The Montreal Economic Institute (MEI) is proposing that Quebec’s municipalities should abandon DB plans and move to DC plans and that the retirement age be gradually indexed.
In an Economic Note, it says these two solutions would progressively but sustainably solve the problem of pension plan deficits, contrary to Bill 3.
The bill proposes that contributions be shared equally between the municipality and active members; any related deficiency is to be assumed in equal parts by the municipality and active members; pension indexation of retired members may be suspended; and a stabilization fund is to be created.
“The reform put forward in Bill 3 certainly reduces the cost of municipal plans for taxpayers, but it does not protect them from another crisis resulting from disappointing returns or a greater than anticipated increase in longevity,” says the Economic Note. “It is possible, however, to imagine solutions that have the advantage of gradually requiring taxpayers to bear less risk without retroactively reneging on past agreements.”
The MEI proposes that all workers be covered by a DC plan. New employees would be entirely covered by the DC plan, current employees would have both a DC and DB plan, and current retirees wouldn’t be affected by the changes.
Its second proposal is that the retirement age gradually be raised so that, on average, people would work two years for each year of retirement.
“This approach avoids the uncontrolled growth of expenditures for cities and their taxpayers, avoids sudden hikes in the normal retirement age, and ensures the viability of pension plans and the security of retirement income for employees and retirees,” says the Economic Note. “This solution also has the advantage of depoliticizing the establishment of the retirement age.”
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