Reform of public pensions better for everyone
Finance minister shouldn’t have sole power over future of plans
It is unfortunate the debate on public-sector pensions has become so reliant on Finance Minister Doug Horner’s bald assertions that there is no alternative to his proposals.
The government line, repeated over and over by Horner, is that “doing nothing” about the unfunded liability in the Public Service Pension Plan and the Local Authorities Pension Plan is what the government has done for years and “it isn’t working.”
The problem is that statement is not true.
A plan is in place to address the pension liability, has been in place for several years, and is succeeding. Members of these plans are paying additional contributions, along with the employers, split 50-50. According to administrators of the pensions, and now confirmed by a third-party actuary, the current plans will pay off their liabilities in less than a decade.
We are not simply waiting for interest rates to rise and markets to turn around, as Horner claims. We know that while a one-per-cent increase would erase the liability, the Bank of Canada is apparently determined to hold rates down at historically low levels.
We also know better than to count on the stock market. The portfolio is extremely diversified, and all the assumptions made in assessing plan liabilities and investment performance are extremely conservative, even though the fund beats the market more often than not.
Finally, unlike a direct contribution model, or a personal savings model of retirement savings, pension risks are pooled among the members and can be dealt with over time, which is exactly what is happening now.
The losses that have been incurred by the plans because of past actuarial assumptions and market failures are being amortized today.
Just like every other Albertan, our members’ retirement investments took a hit in 2000 and 2008. And, just like every other Albertan, they are making additional payments now to make up for those losses.
Like most Albertans, our members today are probably going to live longer than the last generation. Unlike most Albertans, our members today are paying more into their retirement savings to account for that development.
We agree that “hope is not a strategy” to address unfunded pension liabilities. But overblown rhetoric about the need for “long-term solutions” to long-term problems that don’t exist is not a strategy either.
AUPE has proposed additional amendments to the plan and submitted them to the minister. They are publicly available on our website, aupe.org/pension-updates.
The fundamental problem, and one AUPE has been proposing solutions to for years, is that the provincial finance minister has sole authority over the pension plans. Alberta is the only jurisdiction in the country where the plan members have no real authority over the future of the pension they pay into every month.
We have members on the board of each plan, but their decisions are all subject to Minister Horner’s approval.
It is long past time for this issue to be addressed, so any improvements to the plan can be made collaboratively, with all those who invest in the plan and who stand to benefit or lose from changes to it, respected as equals.
As for the argument that public-sector pensions should be restrained because most Albertans do not have a pension, I can only say that reducing the financial security of one group of retirees does nothing to improve the lot of others.
Instead, we should be focused on improving the Canada Pension Plan. If anyone is “doing nothing” about pensions, it is the Harper government, which shut down provinces’ efforts to explore enhancements to the CPP.
It is time to improve our approach to retirement savings, not roll it back.