Tuesday, June 17, 2014

Quebec's Declaration of Pension War?

Last week, Philip Authier of the Montreal Gazette reported, Pension bill ‘a declaration of war,’ unions say:
The government’s hopes that Quebec’s municipalities and unionized workers could come to a speedy mutual agreement in their pension dispute appeared in peril Thursday.

No sooner had Quebec Municipal Affairs Minister Pierre Moreau tabled a fresh version of the previous government’s pension bill in the National Assembly and called for talks, the coalition of unionized workers rejected it bluntly.

“This is not a bill, it’s a declaration of war,” Marc Ranger, spokesperson for the Coalition syndicale pour le libre négociation, told reporters.

He went further, calling the new constraints for the two sides to reach an agreement a kind of “holdup,” and accused Moreau of double-crossing the unions to please Quebec’s mayors seeking a way to reduce their labour costs.

Ranger said now that the government has shown its hand, his members are on a war footing.

The tone was totally different from Moreau who, at an earlier news conference, said the government is taking no sides in the dispute.

Bill 3 is designed to help Quebec municipalities and workers manage massive pension plan deficits. Although initially that deficit was estimated to be $5 billion, Moreau Thursday revised that downward to $3.9 billion.

“We can no longer shovel it forward or hand off the bill to the citizens of the cities, many of whom have no pension plans themselves.”

The bill uses the same formula the Parti Québécois proposed; splitting the deficit 50-50 between workers and cities.

The bill proposes freezing the automatic indexation of pensions for workers already retired. That would affect 20,000 out of 50,000 retired workers and yield $1 billion a year in new money.

The bill sets out a one-year term for talks between the parties starting at the latest Feb. 1, 2015.

It allows for one three-month extension — which can be renewed once — before an arbitrator steps in. That person would have six months to impose a deal that would be final.

But Ranger said the government is treating every pension the same way when only some of them are in the red.

And he argued some of the deficit problems are already solving themselves without having to “put the axe” to collective agreements.

The only group making favourable noises about the proposal was the Quebec Federation of Municipalities, which called the government’s bill a well-balanced solution.

“By having the two sides share equally in the costs of past and future deficits of pension plans, by allowing the freezing of indexation on current retirees and by taking into account the overall remuneration, the government is proposing a measured approach that favours intergenerational equity,” said federation president Richard Lehoux.

The federation approves of the negotiation timetable, which it said would ensure a solution to the pension issue within two years.

Montreal Mayor Denis Coderre, Quebec City Mayor Régis Labeaume and the Union of Quebec Municipalities said they would not comment until Monday.
On Monday, Montreal Mayor Denis Coderre and the Quebec Union of Municipalities said they were pleased with the pension bill:
Montreal Mayor Denis Coderre and the Quebec Union of Municipalities have thrown their support behind a provincial bill designed to help municipalities and their workers deal with huge pension plan deficits.

Coderre also appealed to city workers to remain calm during forthcoming negotiations on pension reform. On Thursday, 80 Montreal firefighters retired immediately fearing that their pensions would be reduced following negotiations between the city and their union.

The new Liberal government introduced Bill 3 to try and help municipalities across the province deal with pension deficits estimated at $3.9 billion.

The bill proposes that the deficit be split 50-50 between workers and cities. In many cases, cities cover 70 per cent of the cost of pensions with workers covering 30 per cent.

The bill also calls for past deficits to be covered by current workers and municipalities, a major sticking point for the unions, which say they are not to blame for the past mismanagement of pension funds and should not be forced to pay for them.

Coderre said the bill was a reality check and said cities need to respect the ability of the taxpayers to fund public pensions now and in the future.

“There are some people who don’t have a pension and they’re still paying for it (municipal pensions),” he said.

The bill also proposes freezing the automatic indexation of pensions for workers already retired.

Last year, municipal employees in cities with populations greater than 25,000 received 37.9 per cent more in salaries and benefits than counterparts in the public sector, Westmount Mayor Peter Trent said, citing provincial statistics. “In my view, this cannot continue,” he said at a news conference in Montreal.

The pension funds took a huge financial hit after the 2008 economic downtown and many cities failed to keep up with contributions over the years.

The bill sets out a one-year term for talks between the parties starting at the latest Feb. 1, 2015. If both sides can’t reach a deal, an arbitrator will step in and would have six months to impose a deal.

Suzanne Roy, president of the Quebec Union of Municipalities, called the bill a major benefit for all citizens. She urged municipal workers not to get too worked up about changes and promised that discussions with unions will be cordial.

“We want a climate of collaboration with the employees,” she said.
As I recently discussed in Canada's looming pension wars, if we are to sustain defined-benefit pensions, every stakeholder needs to be part of the reforms:
... I basically think everyone is full of it when it comes to pensions: the federal government which has yet to enhance the CPP for all Canadians; public sector unions with severe entitlement issues who have yet to embrace the concept of risk sharing; and Canada's public pension plutocrats getting paid like star hockey players for managing billions from captive clients (what a joke!).

There are many other things the federal government could have done right after the crisis to cushion the blow to private sector workers. For example, the current RRIF rules penalize people working well past the age of 65, which is absolutely insane. Many people who work past 65 were forced to take money out of their RRIF at the worst possible time while public sector workers retired with their guaranteed pensions. It's a complete travesty and Finance Canada has yet to implement any changes.

Now more than ever, we need is to get our collective heads out of our asses, sit down and implement policies that bolster our retirement system and economy for the long-run. The benefits of defined-benefit plans are misunderstood and grossly underestimated. I'm glad Ontario is going it alone but the best solution is still to enhance the CPP for all Canadians.

Someone asked me what I thought of Quebec's budget 2014 which was revealed yesterday. Quebec's public finances are a total mess. In many respects, the explosion of our debt is eerily similar to what happened in Greece except we have a much better economy. Nonetheless, the era of austerity has just begun and Quebec needs to do a lot more to cut waste, stimulate its economy and tackle its pension deficits.
Quebec's powerful public unions remind me of the ones I saw in Greece before the crisis (they are much humbler now after they saw the devastation in the private sector). The unions have a point, their pensions were mismanaged for years, but looking ahead, they don't have a choice but to share the risk of their pension plan.

The government of Quebec and municipalities have no choice but to slay this pension dragon once and for all. I personally think they should amalgamate all these small and medium sized public pensions and create a new pension with world class governance. They could give the money to the Caisse but that organization is big enough and I think we can use another major public pension fund in Quebec with new blood (not the same old Caisse faces which everyone is tired of).

One pension fund manager agrees with me and shared these thoughts:
Agreed. Quebec needs its own version of OMERS but it needs to be a separate entity. Capital is too concentrated in Quebec already for CDP to be the recipient of all of it. Too big to fail related moral hazard should apply to pension funds as well it does to banks.

Current city pension plans are for the most part too small to attract qualified individuals to manage them so the reality is that they have little to no investment staff and management is delegated by the board to outside consultants who themselves select external managers. A lot of economies of scale could be accomplished if all these funds didn't act independently.
Below, Global Montreal reports a contingent of mayors presented a united front on Monday in the looming battle over Quebec civil servant pensions, which public service unions have called a declaration of war. You can also watch a CTV News report on the same topic by clicking here. Lastly, CBC reports that hundreds of city workers stopped working to protest outside Montreal City Hall.