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Comment: Two approaches to public-sector pension reform

sa国际传媒鈥檚 pension landscape is continuously evolving, and today sa国际传媒 is recognized as a leader in establishing various reforms to minimize its public-sector pension liabilities, reforms other jurisdictions are only just now beginning to implement. B.

sa国际传媒鈥檚 pension landscape is continuously evolving, and today sa国际传媒 is recognized as a leader in establishing various reforms to minimize its public-sector pension liabilities, reforms other jurisdictions are only just now beginning to implement.

sa国际传媒鈥檚 public-sector pension plans are no longer conventional defined-benefit pension plans; they are essentially a hybrid of defined benefit and defined contribution. The plans provide a base pension amount but, like DC plans, they do not guarantee cost-of-living increases.

And, contrary to Mark Milke鈥檚 assertion (鈥淗ow not to reform government pensions,鈥 Oct. 4), sa国际传媒 taxpayers are not at risk for unfunded liabilities in the four major public-sector pension plans. Should unfunded liabilities arise, these must be addressed immediately and amortized over a 15-year period. The temporary contribution rate increases required to do this are split 50/50 between employers and employees. Employees bear all risks associated with the plans鈥 contingent inflation adjustments. The result of this risk-sharing arrangement is that public-sector employers contribute significantly less today than they would if we were still operating under sa国际传媒鈥檚 1990s pension statutes. The extra contributions that are being paid by employees are deducted from their pay. They are not an expense to taxpayers.

Nonetheless, Milke and the Fraser Institute are unimpressed with sa国际传媒鈥檚 reforms. To him, they have been 鈥渄istinctions without a difference.鈥

The only reform model Milke will support is that of Saskatchewan, which converted some of its public-sector pension plans from defined benefit to defined contribution during the 1970s. However, Saskatchewan鈥檚 experience serves well to demonstrate why so few jurisdictions have chosen that route. This type of reform does nothing to address the unfunded liabilities that have been allowed to build up in many defined benefit plans. In fact, it makes management of the closed DB plans more risky for the government.

In Saskatchewan鈥檚 case, the province now has unfunded liabilities equivalent to 55.1 per cent of annual provincial revenue, versus about three per cent of provincial revenue for sa国际传媒 The annual cost to taxpayers for Saskatchewan鈥檚 transition will not peak until the 2020s (almost 50 years after their reform) and their public-sector pension unfunded liabilities won鈥檛 be extinguished until the 2070s (a hundred years after the reforms). After the 2070s, when Saskatchewan can finally return to having only one set of pension arrangements to administer, their system will still be less efficient and cost-effective than sa国际传媒鈥檚 is today.

Would the Fraser Institute be satisfied if all public-sector pension plans in sa国际传媒 were converted to the DC type? Their driving premise is that public-sector pension arrangements should be no better than private-sector pension arrangements. They acknowledge that in the private sector there are actually more workers covered by DB pension plans than by DC pension plans and that 76 per cent of private-sector workers have no pension coverage at all.

By insisting on pension parity between the private and public sector without being willing to support anything that would improve private-sector pension arrangements, the Fraser Institute鈥檚 logic leads ultimately to little or no pension coverage for anybody.

Bruce Kennedy is executive director of the sa国际传媒 Public Service Pension Plan, sa国际传媒 Teachers鈥 Pension Plan and sa国际传媒 College Pension Plan.