Defined benefit pensions are better for everybody

I agree with Prof. Gordon Cooke’s opinion that it would be a good thing if more employers provided a defined benefit pension plan for their workers. (The Telegram, Nov. 27, Democracy Cookbook: “We need to discuss the fairness of public-sector pensions”).

Defined benefit pensions are good for workers because they can retire with more financial security. Defined benefit pensions are good for governments and taxpayers because seniors with defined benefit pensions are less likely to need the Guaranteed Income Supplement (GIS), saving the federal government $2billion to $3 billion annually on GIS payments. About 45 to 50 per cent of retirees without defined benefit pensions will need the GIS compared to only about 10 to 15 per cent of defined benefit beneficiaries.

Spending by retirees is vital to communities; the smaller the community, the larger the impact on the economy. Defined benefit pension benefits, for example, have been shown to make up 11.5 per cent of total earnings in small Ontario towns.

Cooke is wrong to imply that public sector workers are somehow getting a free retirement ride at taxpayers’ expense.

Investment returns pay about 75 per cent of the cost of a defined benefit pension. The rest of the pension dollar is cost shared by contributions from plan members and their employer. These contributions have been negotiated by unions at the direction of members who have often traded wage increases today for retirement security tomorrow.

Neither government nor unions have taken a “do nothing” approach to public sector pension liabilities.

In 2014, government and the five largest provincial unions representing public sector employees, including CUPE, negotiated pension reforms that preserved defined benefits and reduced the financial impact on provincial taxpayers. The 2014 agreement saw unions and plan members step up to be part of the solution, by paying more, taking on an equal share of plan risk going forward, trimming benefits and assuming joint control of the plan with government. The plan delivered solid investment returns in 2016.

Converting defined benefit pensions into do-it-yourself pension schemes has serious consequences. Income inequality increases which, in turn, puts a drag on economic growth. That’s a race to the bottom where everyone suffers in the end.

CUPE will continue to fight without apology for retirement security through defined benefit pension plans and further improvements to the Canada Pension Plan that would benefit all workers.

Wayne Lucas, president CUPE Newfoundland Labrador