land & Lab ra dor, NovaSco tia, and Ontario have seen sig nif i cant increases in con tri bu tion rates to definedben e fit pub lic sec tor pen sions;

4 Increases in Prince Edward Island and New Bruns wick have been mod est;

4 Que bec’s Pub lic Accounts do not list details about increased con tri bu tions;

4 Sas katch e wan cre ated a dif fer ent pub lic sec tor pen sion model, a defined con tri bu tionplan, start ing in 1977 (and which will be exam ined later in Part 3).


In addi tion, tax pay ers have also been required to bail out the pub lic sec tor pen -sion plans through spe cial pay ments. Some exam ples include:

4 In Alberta, in 2002/03, the prov ince made what was sup posed to be a “one-time” pay -ment of $60 mil lion towards what is known as the “pre-1992” Teach ers’ Pen sion Planlia bil ity. It made another pay ment of $1.2 bil lion to the same fund in 2009/10.

4 In New found land & Lab ra dor, sev eral pen sion plans have required “top ping up.” Theyinclude a $2 bil lion spe cial pay ment into the Teach ers’ Pen sion Plan in 2006 and, forthe Pub lic Ser vice Pen sion Plan, a $982 mil lion spe cial pay ment in 2007.

4 In Ontario, the prov ince has made spe cial pay ments total ing $418 mil lion towards thefund ing short fall in the Pub lic Ser vice Pen sion Plan since 2007. The prov ince is sched -uled to make pay ments of $142 mil lion per year for 15 years to pay down the remain ing short fall.

4 Of note to Ontario, out side experts have com plained of opac ity in the prov ince’s books and assert that the prov ince’s pen sion risks are not fully dis closed. The Com mis sionon the Reform of Ontario’s Pub lic Ser vices, chaired by econ o mist Don Drummond,sum ma rized the prob lem in Feb ru ary 2012 when the Com mis sion urged Ontario to“clar ify who bears the ulti mate respon si bil ity for fund ing def i cits of the pub lic-sec torpen sion plans as the Com mis sion encoun tered con sid er able con fu sion on this issue.”

A rem edy from the Sas katch e wan NDP: Move the pub lic sec tor to defined con tri bu tion plans

Given the tight con nec tion be tween the cost of pub lic sec tor pen sion plans and thepub lic trea sury—and thus tax pay ers—one no ta ble Ca na dian-made op tion for re formco mes from Sas katch e wan. There, the prov ince stopped add ing to pen sion li a bil i tiesand did so with fore sight over three de cades ago. The NDP’s 1970s-era re forms canserve as a use ful model for long-term re form to any gov ern ment, pro vin cial or fed eral.

4 The Sas katch e wan NDP gov ern ment under Pre mier Allan Blakeney rec og nized howdefined ben e fit pen sion plans can lead to short falls.

4 In the 1976/77 Pub lic Accounts, the prov ince was clear who would pay for such short -falls: tax pay ers. “Pay ments required… are recorded as expen di tures for the year. These plans are there fore on a cur rent cost basis…” noted the writer.

4 In Sas katch e wan’s case, the NDP gov ern ment enacted leg is la tion to move much ofthat prov ince’s pub lic sec tor from defined ben e fit plans to defined con tri bu tion plansfor the gen eral civil ser vice. The change took effect Octo ber 1, 1977, and new civil ser -vants were auto mat i cally enrolled.


6 4 Public Sector Pensions: Options for Reform from the Saskatchewan NDP 4 September 2013

The result: soon-declin ing pen sion obli ga tionsin Sas katch e wan

The an nual cost of de fined ben e fit prom ises has con tin ued to grow in Sas katch e waneven though the plans were closed over three de cades ago; that was ex pected givenhow Sas katch e wan grandfathered ex ist ing em ploy ees in 1977. How ever, the shift tode fined con tri bu tion plans clearly af fected the po ten tial for fu ture pen sion short fallsgiven that de fined con tri bu tion plans by de sign can not cre ate a gap be tween prom isesand as sets, as pay outs re sult from con tri bu tions and the rate of re turn. Thus, the po -ten tial for new short falls in Sas katch e wan’s pub lic sec tor pen sions ended in the 1970s.As Sas katch e wan’s au di tors-gen eral have ob served, fu ture cash flows needed to fundde fined ben e fits plans will con tinue to in crease un til 2021, then de cline there af ter on apath that will per ma nently ex tin guish Sas katch e wan’s ob li ga tions to the long-closedpub lic sec tor pen sion plans that pre sumed upon the tax dol lars of fu ture gen er a tions.

Sum mary of rec om men da tions

Main tain ing the sta tus quo on pub lic sec tor pen sions pre sumes upon fu ture gen er a -tions. To avoid such a con tin ued sce nario, five rec om men da tions are, in or der:

Rec om men da tion 1: Where miss ing, require and pub lish more trans par entdis cus sions about pub lic sec tor pen sion risks for tax pay ers

As the Drummond Com mis sion found con cern ing On tario, re tir ees, em ploy ees, andtax pay ers rely on gov ern ments to be clear. Thus, ac cu racy and trans par ency are thefirst nec es sary re forms.

Rec om men da tion 2: Pub lish total sal ary, ben e fit, and pen sion costs, in dol larsand as a per cent age of total rev e nues and total expen di tures

Gov ern ments do not al ways make clear in their Bud gets or Pub lic Ac counts theirwage, ben e fit, and pen sion costs. Tax pay ers should be able to open fed eral and pro vin -cial bud gets, and later, the pub lic ac counts, and see what por tion of each gov ern ment’s bud get is ded i cated to wages, pen sions, and other ben e fits, both in real dol lar termsand as a per cent age of to tal ex pen di tures.


Public Sector Pensions: Options for Reform from the Saskatchewan NDP 4 September 2013 4 7

Rec om men da tion 3: Com mis sion a review of pub lic sec tor pen sions

Fol low ing an ex am ple from New Bruns wick, each gov ern ment should an nounce apanel to re view pub lic sec tor pen sion li a bil i ties. To avoid a con flict of in ter est, all pan -el ists should be in de pend ent and not stake holders in the pen sion funds.

Rec om men da tion 4: Grand fa ther exist ing defined ben e fits accrued to date, butover time rene go ti ate aspects of such agree ments to match pri vate sec tor norms

Can ada’s gov ern ments should ex am ine all op tions on both sides of the led ger—ben e -fits as well as con tri bu tions. The goal here is to three-fold:

4 to allow exist ing enrollees the choice to stay in exist ing plans, though not with out rea -son able reforms;

4 to restore fis cal bal ance to pro vin cial and fed eral bud gets;

4 to reform exist ing defined ben e fit plans to make them more sim i lar to those in the pri -vate sec tor. (To use just one exam ple, pen sion ben e fit cal cu la tions could be mod i fiedto reflect career-aver age earn ings instead of, as is often the case, the aver age of the bestfive years.)

Rec om men da tion 5: Move new employ ees into risk-man aged, man da tory,defined con tri bu tion plans

4 Mov ing new employ ees to a defined con tri bu tion model will end the poten tial for newlong-term short falls to be cre ated, as defined con tri bu tion plans by design can not cre -ate short falls. Sim i lar to how the Sas katch e wan NDP ended the entry of new hires intopub lic sec tor, defined ben e fit plans in 1977 and 1980, and thus moved much of theprov ince’s pub lic sec tor to defined con tri bu tion pen sion plans, other gov ern mentsshould use enabling leg is la tion to move new hires to man da tory defined con tri bu tionpen sion plans. The plan should be a pooled pen sion plan and risked-man aged by theentity that already man ages the exist ing defined ben e fit plans.



Intro duc tion: Two impor tant sets of data

This pa per ex am ines two sets of data—reg is tered pen sion plan cov er age in Can ada be -tween 1974 and 2011, and the re cord of ma jor pro vin cial pen sion plans since the year2000 with re gards to con tri bu tion rates and plan-spe cific bail outs by re spec tive pro -vin cial gov ern ments.

As will be shown, two con clu sions from the data stand out. First, on reg is teredpen sion plans and over the last three decades, there is an obvi ous diver gence betweendevel op ments in the pri vate sec tor and the sta tus quo in the pub lic sec tor. That is evi -dent in both the pro vi sion of reg is tered pen sion plans and in the type of plans offered(i.e., defined ben e fit or defined con tri bu tion). Sec ond, it is clear that ear lier actu ar ialassump tions con tained in pub lic sec tor pen sion plans were opti mis tic, which had con -se quences for tax pay ers. As the sec ond set of data shows, there has been a con sis tentneed for con tri bu tion rates to increase and/or for gov ern ments to bail out pub lic sec -tor pen sion plans since 2000. From the tax payer’s point of view, that mat ters, becausetax pay ers pay extra when gov ern ments (or more broadly), the pub lic sec tor, turn outto be incor rect on such mat ters.

After pre sent ing the data, the third sec tion of this paper high lights how oneprov ince, Sas katch e wan, chose a dif fer ent course on pub lic sec tor pen sions, and did sowith fore sight almost four decades ago. Under the 1970s-era New Dem o cratic Partygov ern ment of Allan Blakeney, the reforms enacted by the Sas katch e wan NDPallowed the prov ince to directly con trol how much tax pay ers would con trib ute to pub -lic sec tor pen sion plans in the ensu ing decades. Sim ply put, in defined ben e fit plans,gov ern ments guar an tee pen sion ben e fits decades later and must hope con tri bu tionrates and returns on invest ments are ade quate. Instead, with the intro duc tion ofdefined con tri bu tion plans for new mem bers of Sas katch e wan’s civil ser vice, the NDPgov ern ment was able to decide in advance how much pub lic sec tor pen sions wouldcost tax pay ers: the cost is a func tion of how much the gov ern ment decides to con trib -ute in any given year and is clear at the out set. No long-term hid den costs that aredepend ent on a vari ety of assump tions are thus incurred.


Part 1: Trends in pri vate and pub lic sec tor reg is tered pen sion plans

Pen sions and retire ment

Work ing Ca na di ans save for their re tire ment in a va ri ety of ways: man da tory con tri bu -tions to the Can ada Pen sion Plan/Que bec Pen sion Plan (CPP/QPP); em ployer-spon -sored pen sions; tax-shel tered re tire ment ac counts (reg is tered re tire ment sav ingsplans); ac counts ex empt from tax (tax-free sav ings ac counts); other as sets such ashous ing, or hold ings in pub licly traded or pri vate com pa nies. All of the fore go ing canand do pro vide re tire ment in come for Ca na di ans.

This paper will con cen trate on one aspect of retire ment income, reg is tered pen -sion plans, defined as “an employer-spon sored plan reg is tered with Can ada Cus tomsand Rev e nue Agency and most com monly also with one of the pen sion reg u la toryauthor i ties. The pur pose of such plans is to pro vide employ ees with a reg u lar incomeat retire ment” (Sta tis tics Can ada, undated).

Defined ben e fits plans and defined con tri bu tion plans:def i ni tions

Where reg is tered pen sion plans are pro vided, em ploy ers of fer one of two main types: a de fined ben e fit plan or a de fined con tri bu tion plan. A “de fined ben e fit” plan “spec i fiesei ther the ben e fits to be re ceived by em ploy ees af ter re tire ment or the method for de -ter min ing those ben e fits” (CICA, 2013: sec. 3250, Glos sary). A “de fined con tri bu tion”plan is one where “the em ployer’s con tri bu tions are fixed, usu ally as a per cent age ofcom pen sa tion, and al lo cated to spe cific in di vid u als” (CICA, 2013: sec. 3250, Glos sary). Sim ply put, de fined ben e fit plans are de signed to de liver a spe cific ben e fit in re tire -ment and con tri bu tions are ad justed ac cord ingly. The ben e fits of de fined con tri bu tion plans, on the other hand, are de ter mined by the ac cu mu la tion of sav ings in the pen sion through both con tri bu tions and in vest ment re turns. In the lat ter type of pen sion,higher con tri bu tions and/or better rates of re turn mean higher ben e fits in re tire ment.Con versely, lower con tri bu tions and/or lower rates of re turn re sult in lower ben e fits in


re tire ment. (Other types of pen sion plans ex ist. This study and Sta tis tics Can adagroup them in the “other” cat e gory.1)

Both types are described in detail in the foot note below.2 Crit i cally, a key dif fer -ence is that in defined ben e fit plans, retire ment ben e fits are guar an teed no mat ter thecon tri bu tion rates or invest ment returns. In con trast, in defined con tri bu tion plans,ben e fits depend on con tri bu tions and invest ment return.

A dis cus sion of risk—includ ing risk for tax pay ers

In any dis cus sion of pen sions, the risk must be prop erly un der stood for even tual re cip -i ents, but also and crit i cally, for gov ern ments and thus for tax pay ers. On de fined ben e -fit plans, the Ca na dian In sti tute of Char tered Ac coun tants notes the fol low ing: “When a gov ern ment pro vides ben e fits un der a de fined ben e fit plan, it is at risk with re spect to the amount of the ben e fit that each em ployee will re ceive (ac tu ar ial risk) and with re -spect to the in vest ment re turns on any as sets set aside to pay for the cost of these ben e -fits (in vest ment risk)” (CICA, 2013: sec. 3250, para. 11).

On defined con tri bu tion plans, CICA notes that when a gov ern ment pro videsben e fits under a defined con tri bu tion plan, “it does not assume the actu ar ial andinvest ment risks inher ent in a defined ben e fit plan… [Instead, a gov ern ment is only]required by the plan to make a spe cific fixed con tri bu tion each period [and] if that con -tri bu tion is made, no addi tional gov ern ment con tri bu tions are required now or in thefuture for the related ser vice” (CICA, 2013: sec. 3250, para. 12).



1 One type of reg is tered pen sion plan that falls into the “other” cat e gory is the “tar geted” vari ety. It isdescribed in more detail at the end of this report in an adden dum.

2 Reg is tered pen sion plansExpla na tions and def i ni tionsA defined ben e fit plan is one in which mem bers are prom ised a defined pen sion income upon retire -ment. This ben e fit depends on fac tors such as years of mem ber ship in the pen sion plan and the mem ber’ssal ary, but not the invest ment returns of the plan fund (Office of the Super in ten dent of Finan cial Insti tu -tions [OFSI], 2009: 3). Impor tantly, regard less of the exact for mula and con tri bu tions to the plan in ques -tion, the retire ment ben e fits are fixed and thus guar an teed.

In con trast, in a defined con tri bu tion plan, both employer and employee con trib ute to the plan.Retire ment ben e fits result from those con tri bu tions com bined with sub se quent invest ment returns. Bydesign, there is no prom ised level of guar an teed ben e fits (OFSI, 2009: 2).

Sta tis tics Can ada tracks both of the above and also records a third vari ety of pen sion plan that includessep a rately-named hybrid plans, com pos ite or com bi na tion plans, defined ben e fit and defined con tri -bu tion plans (together), and “other” plans (Sta tis tics Can ada, 2011). In this study, those addi tional fourplans are grouped together as “Other.”

The account ing descrip tion should be sup ple mented with an expla na tion aboutwhere rev e nues for gov ern ments are derived. While in many defined ben e fit plans,employ ees also con trib ute (and this is the case in the pub lic sec tor, regard less ofwhether the gov ern ment is the sole spon sor or jointly spon sors the plan3), pub lic sec -tor employee sal a ries orig i nate in gov ern ment cof fers which exist because of tax a tion.While for account ing pur poses defined ben e fit plans for pub lic sec tor work ers are usu -ally described as ones that “share” risk between employ ers/gov ern ments and pub licsec tor work ers, the ines cap able bud get real ity is that any pub lic sec tor pen sion risk,whether held solely by gov ern ment or shared with employ ees, must always be paid forout of the pub lic trea sury and thus by tax pay ers. Even the dis tinc tion betweenemployee and employer con tri bu tions, so long as employee sal a ries are paid out of thepub lic purse, is arti fi cial. The fis cal “string” always ties back to tax pay ers.

Trends: Reg is tered pri vate sec tor pen sions areincreas ingly unlike pub lic sec tor pen sions

This tax payer re al ity mat ters, given the in creas ing di ver gence be tween pen sion pro vi -sion in the pri vate sec tor and in the pub lic sec tor over the past three de cades. In 2011,just over six mil lion Ca na di ans were en rolled in some type of reg is tered pen sion plan(RPP). In the pub lic sec tor, 87.1% of em ploy ees were cov ered by an RPP, up from 75.5% in 1978. In the pri vate sec tor, just 24.4% of em ploy ees were en rolled in an RPP in 2011,down from 35.2% in 1978 (see fig ure 1).

That diver gence in reg is tered pen sion plan cov er age reveals only part of thestory. A sig nif i cant dis tinc tion also exists in the type of reg is tered pen sion plan offeredto those still enrolled in reg is tered plans, and here, too, there has been a diver genceover the decades. (Detailed data for this mea sure ment is avail able back to 1974.)

In the pri vate sec tor, mem ber ship in defined ben e fit plans peaked in 1990 at justover 2.4 mil lion mem bers, but by 2011 had declined to just over 1.5 mil lion mem bers(fig ure 2) (Sta tis tics Can ada, 2012b). Mean while, fig ure 4 illus trates the share of dif fer -ent types of pen sions for pub lic sec tor work ers cov ered by reg is tered pen sions for theyears 1974 and 2011, the lat est year for which data were avail able at the time of writ ing.



3 In the case of defined ben e fit plans where gov ern ments and employ ees are joint trust ees (the lat terthrough their union, for exam ple), CICA notes, “Gov ern ments may par tic i pate jointly in defined ben e fitplans where the gov ern ment shares the risks and rewards jointly with plan par tic i pants, rep re sented by aspon sor or spon sors.” In addi tion, “fund ing con tri bu tions are shared mutu ally between the gov ern mentand the plan mem bers” (CICA, 2013: sec. 3250, paras. 79 and 80). In addi tion, CICA notes, “When a gov -ern ment par tic i pates in a joint defined ben e fit plan, the gov ern ment’s risk is lim ited to its por tion of theplan (CICA, 2013: sec. 3250, paras. 79 and 80).

Two clear trends emerge with respect to the types of pen sions used in the pri vatesec tor. First, there has been a marked decline in the use of defined ben e fit pen sions inthe pri vate sec tor, fall ing from 88.0% in 1974 to 52.3% in 2011. At the same time, theshare of work ers cov ered by defined con tri bu tion plans (again for those cov ered byreg is tered pen sions) increased from 9.1% to 28%. Sim ply put, there has been a shiftfrom defined ben e fit plans to defined con tri bu tion plans in the pri vate sec tor.

In con trast, the num ber of pub lic sec tor employ ees in defined ben e fit plansdou bled from 1.5 mil lion in 1974 to almost 3 mil lion in 2011 (fig ure 4) (Sta tis ticsCan ada, 2012b). More tell ing of the marked diver gence in pen sion trends betweenthe pri vate and pub lic sec tor, how ever, is the share of work ers cov ered by dif fer enttypes of pen sions.

In 1974, of those enrolled in a reg is tered pen sion plan, 98.8% of pub lic sec torwork ers were in a defined ben e fit plan. By 2011, this had decreased slightly to 94.0%(fig ure 5). How ever, this slight reduc tion in the share of pub lic sec tor work ers cov eredby defined ben e fit pen sions does not match the pro nounced decline observed in thepri vate sec tor.

In sum mary, there is now a clear two-decade trend in the pri vate sec tor: enrol -ment in defined ben e fit plans has dropped, while enroll ment in defined con tri bu tion



Fig ure 1: Pro por tion of Employ ees Cov ered by a Reg is tered Pen sionPlan, 1978-2011

Source: Sta tis tics Can ada, 2012a.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1978 1982 1986 1990 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

75.5% (1978)

87.1% (2011)

35.2% (1978)24.4% (2011)

46.1% (1978)38.8% (2011)

Public sector employees

All employees

Private sector employees



Fig ure 3: Reg is tered Pri vate Sec tor Pen sion Plans, 1974 and 2011 com pared

Source: Sta tis tics Can ada, 2012b.

Fig ure 2: Pri vate Sec tor—Type of Pen sion Plan, by Enroll ment,1974-2011


0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1974 1980 1986 1992 1995 1998 2001 2004 2007 2010

High year for defined benefits plans in private sector: 1990 with 2.4 million members

Num

ber o

f mem

bers

Defined contribution

Defined benefit

Other

88.0%

52.3%

9.1%

28.0%

2.9%

19.7%

0%

20%

40%

60%

80%

100%

1974 2011

Defined benefit


Other



Fig ure 5: Reg is tered Pub lic Sec tor Pen sion Plans, 1974 and 2011 com pared


Fig ure 4: Pub lic Sec tor—Type of Pen sion Plan, by Enroll ment,1974-2011


0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1974 1980 1986 1992 1995 1998 2001 2004 2007 2010

Low year for defined benefits plans in public sector: 1974 with 1.5 million members

High year for defined benefits plans in public sector: 2011 with 3 million members

Num

ber o

f mem

bers


Defined benefit

Other

98.8% 94.0%

1.1%4.8%

0.1% 1.1%0%

20%

40%

60%

80%

100%

1974 2011

Defined benefit

Definedcontribution

Other

plans and “other” plans has increased sig nif i cantly. In the pub lic sec tor, how ever,defined ben e fit plans remain the over whelm ing norm with very lit tle move ment todefined con tri bu tion or other pen sion plans.



Part 2: Tax pay ers and pub lic sec tor pen sions

The tax payer-pub lic sec tor nexus

The sal a ries, ben e fits and pen sions in the broad pub lic sec tor are paid for by to day’stax pay ers, or, when def i cits are pres ent, by to mor row’s tax pay ers. For pub lic sec torpen sion plans, spe cif i cally, and re gard less of whether gov ern ments pos sess sole orjoint re spon si bil ity, such pen sion costs fall to tax pay ers even where pub lic sec tor work -ers con trib ute to their pen sion funds. Tax payer dol lars pay the gov ern ment’s share ofthe con tri bu tion; they also pay the em ploy ees’ sal a ries and thus the pen sion con tri bu -tion made by those em ploy ees. In ad di tion, when pub lic trea sur ies make spe cial con -tri bu tions to pub lic sec tor pen sion plans due to a li a bil ity, the “top up” also orig i nateswith tax pay ers.

Since the year 2000 (the begin ning of this anal y sis), tax pay ers were repeat edlycalled upon to increase con tri bu tions to pub lic sec tor pen sion plans. In addi tion, theywere required to bail out short falls in pub lic sec tor pen sion plans through spe cial pay -ments. Even where a rise in con tri bu tions in some plans has been rare, that does notnec es sar ily mean tax pay ers will not be sub ject to increas ing costs if such plans also face short falls,4 short falls later paid for through a com bi na tion of con tri bu tion increases orspe cial con tri bu tions.


4 Read ers should be aware that the word “lia bil ity” as applied to pen sion plans has sev eral mean ings andthus can result in con fu sion. As the Cana dian Insti tute of Char tered Accoun tants also notes: “Because theobjec tives of deter min ing the most appro pri ate fund ing pol icy are not nec es sar ily the same as those deter -min ing the most appro pri ate account ing method, the lia bil ity for account ing pur poses may not be thesame as the amount due but not yet funded at the finan cial state ment date accord ing to the fund ing plan”(CICA, 2013: sec. 3250, para. 010). For more clar ity, as actu ar ial expert Malcolm Ham il ton notes,

In essence, actu ar ies use the term lia bil ity to rep re sent a fund ing tar get—the amount of money that the actu ary believes should be in the pen sion fund at any point in time accord ing to its fund-

ing pol icy. Then we have the lia bil ity that a pen sion plan may record in the plan’s finan cial state-ments accord ing to gen er ally accepted account ing prac tice (if it even has audited finan cial state-ments)—a num ber that may not resem ble the fund ing “lia bil ity.” Then we have the lia bil i ties

recorded by the plan spon sor in its finan cial state ments fol low ing a dif fer ent set of gen er ally accepted account ing prac tices; these are not the lia bil i ties of the pen sion plan recorded in the plan’s finan cial state ments—they are the unfunded por tion of the lia bil i ties, dif fer ently mea sured (Malcolm Ham il ton, per sonal com mu ni ca tion with the author, Feb ru ary 6, 2012).

For the sake of clar ity, this paper avoids the term “lia bil ity.” It instead uses “short fall” to indi cate anactuarially-derived iden ti fi ca tion of an underfunded or unfunded lia bil ity noted by Ham il ton—the gapbetween what is esti mated to be avail able from the assets in a fund that result from pres ent and future con -tri bu tions (and the return on assets), and the amount nec es sary to meet prom ised obli ga tions.

That real ity—that tax pay ers ulti mately pay—must be kept in mind in any dis cus -sion of the effect of defined ben e fit plans upon tax pay ers. As the Char tered Accoun -tants note, gov ern ment lia bil i ties are defined as “pres ent obli ga tions of a gov ern mentto oth ers aris ing from past trans ac tions or events, the set tle ment of which is expectedto result in the future sac ri fice of eco nomic ben e fits” (CICA 2013, sec. PS1000: 44).Indeed, and short falls in pub lic sec tor pen sions are an exam ple of just such a future sac -ri fice of eco nomic ben e fits, and from tax pay ers, most of whom do not them selves have adefined ben e fit plan—or as shown in Part 1, any such reg is tered pen sion plan at all.

Pub lic sec tor pen sions: hiked con tri bu tions and tax payer bail outs since 2000

This sec tion sur veys pub lic sec tor pen sion plans among the prov inces for two types ofoc cur rences: first, a rise in con tri bu tion rates (usu ally mea sured as a per cent age of sal -ary up to Yearly Max i mum Pen sion able Earn ings (YMPE), the up per earn ings limitagainst which Can ada Pen sion Plan con tri bu tions are cal cu lated)5 and then a sep a rateper cent age above that level; and sec ond, “spe cial pay ments” into pen sion plans. It willcon cen trate on ma jor pub lic sec tor pen sion plans, i.e., the main plan(s) pro vided to the pub lic sec tor, which usu ally cover the vast ma jor ity of pub lic sec tor work ers as well asteach ers, who have spe cific plans. It will ex clude pen sion plans for pol i ti cians as thosehave been an a lyzed else where (Ca na dian Tax pay ers Fed er a tion, 2012) and fed eralpub lic sec tor pen sion plans for the same rea son (see Laurin and Robson, 2010 and2011; and Robson, 2012).

The fol low ing infor ma tion was gleaned from pro vin cial Pub lic Accounts thatdate back to the year 2000 and that are avail able online, or to the near est year after thatyear. Read ers should be aware that the level of detail pro vided by the Pub lic Accountsvar ies among the prov inces. Where details on con tri bu tion rates were not pro vided,annual reports from pro vin cial pen sion plans were also con sulted, if avail able online,back to 2000. Again, the level of detail var ies and not every pro vin cial pen sion plan wasavail able nor do all offer infor ma tion on con tri bu tion rates. Nine prov inces are listedhere. Sas katch e wan is the excep tion and will be pro filed in Part 3 for its unique reformto pub lic sec tor pen sions. Tables are pro vided for selected prov inces in the case ofvolu mi nous details.



5 For exam ple, in 2013, the YMPE set by the CPP was $51,100. All the rates for YMPE lim its can be found atCan ada Rev e nue Agency, 2013.

Brit ish Colum bia

In Brit ish Co lum bia, the pro vin cial gov ern ment is in a joint trustee ar range ment forfour plans: the Col lege Pen sion Plan, the Pub lic Ser vice Pen sion Plan, the Mu nic i palPen sion Plan, and the Teach ers’ Pen sion Plan (Brit ish Co lum bia, 2012: 41).

Con tri bu tion increases

The Pub lic Ac counts do not list the in creases in con tri bu tions. In stead, one must readthe last de cade’s in di vid ual plan re ports to find the in creases, which are listed be low:

4 The Teach ers’ Pen sion Plan raised con tri bu tion rates for employ ees in 2001, 2004,2007, and 2010.

4 In the Pub lic Sec tor Ser vice Pen sion Plan (PSSP), con tri bu tion rates were increased in2004, 2006, 2009 and 2012 for employ ees and employ ers. Also, as the 2011 Actu ar ialVal u a tion for that plan made clear, the PSSP board iden ti fied ben e fit secu rity of theplan as a “pri mary objec tive,” with sta bil ity of con tri bu tion rates as a sec ond ary objec -tive. It would seem that future reforms to the plan are pre mised on higher con tri bu tion rates over mod i fied ben e fit lev els.

4 The Col lege Pen sion Plan raised con tri bu tion rates sev eral times, with upwardchanges in con tri bu tions in 2004, 2007, 2009 and 2010.

4 The Munic i pal Pen sion Plan raised con tri bu tion rates sev eral times, with upwardchanges in employee con tri bu tions reach ing 7.8%/9.3% up to/over YMPE as of 2010,



Table 1: British Columbia

Major public sector pensionplans—range of pension plan rates

Employee Employer

Low High Low High

Plan As a % of salary up to/over YMPE

Teachers’ Pension Plan (1999-2010) 5.0/6.5 11.2/12.7 8.0/9.5 13.33/14.83

Public Sector Service Pension Plan(2002-2012)

5.5/7.0 7.93/9.43 6.75/8.25 9.43/10.93

College Pension Plan (2002-2010) 5.5/7.0 8.94/9.69 5.5/7.0 9.04/9.79

Municipal Pension Plan (2002-2010) 6.0/7.5 7.8/9.3 No standard rate

Sources: British Columbia Teachers’ Pension Plan, 2003: 13; 2004: 23; 2007: 9; 26; 2010: 3; BritishColumbia Public Service Pension Plan, 2005: 11; 2008; 2010: 1; 2011: 7; 2012: 16; College Pension Plan, 2002: 32; 2004: 30; 2007: 36; 2009: 15; 2010: 1; Municipal Pension Plan, 2002: 34; 2005: 12; 2010: 17.

up from 2002 rates of 6.0 %/7.5% (Munic i pal Pen sion Plan, 2002: 34; 2005: 12; 2010:17). There is no stan dard employer rate for the Munic i pal Pen sion Plan as con tri bu -tion rates dif fer based upon employee group clas si fi ca tion and demo graph ics. How -ever, in 2011, employer con tri bu tions amounted to 53% of all con tri bu tions(Munic i pal Pen sion Plan, 2011: 26).

Thus, in Brit ish Colum bia, tax pay ers have been reg u larly called upon to increasecon tri bu tion rates to ensure exist ing ben e fit lev els, includ ing infla tion pro tec tion(Brit ish Colum bia, 2011: 59). The prov ince is part of the national trend that sees tax -pay ers bear ing ever-increas ing costs for pub lic sec tor pen sions (table 1).

Alberta

Al berta’s pro vin cial gov ern ment is trustee for a num ber of pub lic sec tor pen sion plansand has also made com mit ments to oth ers, in clud ing the Al berta Teach ers’ Pen sionPlan. This sur vey will look only at the prov ince’s ma jor plans.

A review of Alberta’s Pub lic Accounts since 2000 reveals the prov ince does notrecord the reg u lar (i.e., non-spe cial) con tri bu tion rates for employ ees or employ ers.Thus, a reader of the pub lic accounts would not know if tax pay ers were called upon toincrease their fund ing to pub lic sec tor pen sion plans in Alberta beyond the spe cialcon tri bu tions listed below. Instead, a review of annual reports from three of the majorplans is required for such his tory.


For the Al berta Teach ers’ Pen sion Plan, which is man aged by the Al berta Teach ers’Re tire ment Fund (ATRF) board, a rise in con tri bu tions has been a con stant for mul ti -ple years, though the rates have risen and fallen de pend ing on spe cial con tri bu tions tothe pre-1992 Teach ers’ Pen sion Plan (ATRF, 2001: 9; 2002: 8; 2004: 7; 2006: 8; 2012: 11).

In the Pub lic Ser vice Pen sion Plan (PSPP), increases in employee/employer con -tri bu tions took place in 2003, 2007, 2010, and 2012 (Alberta, PSPP, 2000: 26; 2003: 32;2007: 30; 2009: 32; 2011: 30).

In the Local Author i ties Pen sion Plan (LAPP), con tri bu tions rose dur ing thedecades as well (Alberta, LAPP, 2000: 18; 2011: 30) (table 2).

Spe cial con tri bu tions

In Al berta, the Teach ers’ Pen sion Plan is di vided into two plans: one for pre-1992short falls and one for post-1992 short falls. In 1992, the pro vin cial gov ern ment ac -cepted re spon si bil ity for two-thirds of the pre-1992 short fall in the Al berta Teach ers’



Pen sion Plan with teach ers re spon si ble for the re main ing one-third. The new agree -ment re quired ad di tional con tri bu tions from the prov ince and teach ers (and are in -cluded in the con tri bu tion in creases noted above) (Al berta, 2001: 40). In ad di tion:

4 In 2002/03, the prov ince made what was sup posed to be a “one-time” pay ment of $60mil lion towards the pre-1992 Teach ers’ Pen sion Plan short fall (Alberta, 2003: 42).

4 In 2007/08, the pro vin cial gov ern ment took over that remain ing one-third short fall inthe pre-1992 plan, thus com mit ting tax pay ers to the entire pre-1992 short fall, whichas of absorp tion and the end of the 2007/08 fis cal year amounted to $6.8 bil lion(Alberta, 2008: 53).

4 The cost to fix such short falls can be sub stan tial. In 2009/10, the Alberta gov ern mentmade a $1.2 bil lion spe cial pay ment towards the unfunded pre-1992 short fall in theTeach ers’ Pen sion Plan (Alberta, 2011: 55; Alberta, 2012: 57).

For the Uni ver si ties Aca demic Pen sion Plan, a pre-1992 short fall was financedby an addi tional con tri bu tion of 1.25% funded solely by the prov ince to the year 2043,in addi tion to any employer/employee hikes in reg u lar con tri bu tions that might occur. In the Spe cial Forces plan, the pre-1992 short fall was financed by an addi tionalcontribution shared by the prov ince, employ ers, and employ ees (Alberta, 2001: 40;Alberta, 2010: 61).

The Man age ment Employ ees plan requires spe cial pay ments until 2017 rang ing(depend ing on the year) between 5.1% and 9.4% of pen sion able earn ings (no dol lar fig -ure was given by the prov ince), split between employer and employee to elim i nate ashort fall (Alberta, 2005: 46; 2006: 52; Alberta, 2010: 60; Alberta, 2012: 58)



Table 2: Alberta


Employee Employer

Low High Low High


Alberta Teachers’ Pension Plan [ATRF](2001-2013)

8.66/12.37

11.44/16.34

12.60 14.84

Public Service Pension Plan [PSPP](2000-2012)

4.675/6.55

9.90/14.14

4.675/6.55

9.90/14.14

Local Authorities Plan [LAPP] (2000-2012) 4.025/5.9

8.91/12.74

5.025/6.9

9.91/13.74

Sources: ATRF, 2001: 9; 2002: 8; 2004: 7; 2006: 8; 2012: 11; Alberta PSPP, 2000: 26; 2003: 32; 2007: 30;2009: 32; 2011: 30; Alberta LAPP, 2000: 18; 2011: 30.

The Pub lic Ser vice Pen sion Plan required a spe cial pay ment of 2.76% of pen sion -able earn ings (no dol lar fig ure was given by the prov ince), to be split between theemployer and employ ees to elim i nate a short fall by 2020 (Alberta 2005, 46). The spe -cial pay ment was later increased to 2.92%, then 6.68%, and then 6.94% (Alberta, 2009:55; Alberta, 2011: 55; Alberta, 2012: 58).

The prov ince notes that for the Local Author i ties Pen sion Plan, actu ar ial defi -cien cies would require spe cial pay ments total ling 3.43% of pen sion able earn ingsshared equally between employer and employee until 2022 (Alberta, 2009: 56 andAlberta, 2011: 55). That was increased to 6.23% as of 2009/10 Pub lic Accounts(Alberta, 2010: 60).

Man i toba


The prov ince of Man i toba par tic i pates in “var i ous pen sion plans” (Man i toba, 2012:86). The two pri mary plans for which the prov ince is re spon si ble are the Civil Ser viceSu per an nu a tion Plan, and the Teach ers’ Pen sion Plan. The plans are sub ject to aunique pro vin cial ar range ment: the prov ince does not match pen sion con tri bu tions by par tic i pants. In stead, the gov ern ment is “re spon si ble for 50% of the pen sion ben e fitsearned by em ploy ees” (Man i toba, 2012: 86).

Con tri bu tion rates from pub lic sec tor work ers—and thus from the pub lic trea -sury respon si ble for pub lic sec tor com pen sa tion, have been increased in selected plans and are sched uled to increase to 2015, includ ing in the Civil Ser vice Plan and theTeach ers’ Pen sion Plan (Man i toba, 2005: 68, 69; 2012: 86) (table 3).



Table 3: Manitoba

Major public sector pension plans—range of pension plan rates

Employee Employer

Low High Low High


Civil Service Plan (2004-2015 projected) 5.1/7.0

8.0/9.0

Province does notmatch; instead,

responsible for 50% ofpension benefits

Teachers’ Pension Plan (2004-2015 projected) 5.7/7.3

8.8/10.4

Sources: Manitoba, 2005: 68, 69; 2012: 86–87.

Of note, in Man i toba, a use ful exam ple of the belief that added civil ser vice ben e -fits do not cost tax pay ers was dis played in the 2005 Pub lic Accounts. There, the prov -ince notes how the Civil Ser vice Plan was enriched in 2000 to include “improvedben e fits.” The prov ince claimed the cost of the improve ments was “fully funded fromactuarially deter mined employee sur pluses, with no extra cost to the employer” (Man -i toba, 2005: 68). How ever, as the prov ince notes else where, the pub lic trea sury is“respon si ble for 50% of the pen sion ben e fits earned by employ ees” (Man i toba, 2012:86). In addi tion, the “employee sur pluses” result from employee con tri bu tions. Thoseorig i nate from pay ments to employ ees, which of course orig i nate from taxes paid bytax pay ers.

Ontario

In On tario, the pro vin cial gov ern ment is the sole spon sor of three ma jor pen sionplans: the On tario Teach ers’ Pen sion Plan OTPP), the On tario Pub lic Ser vice Em ploy -ees’ Un ion Pen sion Plan (OPSEU), and the Pub lic Ser vice Pen sion Plan (PSPP) (On -tario, 2012a: 53-54). The prov ince’s Pub lic Ac counts do not list each plan’scon tri bu tion rates; thus, they were an a lyzed individually.


Ontario Teach ers’ Pen sion Plan (OTPP)

In 1990, an un funded li a bil ity of $7.8 bil lion was am or tized over 40 years. In 2000, TheOn tario Teach ers’ Pen sion Plan noted that un der a 1998 agree ment with the prov ince,the plan “im proved ben e fits” in 2002. It noted “while ben e fits have in creased, the con -tri bu tion rate for teach ers has re mained un changed since 1990,” not ing an 8.9% av er -age rate. In 2001, a $6.8 bil lion sur plus was used in part to pro vide pen sions to teach ersas early as age 50. Rates were later in creased in 2005, 2008, and in 2011. As of the 2012an nual re port, ref er ence is made to a 2011 de ci sion to in crease con tri bu tions by 1.1%over three years, and that con tri bu tion rates will reach 13.1% on earn ings above thepen sion able limit in 2014, as com pared to the 8.9% av er age rate paid be tween 1990 and 2006. No break down be tween pay ments made by em ploy ees and the em ployer isnoted in re ports (OTPP, 2000: 4; 2002: 20; 2008: 23; 2010: 118; 2013: 18, 108).

Of note, in Teach ers’ Pen sion Plan annual reports, in most years no ref er ence ismade to con tri bu tion rates. Thus, a detailed com par i son of con tri bu tions by employ -ees/employer up to YMPE, and above that level, are not avail able through eitherOntario’s Pub lic Accounts or through OTPP annual reports.



Ontario Pub lic Ser vice Employ ees’ Union (OPSEU) Pen sion Plan

Over the de cade, em ployee con tri bu tions to the On tario Pub lic Ser vice Em ploy ees’Un ion Pen sion Plan amounted to 2.2%/4.0% up/above to YMPE in 2000, which in -cluded a par tial con tri bu tion hol i day for sev eral years. For em ploy ers, the con tri bu tion rate was 6.2%/8.0% up/above to YMPE in 2000 with no par tial con tri bu tion hol i day.Con tri bu tion in creases came into ef fect in 2002, 2003, 2004, 2007, 2010, 2011 and2012 (OPSEU, 2000: 36; 2002: 36; 2003: 36; 2004: 34; 2007: 39; 2010: 44).

Pub lic Ser vice Pen sion Plan (PSPP)

In 2002, con tri bu tion rates to the Pub lic Ser vice Pen sion Plan (PSPP) were 6.2%/8.0%up/above YMPE, al beit with a par tial re duc tion in em ployee con tri bu tions for theyears 2002-2004 , while em ploy ers con tin ued to pay the full con tri bu tion rates. Rateswere raised in 2009 and 2010 with em ployee/em ployer con tri bu tions equal as of 2010(OPB, 2002: 27; 2003: 25; 2004: 23; 2009: 35) (ta ble 4).



Table 4: Ontario

Major public sector pensionplans—range of pension planrates

Employee Employer

Low High Low High


Ontario Teachers’ Pension Plan[OTPP] (1990 to 2014 projected)

Reference in 2012 report to 8% basic contribution rate in 1990,unidentified “special contribution” rate increases enacted in

2005; basic contribution rate increased to 9% as of 2008; 1.1%contribution rate increases over three years starting in 2011;contribution rates to reach 13.1% in 2014 on earnings above

pensionable limit. No employee/employer breakdown noted in reports.

Ontario Public Employees’ UnionPension Plan [OPSEU] (2000 to 2012)

2.2/4.0 including partialcontribution holidays

9.4/11 6.2/8.0 9.4/11

Public Service Pension Plan [PSPP](2002 to 2010)

6.2/8.0 not includingpartial contribution

holidays

6.4/9.5 6.2/8.0 6.4/9.5

Source: OTPP, 2000: 4; 2002: 20; 2008: 23; 2010: 118; 2013: 18; 108; OPSEU, 2000: 36; 2002: 36; 2003: 36; 2004: 34; 2007: 39; 2010: 44; OPB, 2002: 27; 2003: 25; 2004: 23; 2009: 35

Spe cial pay ments

In the case of the Pub lic Ser vice Pen sion Plan, the prov ince, as the spon sor, has madepay ments of $418 mil lion in spe cial con tri bu tions to wards the PSSP’s fund ing short fall since 2006/07 (On tario, 2007: 49; 2008: 59; 2009: 45; 2010: 5; 2011: 49; 2012; 54).More over, the prov ince is sched uled to make ad di tional pay ments of $142 mil lion peryear for 15 years to pay down the pen sion short fall (OPB, 2010: 19 and 22).

Of note, out side experts have com plained of opac ity in the prov ince’s books andassert the prov ince’s pen sion risks are not fully dis closed. The Com mis sion on theReform of Ontario’s Pub lic Ser vices, chaired by econ o mist Don Drummond, sum ma -rized the prob lem in Feb ru ary 2012 when the com mis sion urged Ontario to “clar ifywho bears the ulti mate respon si bil ity for fund ing def i cits of the pub lic sec tor pen sionplans as the Com mis sion encoun tered con sid er able con fu sion on this issue” (Ontario,2012b: 534).

Que bec

In Que bec, a sur vey of the Pub lic Ac counts since 2000/01 re veals no list ings of the reg -u lar em ployee/em ployer con tri bu tions into pub lic sec tor pen sion plans, or of spe cialpay ments into said plans. Apart from nor mal con tri bu tions, a reader of the Pub lic Ac -counts would not know if tax pay ers have been called upon to in crease their fund ing topub lic sec tor pen sion plans in Que bec, ei ther through raised con tri bu tion rates orthrough spe cial one-time or multi-year con tri bu tions.

In Que bec, two types of defined ben e fit plans exist. The first is “cost-shar ing”plans “for which the Gov ern ment’s respon si bil ity for pay ment of ben e fits granted bythe plan is lim ited to its share of ben e fits accrued by employ ees.” The sec ond type is a“cost-bal ance” plan where the gov ern ment “cov ers the total cost of accrued ben e fits, netof the con tri bu tions paid by employ ees and cer tain employ ers” (Que bec, 2012a: 104).

The larg est pro vin cial pub lic sec tor plan in Que bec for which the prov ince hasany respon si bil ity is the Gov ern ment and Pub lic Employ ees Retire ment Plan(RREGOP). That plan had 520,000 active par tic i pants as of 2011, or 91.7% of the566,983 active par tic i pants in plans for which the prov ince has par tial or full respon si -bil ity. The two next larg est plans are the Pen sion Plan of Man age ment Per son nel andthe Retire ment Plan for Senior Offi cials (PPMP and RPSO), which between them had28,650 active par tic i pants as of 2011, or 5% of the active par tic i pants for which theprov ince has some respon si bil ity. The first two plans are both “cost-shar ing” plans,whereas the third is of the “cost-bal ance” vari ety (Que bec, 2012a: 106).

RREGOP doc u ments show employee con tri bu tion rates in 2013 at 9.18%, upfrom 8.19% in 2010. (Ear lier online fig ures were not found.) How ever, that con tri bu -



tion rate is not directly com pa ra ble to employee con tri bu tions in other pro vin cial pub -lic sec tor plans. As the plan notes, RREGOP mem bers “con trib ute only on the por tionof their pen sion able sal ary that exceeds the plan’s exemp tion.” Thus, in 2013, the first$15,841 is exempt from the 9.18% con tri bu tion, a sav ings of $1,454.20 for the pub licsec tor worker in ques tion (Que bec, 2000: 11; 2010: 1; 2012b: 1).

New Bruns wick


In New Bruns wick, the main plans have mostly avoided in creases in con tri bu tions, in -clud ing no in crease to the Pub lic Ser vice Su per an nu a tion plan (PSSA) and the Teach -ers’ Pen sion plan (TPA) which saw rates frozen be tween 2000 and 2012. The Pen sionPlan for Ca na dian Un ion of Pub lic Em ploy ees of New Bruns wick Hos pi tals (H-CUPE)saw rates of 4.5%/6.0% up to/above YMPE in 2000, with some in creases in the en su ingde cade and set at 6.17%/6.17% as of 2008, and were still there as of 2012. The Pub licAc counts of New Bruns wick are mostly vague on em ployer con tri bu tions, not ingthat they are “de ter mined by an ac tu ary re quired to fund cur rent ser vice costs, plusspe cial pay ments de ter mined by an ac tu ary” (New Bruns wick, 2000: 33-35; 2012c:46–47) (ta ble 5).



Table 5: New Brunswick

Major public sector pensionplans—range of pension planrates

Employee Employer

Low High Low High


Public Service Superannuation Plan(2000 to 2012)

5.8/7.5 No increase N/A N/A

Teachers’ Pension Plan (2000 to2012)

7.3/9.0 No increase N/A N/A

CUPE-Hospitals [H-CUPE] 4.5/6.0 6.17/6.17 N/A N/A

Source: New Brunswick, 2000: 33–35; 2012c: 46–47.


As re gards the Teach ers’ Pen sion plan, two spe cial con tri bu tions are noted in the Pub -lic Ac counts, one made in 1999/00 for $58.9 mil lion and one in 2000/01 for $23.3 mil -lion (New Bruns wick, 2000: 39; 2001: 39).

Nova Sco tia

In Nova Sco tia, some civil ser vants are not re quired to con trib ute to their pen sions.“The prov ince has sev eral un funded de fined pen sion plans. The ma jor ity of theseplans do not re quire con tri bu tions from em ploy ees,” states the prov ince in its 2012Pub lic Ac counts (Nova Sco tia, 2012: 81). Tax pay ers ul ti mately fi nance all pub lic sec tor pen sion con tri bu tions, be it di rectly through the em ployer or in di rectly through fi -nanc ing the em ploy ees’ paycheques. In se lected plans in Nova Sco tia, though, there isnot even the pre tense that em ploy ees will “feel” a rise in con tri bu tion rates. In those se -lected plans, such em ploy ees see no pen sion de duc tions from their paycheques.

Of note, even where pub lic sec tor pen sion plans do require employee/employercon tri bu tions (the Nova Sco tia Pub lic Ser vice Super an nu a tion Plan (PSSP) and theNova Sco tia Teach ers’ Pen sion Plan (TPP)), Nova Sco tia’s Pub lic Accounts have notlisted such appli ca ble con tri bu tion rates since the 2001/02 Pub lic Accounts. In addi -tion, even the pen sion plan annual reports do not pro vide details on con tri bu tions inrecent reports, not since 2008 in the case of the Teach ers’ Pen sion Plan.

Read ers must instead look to mem ber facts sheets for a break down of con tri bu -tion rates. Con tri bu tion rates have increased in the Pub lic Ser vice Super an nu a tionPlan but not in the Nova Sco tia Teach ers’ Pen sion Plan, where 2001 rates were in effect in 2013 (Nova Sco tia, 2001: 44; 2012: 80; Nova Sco tia Pen sion Ser vices Cor po ra tion,2013a: 1; Nova Sco tia Pen sion Ser vices Cor po ra tion, 2013b: 1) (table 6).



Table 6: Nova Scotia


Employee Employer

Low High Low High


Public Service Superannuation Plan (2001 to 2013)

5.4/7.0 8.4/10.9 5.4/7.0 8.4/10.9

Teachers’ Pension Plan (2001 to 2013) 8.3/9.9 No increase 8.3/9.9 No increase

Source: Nova Scotia, 2001: 44; 2012: 80; Nova Scotia Pension Services Corporation, 2013a: 1; 2013b: 1.*Breakdown between employee/employer not provided by sources.


Ac cord ing to the 2001 Pub lic ac counts, for the Teach ers’ Pen sion Plan, the prov incecom mit ted to a $10 mil lion pay ment per an num be gin ning in 1993, ris ing by 7.5% ev -ery year un til ceas ing in 2003. The 2002 Pub lic Ac counts note a pay ment of $22.5 mil -lion while no fig ure is re corded in the 2003 Pub lic Ac counts (Nova Sco tia, 2001: 44;2002: 38).

Prince Edward Island

The two main plans in Prince Ed ward Is land are the Civil Ser vice Su per an nu a tionFund and the Teach ers’ Su per an nu a tion Fund.

Con tri bu tion Increases

In creases to con tri bu tion rates for the Civil Ser vice Su per an nu a tion Fund and for theTeach ers’ Su per an nu a tion Fund have been mar ginal (with the prov ince match ing con -tri bu tions) (Prince Ed ward Is land, 2001: 18; 2012: 43) (ta ble 7).

Spe cial Con tri bu tions

Prince Ed ward Is land has made spe cial con tri bu tions to var i ous pub lic sec tor pen sionplans over the past de cade.

In the Civil Ser vice Super an nu a tion Fund, the 2000 Pub lic Accounts note a spe -cial con tri bu tion from the pro vin cial gov ern ment (beyond exist ing employer/employee match ing con tri bu tions) of $11.6 mil lion in 1995/96 and then $5.8 mil lion in each of the years from 1996/97 until 2004/05 to deal with a short fall. In 2005, the prov -



Table 7: Prince Edward Island


Employee Employer

Low High wLo High


Civil Service Superannuation Fund(2001-2012)

6.95/8.75 7.09/8.75 6.95/8.75 7.09/8.75

Teachers’ Superannuation Fund(2001-2012)

7.2/9.0 7.3/9.0 7.2/9.0 7.3/9.0

Sources: Prince Edward Island, 2001: 18–19; 2012: 43.

ince con trib uted $52 mil lion to the Civil Ser vice Super an nu a tion Fund (CSSF) via aprom is sory note (with annual install ments of $5.2 mil lion to fol low for 10 years)(Prince Edward Island, 2000: 16; 2011: 38).

The pro vin cial gov ern ment made a spe cial con tri bu tion into the Teach ersSuper an nu a tion Fund of $23.6 mil lion in 1995/96 and then $11.8 mil lion in each of theyears 1996/97 until 2004/05 inclu sive to deal with a short fall. In addi tion, the prov incecon trib uted $160 mil lion to the plan via a prom is sory note in 2005 (with annual install -ments of $16 mil lion to fol low for 10 years). Another spe cial cash con tri bu tion of $53mil lion was made to the Fund in 2010 (Prince Edward Island, 2000: 16; 2011: 39).

New found land & Lab ra dor

In New found land & Lab ra dor, the gov ern ment “guar an tees de fined ben e fit pen sionplans for sub stan tially all of its full time em ploy ees, and those of its agen cies, boardsand com mis sions and for mem bers of its Leg is la ture” (New found land, 2012: 44).


Three of the main plans all saw con tri bu tions rise from the first year of data avail ablefor this prov ince (2001) to 2012: the Pub lic Ser vice Pen sion Plan, the Teach ers’ Pen sionPlan; the Uni formed Ser vices Plan (New found land, 2001: 16; 2012: 44–45) (ta ble 8).



Table 8: Newfoundland & Labrador

Major public sectorpension plans—range ofpension plan rates

Employee Employer

Low High Low High

Plan As a % of salary

Public Service Pension Plan(2001-2012)

7.6% of pensionable salaries

8.6% of pensionable salaries Employer

generallymatches

percentage

Teachers’ Pension Plan(2001-2012)


9.35% ofpensionable salaries

Uniformed Services Plan (2001-2012)


9.95% ofpensionable salaries

Sources: Newfoundland, 2001: 16; 2012: 44–45.*Less a formulated amount representing contributions to the CPP.


In ad di tion, sev eral pen sion plans have re quired “top ping up” since 2000.

4 For the Teach ers’ Pen sion Plan, the 2001 Pub lic Accounts note annual extra pay ments, beyond employer/employee con tri bu tions, of $76 mil lion annu ally so long as the planremained unfunded (New found land, 2001: 18). The 2006 Pub lic Accounts note an end to spe cial pay ments—this due to a one-time $2 bil lion spe cial pay ment into the Teach -ers’ Pen sion Plan (New found land, 2006: 42).

4 For the Pub lic Ser vice Pen sion Plan, the 2001 Pub lic Accounts note annual extra pay -ments, beyond employer/employee con tri bu tions, of $40 mil lion annu ally until an ini -tial short fall had been paid. The 2003 Pub lic Accounts note an increase to $60 mil lionannu ally (New found land, 2001: 18; 2003: 18.) The 2007 Pub lic Accounts note an endto spe cial pay ments—this due to a $982 mil lion spe cial pay ment made over twoyears—into the Pub lic Ser vice Pen sion Plan (New found land, 2007: 43).

4 For the Uni formed Ser vices Pen sion Plan, the 2003 Pub lic Accounts note spe cial pay -ments of $20 mil lion annu ally, to begin that year, for five years (New found land,2003:18).

Impli ca tion for tax pay ers

When pen sion plans have short falls, an up ward ad just ment of con tri bu tions, or spe -cial de pos its into said plans, or a re duc tion is ben e fits, is what is meant to hap pen.Thus, it might be ar gued such de vel op ments oc cur by de sign and thus should be un -sur pris ing for tax pay ers at large.

Such a response and rea son ing are both inad e quate. First, there is no guar an teethe trend of ever-higher con tri bu tion rates or the bail outs have ended. Sec ond, since2000, gov ern ments have pre ferred to “kick the can down the road” rather than dealwith the fun da men tal flaw in defined ben e fit plans: such plans depend upon get tingthe assump tions “right,” and when those assump tions are incor rect, short falls appearthat are then ame lio rated by tax pay ers at large unless such plans are cor rected byreduc ing ben e fits.

In con trast, while underfunding or over-prom is ing of ben e fits or weaker returnson invest ment can lead to short falls in pri vate sec tor defined ben e fit plans, the cost ofcor rec tive mea sures in those plans are lim ited to plan spon sors and plan par tic i pants.6



6 There are excep tions, but as per the point above, a gov ern ment could not res cue every sin gle pri vate sec -tor defined ben e fit plan as attempts to do so would require great infu sions of tax pro ceeds from cur rent orfuture tax pay ers.

In the pub lic sec tor, the costs for cor rec tive mea sures also include tax pay ers at large,tax pay ers who receive no ben e fit from those cor rec tive mea sures, only the bill.

In the 2000 to 2012 period, pro vin cial gov ern ments repeat edly used tax dol lars to res cue defined ben e fit plans in the pub lic sec tor instead of reform ing them in any sub -stan tive man ner. Since 2000, tax pay ers have increas ingly been called upon to fundhigher con tri bu tions to pub lic sec tor pen sions and to pro vide spe cial con tri bu tions inattempts to ame lio rate sig nif i cant pen sion short falls. The link between pub lic sec torpen sion plans, the pub lic trea sury, and tax pay ers is clear: defined ben e fit pen sions arebacked up by tax pay ers and it is tax pay ers who must pay when short falls result. Thatstate of affairs is what one pro vin cial gov ern ment, back in the 1970s, sought to fix.That rem edy is pro filed next.



Part 3: Long-term rem e dies for pen sion short falls from Sas katch e wan’s NDP

You may have, Mr. Speaker, fully funded plans, par tially funded plans,and unfunded plans, and we have all those types in the Prov ince

of Sas katch e wan.—Sas katch e wan NDP Min is ter of Health, W.A. Rob bins, in a speech

to the pro vin cial leg is la ture in 1977 (Sas katch e wan, 1977: 2934).

When gov ern ments fail to set aside suf fi cient funds to meet prom ised retire ment pay ments, or, described from another angle—when ben e fits prom ised are greater than the com bi na tion of con tri bu tions and the return on invest ments, tax pay ers end uppay ing for the dif fer ence. This real ity is noted by the Cana dian Insti tute of Char teredAccoun tants (CICA) when the asso ci a tion notes, “Many gov ern ments have cho sennot to set aside funds to meet retire ment ben e fit pay ments when they become due”(CICA, 2013: sec. 3250, para. 006).

Given the tight con nec tion between the cost of pub lic sec tor pen sion plans andthe pub lic trea sury, one nota ble Cana dian-made option for reform comes from Sas -katch e wan and serves as a use ful model for long-term reform.7 Sas katch e wan stoppedadd ing to pen sion lia bil i ties and did so with fore sight over three decades ago. The Sas -katch e wan NDP gov ern ment under Pre mier Allan Blakeney rec og nized how definedben e fit pen sions can cre ate short falls. The then- Min is ter of Health, W.A. Rob bins,who shep herded the pen sion issue through cab i net, iden ti fied the prob lem in a speechto the pro vin cial leg is la ture in 1977 and zeroed in on the prob lem as noted in the intro -duc tory quo ta tion above. He elab o rated fur ther in the same speech:

Pen sion con sul tants who draw up those plans do not in tend that all par tic i pantsin a par tic u lar pen sion plan will in fact be pen sioned by that par tic u lar plan. Inthe main, their cal cu la tions as sume that most of the peo ple in any given pen sionplan, at any given time, will for one rea son or an other quit or be laid off be forethey reach pen sion able age (Sas katch e wan, 1977: 2933).


7 There are a pleth ora of options for short- and medium-term reforms to defined ben e fit plans in the pub licsec tor, but as with tar geted ben e fit plans (dis cussed in the addendum), none address the fun da men talprob lem of pub lic sec tor defined ben e fit plans: the implicit or explicit guar an tee that returns are guar an -teed by tax pay ers if all else fails, this as opposed to returns pro ceed ing from real-world, mar ket returns.

The his tory of Sas katch e wan’s move to definedcon tri bu tion plans

In the 1976/77 Pub lic Ac counts, the prov ince was clear upon whom the cost of anyshort fall would fall: tax pay ers. “Pay ments re quired… are re corded as ex pen di tures forthe year. These plans are there fore on a cur rent cost ba sis…” noted the writer (Sas -katch e wan, Min is try of Fi nance, 1977: A7).

As a result of the loom ing pen sion short falls, and after con sul ta tion, the NDPgov ern ment enacted leg is la tion to move new entrants in much of Sas katch e wan’s civilser vice to defined con tri bu tion plans (Kent Walde, Pub lic Employ ees Ben e fits Agency, Sas katch e wan. Per sonal e-mail cor re spon dence, August 25, 2011). In 1977, in intro -duc ing Bill 105, which guided the pub lic sec tor tran si tion from defined ben e fit plansto defined con tri bu tion plans, Min is ter Rob bins noted the prob lem of defined ben e -fit plans:

If an em ployee has vested rights to a pen sion upon reach ing re tire ment, the pen -sion is pay able to the ex tent that the pen sion trust has suf fi cient as sets. If thetrust is poorly funded, the em ployee may have a vested or owned in ter est in nextto noth ing. On the other side of the coin, if the pen sion plan is well funded, butnot vested, the fund ends up with a lot of cash, which em ploy ees have no right tore ceive. Those vested earn ings are nec es sary if the pen sion plan is to be of muchvalue to any in di vid ual (Sas katch e wan, 1977: 2934).

Rob bins iden ti fied the conun drum: defined ben e fit plans can prom ise ben e fits,but the fol low-through decades later will depend on whether ini tial pro jec tions(includ ing proper con tri bu tion lev els and earn ings from invest ments) were accu rate.The only other option for defi cien cies is to trans fer more money from gen eraltaxation, the pre sumed back stop for pub lic sec tor pen sion plans. How ever, thatraises the ques tion of other sac ri ficed gov ern ment spend ing pri or i ties, as well as theques tion of equity, where the pub lic must pay for prom ised ben e fits many them selveswill not receive.

Con versely, when defined plans are fully funded, par tic i pants in those plans maymiss out on the addi tional income and earn ings in the plan when the sole spon sor ofthe plan is the employer who retains own er ship of the pen sion fund. Defined con tri bu -tion plans have the advan tage that con tri bu tions by the employee, and made on behalfof the employee, are theirs for ever, as are earn ings accrued in such plans. The fore go -ing con sti tutes a few of the rea sons why much of the pri vate sec tor has moved to justsuch a model for pen sion plans.

In Sas katch e wan’s case, the NDP gov ern ment enacted leg is la tion to move muchof that prov ince’s pub lic sec tor from defined ben e fit plans to defined con tri bu tion



plans for the gen eral civil ser vice. The change took effect Octo ber 1, 1977, and newcivil ser vants were auto mat i cally enrolled (Sas katch e wan, 1978: A23).

Fea tures of Sas katch e wan’s defined con tri bu tion plan

Fea tures of the new de fined con tri bu tion pen sion plan for most gov ern ment em ploy -ees (known as PESP/later PEPP) in cluded:

4 Deduc tions of 5% from an employ ees’ sal ary, which was matched by the prov ince asthe employer.

4 Employ ees could make extra con tri bu tions to the plan, though the employer wouldnot match those con tri bu tions.

4 The even tual pen sion would result from how much the employer and employee con -trib uted, inter est earned, invest ment earn ings, and what the pen sion pur chase rates(for the annu ity) were upon retire ment.

On con tri bu tions, under the pre vi ous defined ben e fits plan, employ ees paid intoa retire ment plan for a max i mum of 35 years. Thus, for exam ple, under the old plan, agov ern ment employee who began work at age 20 would cease pay ing into the definedben e fit plan at age 55, even if they were employed until age 65. Under the newer con -trib u tory plan, employ ees were (and still are) required to con trib ute until retire ment(all infor ma tion above from Sas katch e wan, Pub lic Ser vice Super an nu a tion Board,undated: 2).

The teach ers’ tran si tion (and back again)

In the case of Sas katch e wan’s teach ers, the 1970s-era pen sion ve hi cle for the prov -ince’s teach ers was a de fined ben e fit plan (the Teach ers’ Su per an nu a tion Plan, orTSP). The switchover to a de fined con tri bu tion plan came though the col lec tive bar -gain ing pro cess and in 1979, the prov ince of Sas katch e wan cre ated the Teach ers’ An -nu ity Fund (TAF) and the Teach ers’ Sup ple men tary Al low ances Fund. New teach erswho en tered the prov ince’s school sys tem as of July 1, 1980, were re quired to con trib -ute to both funds. (Ex ist ing teach ers could re main in the ex ist ing de fined ben e fitTeach ers’ Su per an nu a tion Plan).

As described in later Pub lic Accounts, teach ers’ con tri bu tions were matched bytax pay ers; annu ities and refunds were paid out based on the con tri bu tions to the fundand invest ment earn ings (Sas katch e wan, 1980: A28). Impor tantly, the design of thenew defined con tri bu tion plan was such that no lia bil ity resulted. As the prov ince



made clear sev eral years later: “since ben e fits are based on accu mu lated con tri bu tionsto the fund, the prov ince has no resid ual obli ga tion” (Sas katch e wan, 1985: 13).

In 1991, how ever, the prov ince’s teach ers took con trol of their pen sion plan andthe Sas katch e wan Teach ers Retire ment Plan (STRP) was cre ated in place of the TAFwith the fund’s assets trans ferred to the new fund. The new est teacher pen sion fundwas a defined ben e fits plan with one crit i cal dif fer ence between it and the 1970s-eradefined plan: the Sas katch e wan Teach ers’ Fed er a tion became the trustee for the newver sion and the prov ince still bore no resid ual respon si bil ity8 (Sas katch e wan Teach ers’ Retire ment Plan, 2010: 1 and 10). As the prov ince noted in its 1997-98 Pub licAccounts, “the Gov ern ment has fully funded its share of con tri bu tions to the definedcon tri bu tion plans” (Sas katch e wan, 1998: 46).

Oppo si tion to NDP pen sion changes in the 1970s

Op po si tion to the NDP’s pen sion re forms orig i nated with the Sas katch e wan Gov ern -ment Em ploy ees’ As so ci a tion (SGEA), the un ion that rep re sented many pro vin cialpub lic sec tor work ers. In a 1978 bro chure to mem bers, the SGEA crit i cized the newcon trib u tory pen sion plan as “not re ally a pen sion plan at all but a com pul sory sav ingsplan with pro vi sion for buy ing life an nu ity at re tire ment.” The un ion also ar gued thatthe “old” plan was a better deal as both the em ployee and his or her spouse would becov ered. It also crit i cized the new de fined con tri bu tion plan be cause the in di vid ualwould bear “the ef fect of and con se quences for all the fluc tu a tions and risks of mar ketin vest ment.” The SGEA also claimed no real com par i son of the two pen sion plans waspos si ble, ar gu ing that “bury ing your dol lar in a sock in the back yard could be called apen sion plan” (all ref er ences in pre ced ing para graph are to Sas katch e wan Gov ern -ment Em ploy ees’ Association, 1978: 4).

The SGEA crit i cism was inac cu rate. For exam ple, in the old plan, a spouse wouldreceive only 50% of the pen sion to which their now-deceased spouse was enti tled, thiscom pared to the 100% share a sur viv ing spouse would receive from the new pen sion



8 The fact the Sas katch e wan Teach ers’ Fed er a tion is now trustee for the fund has argu ably made the fed er a -tion real is tic about cer tain aspects of the fund. For exam ple, while Sas katch e wan’s teach ers returned theirpen sion plan to a defined ben e fits model in 1991, the Teach ers Fed er a tion even tu ally rec og nized that amodel based on pre vi ously assumed ben e fits was unsus tain able. Announced in 2011, and effec tive in2015, teach ers in Sas katch e wan will see even their union-run pen sion ben e fits cal cu lated on career aver -age earn ings instead of an aver age based on the last 50 months of employ ment (Sas katch e wan Teach ers’Retire ment Plan, 2010b: 2). (For teach ers who have ser vice before 2015, ben e fit cal cu la tions will be a com -bi na tion of pre-2015 earn ings and post-2015 earn ings.) The change is tell ing. It reveals how one pub licsec tor union-man aged fund rec og nizes the prob lem of prom ised future ben e fits that, at some point,become unre al is tic.

plan. On this aspect alone, the new con trib u tory plan was supe rior (Sas katch e wan,Pub lic Ser vice Super an nu a tion Board, undated: 2).

In addi tion, with ref er ence to the SGEA claim that the new plan was sub ject to“risks of mar ket invest ment,” the SGEA glided over the fact that almost all pen sionplans are invested in equi ties. For exam ple, the larg est defined ben e fits pen sion plan inthe coun try, the Ontario Teach ers’, is invested in the mar ket: 44.2% of its net assets of$107.5 bil lion were in equi ties at year-end in 2010 (Ontario Teach ers’ Pen sion Plan,2011b). Sim i larly, in the Can ada Pen sion Plan, equi ties account for 53.6% of the $148.2bil lion fund (CPP Invest ment Board, 2011). In addi tion, in 2010, the pen sion planman aged by the Sas katch e wan Teach ers’ Fed er a tion was invested largely in equi ties;62% of that plan’s asset mix was invested in stocks (Sas katch e wan Teach ers’ Retire -ment Plan, 2010a: 5).

The main crit i cism of the 1977 Sas katch e wan NDP change in pub lic sec tor pen -sions appeared to be that under the old defined ben e fit plan, Sas katch e wan’s tax pay erswould be respon si ble for the prom ised ben e fits. “Your pen sion is pro tected by the gov -ern ment,” said the SGEA in its 1978 bro chure, which warned mem bers not to switchto the new defined con tri bu tion plan (SGEA, 1978: 4). Of course, the notion that one’spen sion is “pro tected by gov ern ment” is opaque lan guage for the real ity that the pro -vin cial trea sury—tax pay ers—are the ones who must pro tect such pen sions.

The cur rent Sas katch e wan sit u a tion: declin ing pen sion obli ga tions

In Sas katch e wan, con tri bu tion rates for the two main closed de fined ben e fit planshave re mained un changed since 2000. The Teach ers’ Su per an nu a tion Plan (TSP) re -quired mem ber con tri bu tions (matched by the em ployer) of 7.85% in 2000, which wasalso the rate in 2012. In the also-closed Pub lic Ser vice Su per an nu a tion Plan, rates havealso re mained con stant, at 7.0% to 9.0%, though in the case of the PSSP, mem ber con -tri bu tions are de pos ited into the prov ince’s Gen eral Rev e nue Fund, out of which PSSPpen sion ob li ga tions are paid (Sas katch e wan, 2000: 47-48; 2012a; 93-94).

The annual cost for past defined ben e fit prom ises has con tin ued to grow in Sas -katch e wan, even though Sas katch e wan’s defined plans were closed over three decadesago. In 2011/12, unfunded pub lic sec tor pen sion lia bil i ties totalled $6.3 bil lion (Sas -katch e wan, 2000: 18; 2012a: 112). That was expected, given that Sas katch e wangrandfathered exist ing employ ees in 1977. In the case of the Pub lic Ser vice Super an -nu a tion Plan, pen sion obli ga tions are paid from the Gen eral Rev e nue Fund, so the tax -payer obli ga tion is explicit. Thus, Sas katch e wan’s now-closed defined ben e fit plansfol lowed the same pat tern of other defined ben e fit plans: short falls result in tax pay ersfund ing such gaps.



That noted, the shift to defined con tri bu tions clearly affected the poten tial forthe cre ation of future pen sion short falls given that defined con tri bu tion plans bydesign can not cre ate a gap between prom ises and assets—given that pay outs are basedonly on con tri bu tions and the rate of return on the same. Thus, the poten tial for newshort falls ended in the 1970s.

While there has been a recent increase in defined ben e fit pay ments as babyboom ers under the “old” plan retire, that trend will even tu ally halt, and then decline(all fig ures from the Sas katch e wan Pub lic Accounts, 1998/99 to 2011/12). For exam -ple, see fig ure 6, which illus trates the pro jected net pen sion pay ments for thenow-closed Pub lic Ser vice Super an nu a tion Plan, to which the Sas katch e wan NDPgov ern ment closed entry in 1977.

The long-term trend is clear: Sas katch e wan’s pay ments for long-ago closeddefined ben e fit pen sions in the pub lic sec tor will soon decline. As Sas katch e wan’saudi tor gen eral has observed, future cash flows needed to fund defined ben e fits planswill con tinue to increase until 2021, then decline there af ter on a path that will per ma -nently extin guish Sas katch e wan’s obli ga tions to long-closed pub lic sec tor pen sion plansthat pre sumed upon the tax dol lars of future gen er a tions (Sas katch e wan, 2011b: 220).



Fig ure 6: Sas katch e wan Pub lic Ser vice Super an nu a tion Plan (closed)pro jected net pen sion pay ments from 2012 to 2071 total ben e fits paid (in $ mil lions)

Source: Sas katch e wan, 2012b, Pub lic Employ ees Ben e fits Agency.

$0

$20

$40

$60

$80

$100

$120

$140

$160

2013: $140.9 million

2071: $0.2 million

($ m

illio

ns)

Rec om men da tions

Ca na dian gov ern ments could de cide to ig nore the ex am ple of the Sas katch e wan NDPgov ern ment, which moved Sas katch e wan’s pub lic sec tor away from de fined ben e fitplans and into de fined con tri bu tion plans. How ever, the sta tus quo as sumes that thegen eral pub lic should al ways fi nance ben e fits that many in the pri vate sec tor can notshare in as em ploy ees, nor guar an tee as em ploy ers. It also pre sumes upon fu ture gen -er a tions. To avoid such a sce nario, five rec om men da tions are in order:

Rec om men da tion 1: Where miss ing, require and pub lish more trans par ent dis cus sions about pub lic sec tor pen sion risks—for tax pay ers

As the Drummond Com mis sion found with re gards to On tario, re tir ees, em ploy ees,and tax pay ers rely on gov ern ments to be clear. Thus, ac cu racy and trans par ency arethe first re forms needed.

Rec om men da tion 2: Pub lish total sal ary, ben e fit, and pen sion costs, in dol lars and asa per cent age of total rev e nues and total expen di tures

Gov ern ments do not al ways make clear in their Bud gets or Pub lic Ac counts their wage,

ben e fit, and pen sion costs. On tario’s prac tice in its an nual Pub lic Ac counts (thoughnot in its Bud get) is better than most. Read ers can find the wage, pen sion, and ben e fitscosts of both the pro vin cial gov ern ment, and then the broader pub lic sec tor, in thatprov ince’s Pub lic Ac counts, al beit in two sep a rate sched ules (On tario, 2011a: 64-65;sched ule 3: 76; sched ule 10). For the pub lic ac counts and bud gets that are un clear,such costs should be listed and en cap su late the en tire pub lic sec tor, even for agen ciesand boards not part of in di vid ual min is tries.

In fed eral and pro vin cial bud gets and in the pub lic accounts, tax pay ers shouldclearly see the por tion of each gov ern ment’s bud get ded i cated to wages, pen sions, andother ben e fits, both in real dol lar terms and as a per cent age of total expen di tures.

Rec om men da tion 3: Com mis sion a review of pub lic sec tor pen sions

In an nounc ing a panel to re view pub lic sec tor pen sions, New Bruns wick listed the fol -low ing as the goals of the re view:

4 to ascer tain the dif fer ences between pro vin cial pub lic ser vice pen sion ben e fits andretire ment pro vi sions and those offered by pri vate sec tor employ ers;

4 to do so in the con text of over all employee com pen sa tion;


4 to fac tor in the needs of the pro vin cial pub lic ser vice to recruit and retain qual i fiedemploy ees;

4 to give con sid er ation to the fact that other employ ers would be com pet ing for thoseemploy ees;

4 to ensure that future pen sion ben e fits are rea son able through out the pub lic ser vice;

4 to deter mine how risk should be shared between the gov ern ment and employ ees (New Bruns wick, 2011).

Fol low ing an exam ple from New Bruns wick, each gov ern ment should announcea panel to review pub lic sec tor pen sion lia bil i ties. To avoid a con flict of inter est, allpan el ists should be inde pend ent and not stake holders in the pen sion funds.

Rec om men da tion 4: Grand fa ther exist ing defined ben e fits accrued to date but overtime rene go ti ate aspects of such agree ments to match pri vate sec tor norms

Can ada’s gov ern ments should ex am ine all op tions and both sides of the led ger—ben e -fits as well as con tri bu tions. The goal here is three-fold:

4 to allow exist ing enrollees the choice to stay in exist ing plans though not with out rea -son able reforms;

4 to restore fis cal bal ance to pro vin cial and fed eral bud gets;

4 to reform exist ing defined ben e fit plans so they are on a more equi ta ble foot ing. Forexam ple, to use just one exam ple, pen sion ben e fits could be mod i fied to reflectcareer-aver age earn ings, instead of, as is often the case, the aver age of the best fiveyears.

Rec om men da tion 5: Move new employ ees into risk-man aged, man da tory definedcon tri bu tion plans

Mov ing new em ploy ees to a de fined con tri bu tion model will end the po ten tial for newlong-term short falls to be cre ated, as de fined con tri bu tion plans by de sign can not cre -ate short falls. Sim i lar to the way in which the Sas katch e wan NDP ended the en try ofnew hires into pub lic sec tor de fined ben e fit plans in 1977 and 1980, and thus movedmuch of the Sas katch e wan pub lic sec tor to de fined con tri bu tion pen sion plans, othergov ern ments should use en abling leg is la tion to move new hires to man da tory de finedcon tri bu tion pen sion plans. The plan should be a pooled pen sion plan and risked-man aged by the cur rent en tity that al ready man ages the ex ist ing de fined ben e fit plans.



Addendum:A discussion of Targeted Benefit plans

An other type of reg is tered plan does ex ist, the “tar get ben e fit plan.” The Ca na dian In -sti tute of Ac tu ar ies de fines this type of plan as one where “re quired con tri bu tions tothe plan are de ter mined by start ing with the tar get ben e fit and work ing back wards”(2010: 26). In con trast to de fined ben e fit plans, which also per form this cal cu la tion, the dif fer ence is that in tar geted ben e fit plans, the even tual tar geted pen sion ben e fit pay -outs are just that—tar gets. The gov ern ment of New Bruns wick, with agree ment fromthat prov ince’s pub lic sec tor un ions, in tro duced a vari ant of this “shared risk” plan inMay 2012, to be phased in over 40 years (New Bruns wick, 2012a and 2012b).

In the ory, if the tar geted plan’s returns per form better than expected, ben e fitscan be increased; if the returns are worse than expected, ben e fits are scaled back orcon tri bu tions increased. In prac tice, and in the case of the pub lic sec tor, it is not dif fi -cult to imag ine that tar geted ben e fit plans would likely be treated as de facto definedben e fit plans. If returns are less than fore cast, it would be unsur pris ing if a pub lic sec -tor union lob bied for gov ern ments to raise con tri bu tion rates (thereby rais ing tax -payer con tri bu tions to the plan) or requested a bail out financed by the pub lic trea sury.For tax pay ers, the polit i cal real i ties mean tar geted ben e fit plans offer lit tle addi tionalpro tec tion against future tax payer bail outs for pub lic sec tor pen sion plans. The onlypro tec tion is pol i tics.


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About the authors

Mark Milke, Ph. D., is a Se nior Fel low with the Fra ser In sti tute and di rec tor of Al berta Pol icy Stud ies and the Al berta Pros per ity Ini tia tive for the Fra ser In sti tute. He is alsochair man of the Ca na dian Jour nal of Ideas, an oc ca sional lec turer in po lit i cal phi los o -phy and in ter na tional re la tions at the Uni ver sity of Cal gary, and a Sunday col um nistfor the Cal gary Her ald. His col umns have also ap peared in the Na tional Post, To rontoStar, Globe and Mail, Ot tawa Cit i zen, Ed mon ton Jour nal, Mon treal Ga zette, Van cou -ver Sun, Win ni peg Free Press and the Quebecor and Sun chain of news pa pers. His pub -lic pol icy pa pers in clude stud ies of fed eral-pro vin cial trans fer pay ments, oil-pro duc ing coun tries and hu man rights, au to mo bile in sur ance, pro vin cial bud gets, tax payer sub -si dies for po lit i cal par ties, the flat tax, cor po rate wel fare, air line com pe ti tion, and theCan ada Pen sion Plan. He is the au thor of four books. Mark has an M.A. from the Uni -ver sity of Al berta, where his the sis an a lyzed hu man rights in East Asia, and a Ph.D. inPo lit i cal Sci ence from the Uni ver sity of Cal gary, where his doc toral dis ser ta tion an a -lyzed the rhet o ric of Ca na dian-Amer i can re la tions.

Gordon B. Lang, F.C.I.A, F.C.A., founded Gordon B. Lang and As so ci ates Inc. in1995. Born and raised in Ed in burgh, Scot land, he worked as an ac tu ar ial stu dent with a life in sur ance com pany in Ed in burgh in 1959 as a stu dent of Fac ulty of Ac tu ar ies inScot land. Af ter mov ing to Com mer cial Un ion Life As sur ance Com pany in 1964, hejoined their Mon treal of fice. In 1967, Gordon re ceived his Fel low ship in the Faculty ofAc tu ar ies in Scot land and in the Ca na dian In sti tute of Ac tu ar ies. In 1976, he moved toCom mer cial Life as Vice Pres i dent and Chief Ac tu ary. In 1978, Gordon be came afull-time Con sult ing Ac tu ary with TA As so ci ates, sub se quently Sedg wick James, androse to the po si tion of Se nior Vice Pres i dent & Chief Ac tu ary. He and his fam ily moved to Cal gary in 1987 where he re opened the Cal gary Pen sion and Ben e fits Con sult ingPrac tice. As a re sult of the pur chase from Sobeco Ernst & Young of its Prai ries Pen sionCon sult ing Prac tice in 1995, he and his wife, Lou ise, formed Gordon B. Lang & As so ci -ates Inc.


Acknowl edg ments

The au thors wish to ac knowl edge the gen er ous as sis tance of Milagros Palacios, NeilMohindra, and Ja son Clemens at the Fra ser In sti tute; two anon y mous re view ers; Brian Smith, ex ec u tive di rec tor at the Pub lic Em ploy ees Ben e fits Agency of Sas katch e wan;Kent Walde, Di rec tor, Pol icy Board and Sec re tary, also at the Pub lic Em ploy ees Ben e -fits Agency of Sas katch e wan; John Psinas and Bruce McNaughton with On tario Fi -nance; Carl Fischer at the BC Min is try of Fi nance; Rich ard Isaac with Al berta Fi nance;and Doug Volk at the Sas katch e wan Teach ers’ Su per an nu a tion Com mis sion. In ad di -tion, Shel don Schwartz, a for mer Chief Fi nan cial Of fi cer and Vice Pres i dent of Fi -nance and Ad min is tra tion for Crown In vest ments Cor po ra tion was help ful as wasPhilippe Samborski at Sta tis tics Can ada, Dr. Jack Mintz at the Uni ver sity of Cal gary’sSchool of Pub lic Pol icy, ac tu ar ial ex pert Malcolm Ham il ton, and pen sion ex pert Wil -liam Tufts. All in ter pre ta tions, con clu sions, and rec om men da tions are those of the au -thors and should not be as sumed to be shared by the fore go ing.


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ISBNISBN 978-0-88975-265-8

Date of issueSep tem ber 2013.

Cita tionMilke, Mark and Gordon B. Lang (2013). Pub lic Sec tor Pen sions: Op tions for Re form from theSas katch e wan NDP. Fra ser In sti tute.

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As a healthy part of pub lic dis cus sion among fel low cit i zens who desire toimprove the lives of peo ple through better pub lic pol icy, the Insti tute wel comes evi -dence-focused scru tiny of the research we pub lish, includ ing ver i fi ca tion of datasources, rep li ca tion of ana lyt i cal meth ods, and intel li gent debate about the prac ti caleffects of pol icy rec om men da tions.


About the Fraser Institute

Our vi sion is a free and pros per ous world where in di vid u als ben e fit from greaterchoice, com pet i tive mar kets, and per sonal re spon si bil ity. Our mis sion is to mea sure,study, and com mu ni cate the im pact of com pet i tive mar kets and gov ern ment in ter -ven tions on the wel fare of in di vid u als. Founded in 1974, we are an in de pend ent Ca na -dian re search and ed u ca tional or ga ni za tion with lo ca tions through out North Amer icaand in ter na tional part ners in over 85 coun tries. Our work is fi nanced by tax-de duct iblecon tri bu tions from thou sands of in di vid u als, or ga ni za tions, and foun da tions. In or der to pro tect its in de pend ence, the In sti tute does not ac cept grants from gov ern ment or con -tracts for re search.

Nous envisageons un monde li bre et prospère, où chaque personne bénéficie d’un plusgrand choix, de marchés concurrentiels et de responsabilités individuelles. No tre mis -sion consiste à mesurer, à étudier et à communiquer l’effet des marchés concurrentielset des in ter ven tions gouvernementales sur le bien-être des individus.

Peer review

Val i dat ing the accu racy of our research

The Fra ser In sti tute main tains a rig or ous peer re view pro cess for its re search. Newre search, ma jor re search pro jects, and sub stan tively mod i fied re search con ducted by the Fra ser In sti tute are re viewed by ex perts with a rec og nized ex per tise in the topicarea be ing ad dressed. When ever pos si ble, ex ter nal re view is a blind pro cess. Up dates to pre vi ously re viewed re search or new edi tions of pre vi ously re viewed re search arenot re viewed un less the up date in cludes sub stan tive or ma te rial changes in themeth od ol ogy.

The review pro cess is over seen by the direc tors of the Insti tute’s research depart -ments who are respon si ble for ensur ing all research pub lished by the Insti tute passesthrough the appro pri ate peer review. If a dis pute about the rec om men da tions of thereview ers should arise dur ing the Insti tute’s peer review pro cess, the Insti tute has anEdi to rial Advi sory Board, a panel of schol ars from Can ada, the United States, andEurope to whom it can turn for help in resolving the dispute.


Edi to rial Advi sory Board


Pro fes sor Terry L. Ander sonPro fes sor Rob ert BarroPro fes sor Michael BlissPro fes sor Jean-Pierre CentiPro fes sor John ChantPro fes sor Bev DahlbyPro fes sor Erwin DiewertPro fes sor Ste phen EastonPro fes sor J.C. Her bert EmeryPro fes sor Jack L. GranatsteinPro fes sor Her bert G. GrubelPro fes sor James GwartneyPro fes sor Ron ald W. JonesDr. Jerry Jor danPro fes sor Ross McKitrick

Pro fes sor Michael ParkinPro fes sor Friedrich Schnei derPro fes sor Law rence B. SmithDr. Vito Tanzi

Past mem bersPro fes sor Armen Alchian*Pro fes sor James M. Buchanan*† Pro fes sor Friedrich A. Hayek*† Pro fes sor H. G. John son*Pro fes sor F. G. Pennance*Pro fes sor George Stigler*† Pro fes sor Edwin G. West*Sir Alan Walters*

* De ceased

† No bel Lau re ate

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