We need a fair but less costly public sector pension plan
In the Nov. 27, 2017 Telegram, Prof. Gordon Cooke encouraged a frank and open conversation about the province’s fiscal situation, including public sector pension plans (“We need to discuss fairness of public sector pensions). In response, the Newfoundland and Labrador branch of the Canadian Union of Public Employees (CUPE NL) took exception to Cooke’s comments in a letter to the editor (“Defined benefit pensions are better for everybody,” The Telegram, Dec. 7, 2017).
Cooke rightly noted a frank conversation about our fiscal situation, “while uncomfortable, is long overdue and part of the price of good governance.”
CUPE NL has every right to defend the interests of its membership and, on public sector pension plans, there is good reason. Public sector workers with the provincial government contribute nine or 10 per cent of their annual salary to receive, upon retirement after full service, a pension of between 60 and 70 per cent of their average six best years (or two per cent for each year worked).
It is not a bad deal for the employee. However, it is expensive and unsustainable, because a growing unfunded pension liability adds to the provincial debt. For context, the provincial public accounts show the interest paid on postretirement liabilities in fiscal year 2017 was $392 million, which represents 41 per cent of the debt expense incurred by the provincial government.
So how do we continue to treat future employees fairly without breaking the bank?
The Canadian Federation of Independent Business has advocated for governments to convert all new public sector hires from defined benefit to defined contribution pension plans for their retirement benefits. It can help governments eventually eliminate their unfunded pension liabilities and save taxpayers money or allow spending on their priorities.
CUPE NL suggests there would be serious consequences to converting public sector pension plans from defined benefit to defined contribution plans. The evidence does not bear this out. In 2014, the City of St. John’s adopted defined contribution plans for their new hires and the sky did not fall.
The provincial government is teetering on the edge of a fiscal cliff and needs to deal with a clearly identified spending problem. Everything, including public sector pension plans, should be on the table for discussion.