Do Pensions Pay Political Dividends?
Beyond the usual rhetoric, a most unusual platform is taking shape in the Liberal campaign shop. Ahead of a possible spring election, Premier Kathleen Wynne has seized on a sleeper issue for her political revival:I met David Herle last week when I attended the HOOPP conference on DB pensions. He's a smart guy who understands the plight of working class Canadians. David is a principal partner with The Gandalf Group, and they routinely poll Canadians on their major concerns.
Pension reform.
Improbably, pensions now dominate her political speeches. Her strongest attack lines have targeted Prime Minister Stephen Harper for blocking Canada Pension Plan improvements.
“If you (Harper) won’t lead the way, then get out of the way,” she told cheering Liberals at a weekend convention.
“We must act now to stave off crisis in our retirement income system,” Wynne exhorted donors at a major party fundraiser 48 hours before.
Wynne is right to lament the lack of federal leadership on CPP improvements. Building a new Ontario Pension Plan is worthy public policy.
But is it a political winner?
The answer could be heard at an invitation-only seminar convened this month by HOOPP, the Healthcare of Ontario Pension Plan. One of several retirement funds with massive assets and minimal profile, it keeps delivering stellar returns with admirably low fees.
Now HOOPP is of a mind to share its bounty with the rest of us — not its wealth, but its wisdom. The audience got a sneak peak at some revealing public opinion research compiled for HOOPP that paints a picture of voter anxiety.
Two-thirds of Ontarians worry about having enough money in their old age, and 86 per cent believe there is a retirement income crisis. About seven in 10 say employers are failing to deliver reliable pensions, and blame government for not doing enough.
Eight out of 10 say they want a pension that pays a guaranteed amount (defined benefit), as opposed to “defined contribution” schemes that are glorified savings plans.
One of the more noteworthy aspects of the presentation was the presenter, pollster David Herle, who was hired by HOOPP a few years ago to research public attitudes. These days, Herle wears another hat as Wynne’s campaign manager and chief strategist.
Little wonder Wynne has hit on public pensions as her personal salvation.
Herle clearly believes the new Ontario Pension Plan she’s cobbling together is good politics. It could also be good government.
That seems to be the shared verdict from HOOPP president Jim Keohane, who followed Herle at the microphone. Keohane, who is also serving as an adviser to the Wynne government on a new Ontario pension, brought the perspective of a seasoned financial analyst to the debate.
Without major reforms, a wave of retirees will require social assistance, becoming a burden on taxpayers, Keohane warned: “You can pay me now or you can pay me later, but the cost of paying me later is much higher.”
So-called “defined contribution” (DC) savings plans that are displacing traditional pensions in the private sector will leave people vulnerable. For example, anyone trying to try to convert their DC savings into an annuity during the 2008 financial crisis would have received dismal interest rates for the rest of their retirement years. By contrast, someone retiring with a traditional pension plan from HOOPP would benefit from inter-generational risk-sharing to ensure a constant payout, in good times or bad.
Keohane notes that HOOPP’s pensioners — retired nurses, orderlies and caregivers — don’t have gold-plated pensions. They get an average $23,000 annually, thanks to a fund that has delivered returns of 10 per cent annually compounded over the past decade while charging a mere 0.3 per cent for expenses (compared to management fees that can be 10 times higher for private sector retirement funds).
Can the HOOPP model, and those of other successful public pension funds for teachers and municipal workers, be emulated in the province-wide fund that Wynne is proposing?
“All the preconditions are there,” Herle believes.
We’ll soon see if the political conditions are there, too.
David is also managing Premier Kathleen Wynne's political campaign. Not surprisingly, she's been on the attack lately, harpooning Harper on pension reforms. I personally think she's too nice and diplomatic. It's time she really sticks it to the feds, get the new DB pension plan up and running and keep slamming the Conservative buffoons who pander to banks and insurance companies or dumb lobby groups like the CFIB, warning Canadians of a two-tier pension system.
When you're playing politics with Harper et al., you have to be ruthless and vicious. You need to hammer them with the facts on the benefits of DB pensions for our retirement system and for the health of the overall economy.
I have strong opinions on pensions and I am willing to debate anyone publicly on what needs to be done. Who the hell am I? My name is Leo Kolivakis and by the time I am done, everyone will know me as Mr. Pension Pulse or Mr. Pension Prick (pick one or the other; I couldn't care less). I've been pounding the table on pensions for years and unlike others, I'm not scared of exposing the good, the bad and downright ugly on pensions.
I wrote an article for the New York Times recommending that U.S. public pension funds adopt independent, qualified investment boards so they can salvage their crumbling public pension plans. I agree with the Oracle of Omaha, the future for U.S. public pensions is downright ugly. U.S politicians typically ignore their pension dragon, until it's too late and the bond market forces them to act.
And let me be clear on something. I'm not a leftist, pro-union, type of guy. I'm pro DB pensions and more of a capitalist than Derek Murphy at PSP. Unlike the pension plutocrats at PSP and elsewhere, I make my living by eating what I kill and tweet about it on a daily basis (buy Idera Pharmaceuticals now and thank me when their Phase III results come out and blow Celgene out of the water!). There is no room for error in my investment portfolio and I've been burned so many times that I know how difficult it is to make money in these markets dominated by high frequency traders writing the Wall Street code.
Shifting employees to a defined-contribution plan is basically condemning them to pension poverty. America's 401 (k) nightmare is proof that the current system is a failure and it's far from over. The worst is yet to come but by that time, it will be too late. In many respects, it's already too late.
What we are witnessing now is the end phase of financial capitalism. I touched upon it when I went over New Jersey's Pensiongate. You have a bunch of rich and powerful hedge fund and private equity managers contributing to their favorite Democratic and Republican candidates in order to secure more money to manage from public pension funds relying on useless investment consultants shoving them into alternative investments. These pension funds are all praying for an alternatives miracle that will never happen. It's great for Wall Street, which effectively carries a license to steal, but not great for Main Street.
Let me be blunt. I love America and think it's the best country in the world. My grandfather fought with the U.S. Army in WWI and my grandmother received a pension from them even after he died. The U.S. has always been and will remain the tail that wags the global economy. But U.S politicians have to get their collective heads out of their asses and start implementing real reforms on their healthcare and pension systems, including reforms on governance that will bolster public pension plans.
One U.S. politician who gets it is Senator Bernie Sanders of Vermont. He's a bit too leftist and cooky for my taste but he brings up many excellent points and regularly tweets on income inequality. Here is one of his tweets which caught my eye (click on image):
And a lot of these rich hedge fund managers are collecting huge fees for delivering mediocre performance. They have basically become large, lazy asset gatherers profiting from dumb public pension funds paying alpha fees for beta or sub beta performance.
If you don't think America has an inequality problem, read this New Yorker article by John Cassidy, it will blow you away. Unfortunately, inequality in the U.S. and elsewhere will only get worse.
I leave you once again with a clip of Canadian doctor Danielle Martin schooling U.S. Senators a couple of weeks ago on the benefits of our healthcare system. She spoke at the American Congressional hearing about single-payer health care (Bernie's questioning killed me!).
I don't believe in a two-tier healthcare system and I don't believe in a two-tier pension system either. We should have well governed defined-benefit pensions for all our citizens. Please take the time to read Jim Keohane's speech which he delivered at the HOOPP conference on DB pensions. It's excellent and provides insights on what needs to be done to bolster defined-benefit pensions throughout the world.