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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