The DB pension plans received by most of Canada’s public servants are draining the finances of provincial governments and taxpayers, so these plans need to be converted to DC arrangements, a new report argues.

Since 2000, governments in several provinces have had to increase pension contribution rates and bail out some public sector pension plans, according to a study by the Fraser Institute, a non-partisan think tank.

The provincial governments that have increased public sector pension contributions to cover funding deficits include British Columbia, Alberta, Manitoba, Ontario, Newfoundland and Labrador, Nova Scotia and Prince Edward Island.

Some of these provinces—Alberta, Ontario and Newfoundland and Labrador—have even had to bail out public sector pension plans. “In Alberta, in 2002, the province made what was supposed to be a one-time payment of $60 million toward funding shortfalls for the so-called “pre-1992” Teachers’ Pension Plan. It took over that liability completely in 2007 and made another payment of $1.2 billion to the same fund in 2009,” according to the Fraser Institute.

In Newfoundland and Labrador, several pension plans have been topped up. This includes a $2-billion special payment into the Teachers’ Pension Plan in 2006 and $982 million for the Public Service Pension Plan in 2007.

The Ontario government has made special annual payments of $416 million to help cover shortfalls in the Public Service Pension Plan since 2007. The province is scheduled to make annual payments of $142 million for 15 years.

“Ultimately, the cost of public sector pension plans are borne by all taxpayers because tax dollars pay the government’s contributions as well as government employee salaries,” says Mark Milke, Fraser Institute senior fellow and author of the report.

The study also notes that, in the public sector, 87% of employees were covered by a registered pension plan in 2011, while in the private sector, just 24% of employees had access to one. Nearly all public workers (94%) had a DB plan. In the private sector, that figure stood at 52%.

To alleviate the strain on provincial finances, governments need to replace DB plans for public employees with DC ones the way Saskatchewan did in 1977, the report argues. “Saskatchewan stands as the one province that foresaw the looming problems with defined benefit pensions in the public sector,” Milke explains.

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Stephanie Michaels:

Another slanted report from the Fraser Institute. Leave it to them to hang on to ideas from the ’70s. It may be true that the public sector is the last hold out on defined benefit plans, but that doesn’t make them bad or wrong. Public sector employees and employers pay good money for their pension plans. The employees earn a steady income, but it is not lavish. A review of funding and plan design is prudent from time-to-time, but there is no value into converting all DB plans into DC plans — oh, unless you are lead by the nose by a reactionary think-tank whose purpose is to make businesses more money at the expense of those who are employed.

Monday, September 16 at 4:21 pm | Reply

John Steel:

The report shows that DC provides less in retirement than DB when the same amount is paid in to the fund. So, why would CFIB be supporting the plan that pays less? Are they looking for more poor seniors to get as cheap employees?
If DB is most cost effective, secure and reliable, why not bring all Canadians UP to that level than push others down?
If clean drinking water cost $1 per litre and dirty drinking water costs $1.20, CFIB would be pushing dirty drinking water on all Canadians.

Tuesday, September 17 at 12:21 pm | Reply

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