Op-Ed – City should proceed with pension reform

November 12, 2011

Telegraph Journal

October 5, 2011

Pensions in Saint John have been causing a problem for a long time. Saint John is not alone in this predicament, but unfortunately not too many other government agencies have been forced into the position that Saint John has. So in the public sector there is not much precedent to help determine the best route to go.

City managers cannot be blamed for the challenges facing the plan or the difficulty in choosing acceptable reforms going forward. It is a very complicated issue and they are fed many tall tales from the unions. Council certainly could be more transparent in the process and disclose what options are being bandied about.

There are very few options to choose from. All options mean some sacrifice for either taxpayers, employees or both.

It is unfair for employees to be worried about changes affecting their pension income. It is clear that in pension reform situations all benefits accrued to date are honoured and it rare that they are ever changed. The current plans are based on accrued time at work. For every year of service a two per cent accrual is given. This means that after 35 years of service 70 per cent of the final average working income is guaranteed. Most police and fire employees in Canada are eligible for pensions after 30 years.

Changes to the pension accruals going forward can be made, and these are probably the options city council has in front of them. A hybrid would move to a one per cent annual accrual and one per cent portion into a defined contribution plan. Over the next part of his career, the employee would receive one per cent for each year of service on top of the already earned portion plus a defined contribution deposit of, say, five per cent of salary per year. His pension at retirement would be part defined benefit and he would have a hefty defined contribution account.

Unions are using the same old tactics to threaten taxpayers and muddy the waters on this issue.

Firefighters and police across Canada are generally eligible for a full pension at age 50. It is likely this many are eligible for retirement every year, so for the union to state “some workers have already warned their leaders they’ll leave their jobs” is a stretch. They are eager to get back into the civilian workforce where they can collect their full pensions and return to work and earn another wage, with a different employer, in a concept know as “double dipping.” Many employees in their early 50′s many are really to young to retire but that is when pensions are eligible, so why not take it?

The police force probably can lighten the load on taxpayers a little, anyways. The annual police report shows that total offences are down about seven per cent since 2007, but I can assure you costs have climbed over that same period. The police force has a budget of $23.8 million and spends 81 per cent, or $19.9 million, on the compensation package.

The average Canadian reaches age 65 with an RRSP account value of $60,000. At the city of Saint John, employees have already accumulated a pension per employee and retiree of $209,000 each. They are telling taxpayers they need another $129 million to get “what has been promised.” The pension currently has $350 million in it, and the $129 million “shortfall” would bring it to $479 million for 886 active employees and 786 retirees, giving each pension member a retirement fund value of $286,000.

A first-class constable in Saint John makes $72,354 per year. At the same position in Montreal, a constable makes $71,182 per year. Montreal has a similar pension formula as Saint John and reported earlier this year the average officer is retiring at age 53 with an annual pension of $59,000.

Then the union states that the average pension is $26,000 but does not make for a gold-plated pension. What the union does not mention, in the average pension reference, is that it includes pensions for employees retired for 30 years or more and those who retired with only a few years of service. The average of new pensions is the real number to evaluate, and this year it will be much, much higher than the $26,000 floated out.

Another fact is the $26,000 cited is only the pension. Retirees are also eligible for $11,500 in CPP and additional OAS benefits as well.

Remember, there are only a few options for the pension debacle: change the pensions going forward, raise taxes, borrow money or cut services. What will it be?

Bill Tufts of Burlington, Ontario is with Fair Pensions For All.

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