Tags: Bill Tufts, Municipal Affairs, Politics, Politics - New Brunswick

Pension plan St. John New Brunswick’s most pressing issue

October 11, 2012

TORONTO, ON, Oct. 11, 1202/ Troy Media/ – It appears that the City of Saint John, New Brunswick, has successfully put aside dealing with its most pressing issue, that of the employee pension plan.

It has been entertaining to watch the events surrounding the pension plan and the lack of leadership to do anything about the crisis. Amazingly, it was only a few months ago that pensions were front and centre in the municipal election. Voters clearly marked their ballot for pension reform based on the promises made by the candidates.

How frail those promises were.

There are very dark and sinister forces acting to prevent the reforms necessary to the pension plan. These forces are much bigger than anyone understands. It is not pension reform in Saint John that is being debated, but rather, pension reform for the whole of the public sector in Canada. Pensions have driven all Canadians into a multi billion dollar debt, at all levels of government, solely for the benefit of those politically connected through public sector unions.

The private sector unions have moved their members into more sustainable pensions. The reality is that if the corporation they work for becomes bankrupt, the pensions too, become insolvent.

For some reason, the same rules do not apply in the public sector, and, as the expression goes, “cities can’t go bankrupt . . . they can always raise taxes”.

Now, the reality of pensions in Canada is that the corporate world has moved to reform the extinct defined benefit pension plan. It have been replaced throughout the financial services sector, as RBC, Manulife, Sunlife, Standard Life, and Laurentian Bank no longer see defined benefit pensions as being sustainable.

They have been reformed everywhere else too. The last holdouts for reform were Air Canada and the auto industry and they too have moved to hybrid pension plans.

Now in Canada, there are only 1.6 million gold-plated pension members left in the private sector. However, in the public sector, there are still 3.2 plan million members receiving these inequitable pensions. The only problem is that 80 per cent of Canada’s workers are in the private sector. The public sector plans have accumulated $800 billion assets but are still $300 billion short of funding the promises they made. By contrast, Canadians have saved only $750 billion in RRSP’s.

During the election it was clear what was needed. End the defined benefit plan that offers a guaranteed payout for life to city employees and replace it with the kind taxpayers have, a defined contribution plan. If there are shortfalls in the future, the employees have to share the pain and it does not fall fully onto the backs of taxpayers.

Currently, pensions need 7 to 12 per cent rates of return in order to get them to health. It will not happen this year, adding tens of millions of shortfall into the city pension plan by year end.

The reality is simple. These pensions are bust, and the longer we wait to reform them, the more money that falls onto the backs of the taxpayers.

Recently, the City of Waterloo created the Citizen’s Budget Task Force and they reported that:

“There are strong indications that the current pension funding will no longer be adequate to support early retirements, inflation adjustments and low contributions by employees. We consider the continuation of a defined-benefit plan too high-risk to taxpayers for our City to ignore.”

Waterloo has exactly the same type of plan that Saint John has.

The current plan is unfair at many different levels because they create a gap between those with public sector pensions, and the taxpayers who will have to fund them. In other words, the public sector employees are the haves, and the private sector employees, who pay for these pensions, are the have nots.

Currently there are an estimated 800 employees working for the city. When we consider that contributions are based on the salaries of the current workers, we can calculate the total shortfall per employee at $250,000 each. Employees have already earned a good wage for working for the city and now they want to extract another $250,000 each in “back pay”

The current plan in Saint John is under funded by over $200 million based on recent estimates by the mayor. This is money will have to be paid for by raising taxes, cutting services and borrowing more money. That is the direct cost of the shortfall.

Then there are the indirect costs. This is money being diverted away from service and projects that would benefit all the citizens of Saint John. Imagine how far $200 million would go towards fixing the city’s infrastructure or helping the disadvantaged.

A huge intergenerational unfairness exists in these plans. The city employees of today will leave a burden to the taxpayers of the next generation. This burden will be seen in the money diverted away from the essential building blocks of the community. The result will be higher taxes and an increased debt load, that are not only unsustainable, but also, unaffordable.

The system is broken, and the new “Dutch Model” of defined benefits will not fix it. Recent headlines on the Dutch pension system show it is badly in crisis, no different from defined benefit pensions anywhere else.

One anomaly of the province’s “reform” was the refusal by the government to raise retirement ages. They said it was not necessary and that city workers can continue to retire at an average age of 58 but the age would be moved to 65 gradually over the next 40 years. The Dutch system has found it necessary to move their retirement age to 67 by 2023.

As much as we all would like to live a life of luxury in our golden years, for most of us it won’t happen. The average Canadian retires at age 65 with $60,000 in their RRSP. They can’t afford perpetual tax increases and service cuts simply to fund city workers retirement at age 58 and earning lifetime pension incomes in the million dollar range. Its time that the council stands up for its citizens and fix the problems in front of you before its too late.

Bill Tufts is Founder of Fair Pensions For All (FPFA) an organization advocating for pension reform in Canada.

This column is FREE to use on your websites or in your publications. However, Troy Media, with a link to its web site, MUST be credited.  

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