Tuesday, January 19, 2010

All-Out War on Pensions Brewing in Canada?


A follow-up to yesterday's comment on the $58 billion debt time bomb. On Tuesday, Kathryn May of the Ottawa Citizen reports federal PS unions gird for battle over pensions:

OTTAWA — Canada’s 18 federal unions are meeting in Ottawa for two days starting today to develop a united front against what they believe is the Harper government’s gathering assault on the public service.

Facing one of the largest deficits in Canadian history, union leaders are braced for Finance Minister Jim Flaherty to turn to the public service to balance his books.

One of the major concerns is persistent rumblings about cuts to the public service’s generous pensions and benefits.

“We don’t know where they will be coming at us … but we want to have common footing, so it in our best interest have common positions we can take,” said John Gordon, president of the Public Service Alliance of Canada.

Gordon says the Conservatives have long grumbled about public service pensions back to Prime Minister Stephen Harper’s days at the National Citizen’s Coalition. The government has said it won’t cut transfers to the provinces or raise taxes, but will rely on economic growth and government spending cuts to eliminate the deficit.

“This isn’t new, but given the economy and what’s happened in the private sector, everyone has turned their sights on the provincial and federal plans. They will all come under the microscope,” Gordon said.

Flaherty has said the “handsome arrangements” of all public servants came up at a recent federal-provincial meeting in Whitehorse on pension reform.

But union leaders say the government should be prepared for an all-out war with its employees if it tampers with their defined benefit pension plan or tries to convert it to a defined contribution plan as has happened in Britain.

Ron Cochrane, co-chair of the National Joint Council, which represents public service management and unions, said “nothing would galvanize even the most apathetic public servant like touching their pension.”

“When you attack people’s retirement savings, you are asking for the fight of your life and I think it would be a most unwise thing for any political party to do. And if they did it to public servants, they would have to do it to the military and RCMP, and do they really want to annoy them?” said Cochrane.

And the unions will be the first to pounce on MPs, judges and deputy ministers whose pensions are even richer than those of the rest of the public service.

The most talked about solution for the government to reduce the pension costs of its employees is to make public servants — who now make about 32 per cent of the contributions to the plan — pick up half the share of the cost.

Federal employees paid $1.2 billion in contributions into the plan in 2007-2008 while the government kicked in $2.6 billion.

The federal government has long contributed more to the pension plan than public servants, but that gap has narrowed over the years. By 2013, the government will kick in about 60 per cent of the contributions while public servants pay about 40 per cent.

Contributions to public service pension plans are shared 50-50 in Ontario, Quebec and Alberta so many argue there’s no reason federal workers can’t fully pay their way.

The federal plan’s early retirement provision is another rumoured target. This allows public servants to retire with a full pension at 55 as long as they have served 30 years. The government has also explored the idea of phased retirement, allowing bureaucrats to work and collect their pensions. Unions have strongly opposed this unless the option was open to all workers and not just those chosen by management.

Gary Corbett, president of the Professional Institute of the Public Service of Canada, said the pressure to take aim at federal pensions started with the C.D. Howe Institute, which released a report that has concluded the plans of Canada’s bureaucrats, military and RCMP were going to cost billions more than expected. He said the report is being seized as justification to reduce public sector pensions rather than improving pensions in the private sector.

“The attitude is that public servants should be getting pensions like that rather than making sure everyone in the private sector has a better plan. They would rather level down the good plan rather than make the other ones better.”

Unions say that whenever the economy sags, the private sector complains about the rich salaries, pensions and benefits of public servants.

The bureaucracy is a prime target for cuts because the number of people on payroll grew more than 40 per cent over the last 12 years — with a major hiring spree since the Conservatives took over.

Secure and generous pensions were historically considered key to protecting the public service from corruption. Also, many public servants aren’t as free as private sector workers to invest in the market because of potential conflicts of interest on policy issues they are working on.

I don't buy the argument that generous pensions are the "key to protecting the public service from corruption". But unions are right to be on guard because as George Carlin says at the bottom of my blog, on the American Dream, "they're coming after your retirement money...they want it all back!"

One union representative shared these comments with me:

Thank-you very much for your most recent comments on Ottawa Citizen journalist Kathryn May's article on the recent C.D. Howe Institute report on Federal Public Service Pension Plans. My office had been receiving several telephone calls from Ms. May in advance preparation for the article.

You are, of course, correct that the C.D. Howe Institute is a conservative organization and the sole purpose of this report was to derail the current retirement income debate in Canada into an attack on the Federal Public Service Pension Plans.

Unfortunately, this initiative has been somewhat successful. The C.D. Howe report was released on December 16th, 2009, the day before the Federal-Provincial Finance Ministers meeting in Whitehorse. Miraculously, the report became an agenda item at the meeting and the Provincial Finance Ministers seized the opportunity have Federal Finance Minister Flaherty commit to "addressing" the Federal Public Service Pension Plans as part and parcel of any pension reform package.

As you can see from a further article from Kathryn May in today's Ottawa Citizen, a showdown appears to be brewing between federal public service bargaining agents and the Federal Government over proposed cutbacks to the Federal Public Service Pension Plans. Today's appointment of Stockwell Day as President of the Treasury Board will only intensify the dispute.

Indeed, Prime Minister Harper did shuffle his cabinet on Tuesday, appointing Stockwell Day as President of the Treasury Board:

As Prime Minister Stephen Harper shuffles spots on his year-old cabinet, all eyes are being cast on Okanagan Coquihalla MP Stockwell Day.

Day moves from his international trade post to the Treasury Board where he is to play a critical role in leading the government’s effort to curb spending and hold off the growing deficit.

“As we prepare for the return of balanced budgets once the economy has recovered, it will be essential for government to live within its means,” said Harper in a statement.

“I am assigning this task to Minister Day, one of the most senior members of the cabinet and a former provincial treasurer who has distinguished himself in every portfolio he has held.”

Get ready for an all-out war on pensions. One piece of advice to Minister Day: get your hands on the report I wrote for the Treasury Board on the governance of the PS pension plan back in the summer of 2007. It's not just about cutting pension benefits, you need to significantly bolster the governance of these plans if you're going to deliver cost effective, well managed pensions over the long-run (feel free to contact me for a briefing on pension governance gone awry).

And to the unions, my advice is to be prepared to compromise on some issues. We are going through an era of fiscal deficits which will take an enormous toll on public finances. The private sector is reeling and you simply can't ignore what is going on outside the public sector. All over the world, governments are raising the retirement age and pension contributions, cutting benefits and raising taxes to meet ever growing demands of their public pension plans.

Canada will not escape this tsunami of pension reform. All stakeholders, including the government of Canada, unions and taxpayers, need to compromise to sustain the long-term health of federal public pension plans. All-out war will do nothing but further weaken them.

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