The Vancouver Sun
October 4, 2013
By Bruce Kennedy

Re: “Public sector pensions fully funded by taxpayers, Issues and Ideas, Oct. 2

Canada’s pension landscape is continuously evolving, and today British Columbia 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.C.’s 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. [EXPAND Read more]

And, contrary to Mark Milke’s assertion, B.C. taxpayers are not at risk for any 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. The employees also bear all risks associated with the plans’ 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 B.C.’s 1990s pension statutes. The extra contributions being paid by employees are deducted from their pay. They are not an expense to taxpayers.

Nonetheless, Mark Milke and the Fraser Institute are unimpressed with B.C.’s reforms. To him they have been “distinctions without a difference.”

The only reform model that Mark Milke will support is that of Saskatchewan, which converted some of its public sector pension plans from DB to DC during the 1970s. However, Saskatchewan’s 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 DB plans. In fact, it makes management of the closed DB plans more risky for the government.

In Saskatchewan’s case, the province now has unfunded liabilities of 55.1 per cent of provincial revenue, versus about three per cent of provincial revenue for BC. The annual cost to taxpayers for Saskatchewan’s transition will not peak until the 2020s (almost 50 years after their reform) and their public sector pension unfunded liabilities won’t 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 B.C.’s is today.

Would the Fraser Institute be satisfied if all public sector pension plans in Canada 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’s logic leads ultimately to little or no pension coverage for anybody. [/EXPAND]