Sticking Albertans with a big pension bill
You’ve read it before: Alberta’s government employee pension plans are massively underfunded, and it’s going to cost taxpayers.
But the good news is it is no longer “going to cost taxpayers.” The bad news is it is “now costing taxpayers.”
Finance Minister Doug Horner quietly announced recently that taxpayers would be kicking in millions more every year to the pension plan of senior government bureaucrats. Taxpayers will see their already generous contribution to these pensions go up from 19 per cent of an employee’s salary, to 22 per cent.
This 14-per-cent hike in pension payments to senior government staff isn’t likely to play well at the average Alberta dinner table, and so the government didn’t trumpet the changes in a news release. Rather, it was buried in a list of regulatory amendments, known as orders-incouncil.
For a bureaucrat making $150,000 a year, this change will cost taxpayers an extra $4,065 annually. For this one bureaucrat, taxpayers will be contributing a total of $32,775 a year toward his or her pension.
How much do you put away in your RRSPs every year? The average Canadian manages to save only $3,544 a year.
While most Canadians struggle to put away a nest egg for their retirement that is entirely dependent on the performance of their investments in the market, the defined-benefit pensions enjoyed by government workers are vastly richer, and importantly, guaranteed by taxpayers. No matter how poorly these investments perform, they are guaranteed a payout defined decades ago.
The senior bureaucrats in this plan also saw their own contributions increased, but from a much lower starting point. For every dollar invested into their pensions, taxpayers contribute 63 cents, and employees just 34 cents. Without at least matching employer contributions 50-50, the government has no right to come begging taxpayers to kick in more.
Contribution rates are being hiked because the Management Employee Pension Plan (MEPP) has an unfunded liability of $103 million that it needs to plug. Similar problems plague every Alberta government employee pension plan. The worst is the Alberta Teachers Retirement Fund.
However, rather than just quietly increasing contribution rates, former premier Ed Stelmach provided a bailout that transferred a now $3-billion debt from teachers to taxpayers. The overall unfunded liability sits at more than $9 billion and is growing.
Rather than go the route of an old fashioned bailout, Horner has decided instead to bail out the pension plan of senior bureaucrats by stealth, cutting them a bigger cheque every year.
And it might not stop there. The MEPP’s unfunded liability of $103 million is a drop in the bucket compared with the province’s overall pension shortfall of $10.8 billion. That is more than 105 times the size of the MEPP’s budget hole.
With the province on track to run a $4.9-billion deficit this year, not including any flood spending, where will this money come from? The only options are either to crowd out other spending priorities like health and education, raise taxes or borrow.
Horner does deserve at least some credit. He has recognized that the unfunded liabilities of government employee pension plans are a train wreck in progress, and bold action will be required to mitigate it. Rather than just cut a cheque Stelmachstyle, with only taxpayers bailing out the plan, Horner is requiring that employees also kick in a bit more themselves. For this, he deserves some credit.
But taxpayers were already paying 63 cents of every pension dollar contribution. It is unfair to ask them to pay more. The fairest way to repair government employee pensions is to increase employee contributions (which he has done) so that it’s a 50-50 split, reduce benefits where necessary, and convert these plans to a more responsible and sustainable model that reflects the ups and downs of market forces.
Premier Alison Redford showed leadership during the last election when she scrapped the MLA pension plan that was similarly unfair to taxpayers. MLAs now receive an allowance for them to contribute toward an RRSP.
If this is good enough for our MLAs, it should be good enough for our bureaucrats.