Time to reform public-sector pensions, city told

November 12, 2011
By

The Daily Gleaner, Fredericton

May 30, 2011

By HEATHER MCLAUGHLIN
mclaughlin.heather@dailygleaner.com

 

Is it time to undertake a complete reform of the City of Fredericton’s pension plan?

The president of Fredericton’s Chamber of Commerce says yes. So does an Ontario-based pension advocacy group which has written to the city about reining in the growing cost of public-sector pensions.

Fredericton city council recently passed amendments to its pension plan, upping the co-premiums paid by employees and workers, eliminating overtime in the pensionable earnings definition and capping post-retirement pension indexation at 1.5 per cent.

The moves were aimed at reducing a $37.5-million pension deficit in concert with a fresh investment approach to have the plan produce more revenue.

The local business chamber, which has 900 members, said it’s concerned about the costs associated with maintaining the municipal government’s defined-benefit pension plan.

“Chamber members are concerned that Fredericton taxpayers will be asked to support the pensions of city staff by way of increased tax rates, reducing their ability to save for their own retirement,” said Mike Toole, president of the Fredericton Chamber of Commerce.

“Given the shortfall of the current pension plan, the city’s fiduciary responsibility, and the fact that defined-pension benefit plans are offered almost solely in the public sector, we feel strongly that this type of pension structure is no longer viable,” Toole said.

“We recommend that the City of Fredericton move to adopt a defined-contribution pension plan – as the majority of private-sector employers have – and develop a process to grandfather those who were hired under the existing structure,” Toole said.

The city’s former finance committee chairman, Coun. Mike O’Brien, said he’s also supportive of an overall review of the city’s pension plan.

“Going forward, there’s other things we have to look at. Maybe there’s a new package that has to be put into place for new employees down the road,” O’Brien said. “Let’s let the dust settle on this for a while and get everybody calmed down and maybe a year from now, we have to look at a new pension package for new employees that would reduce the burden on taxpayers.

“At least if you’re hired under those conditions, you know what you’ve been asked to do. That’s something I’d like to look at in the future as a councillor, (as I’m) not the finance chair anymore.

“The highest users of overtime are people who are making $70,000 and $80,0000 a year.”

Bill Tufts of the Burlington, Ont.-based Fair Pensions for All group recently sent a letter urging the city to rein in public-sector pensions.

“We urge council to not approve contribution rate increases and to implement major changes to make the civic pension plan much more sustainable both for employees and taxpayers,” Tufts said in a letter to the city.

“Our research shows that the single biggest costs to pensions is increasing salaries. … For example, we saw that last year wages at the city went up three per cent, but the pension obligation grew by 21 per cent. As more employees retire every year with higher wage rates, pension costs will start to skyrocket.

“The minor tweaks suggested … cannot possibly keep up with the ever increasing pension costs and pensions will start to eat up more and more of the city’s budget.”

Neither group is calling on the city to backtrack – nor can it legally do so – on existing benefits.

“We support the proposal to close the current plan to new entrants and enrol any new civic employees in a hybrid type pension plan or a defined contribution plan. This would be an important first step in striking the right balance between employees and taxpayers,” Tufts said.

The group did support the pension amendments approved by council earlier this week.

Tufts said city employees aren’t unfairly treated and receive typically 12.5 per cent more than their counterparts in the private sector, he said.

The group said the benefit spending allowance – essentially the city’s health plan – should be also be eliminated in the calculation of final pensions.

“It is not usual to include non-taxable benefits for pension purposes,” he said.

The group is also suggesting the standard retirement age for full pensions become 65.Is it time to undertake a complete reform of the City of Fredericton’s pension plan?

The president of Fredericton’s Chamber of Commerce says yes. So does an Ontario-based pension advocacy group which has written to the city about reining in the growing cost of public sector pensions.

Fredericton city council recently passed amendments to its pension plan, upping the co-premiums paid by employees and workers, eliminating overtime in the pensionable earnings definition and capping post-retirement pension indexation at 1.5 per cent.

The moves were aimed at reducing a $37.5-million pension deficit in concert with a fresh investment approach to have the plan produce more revenue.

The local business chamber, which has 900 members, said it’s concerned about the costs associated with maintaining the municipal government’s defined benefit pension plan.

“Chamber members are concerned that Fredericton taxpayers will be asked to support the pensions of city staff by way of increased tax rates, reducing their ability to save for their own retirement,” said Mike Toole, president of the Fredericton Chamber of Commerce.

“Given the shortfall of the current pension plan, the city’s fiduciary responsibility, and the fact that defined-pension benefit plans are offered almost solely in the public sector, we feel strongly that this type of pension structure is no longer viable,” Toole said.

“We recommend that the City of Fredericton move to adopt a defined-contribution pension plan – as the majority of private sector employers have – and develop a process to grandfather those who were hired under the existing structure,” Toole said.

The city’s former finance committee chairman, Coun. Mike O’Brien, said he’s also supportive of an overall review of the city’s pension plan.

“Going forward, there’s other things we have to look at. Maybe there’s a new package that has to be put into place for new employees down the road,” O’Brien said. “Let’s let the dust settle on this for a while and get everybody calmed down and maybe a year from now, we have to look at a new pension package for new employees that would reduce the burden on taxpayers.

“At least if you’re hired under those conditions, you know what you’ve been asked to do. That’s something I’d like to look at in the future as a councillor, (as I’m) not the finance chair anymore.

“The highest users of overtime are people who are making $70,000 and $80,0000 a year.”

Bill Tufts of Burlington, Ont.-based Fair Pensions for All group recently sent a letter urging the city to rein in public sector pensions.

“We urge council to not approve contribution rate increases and to implement major changes to make the civic pension plan much more sustainable both for employees and taxpayers,” Tufts said in a letter to the city.

“Our research shows that the single biggest costs to pensions is increasing salaries. … For example, we saw that last year wages at the city went up three per cent, but the pension obligation grew by 21 per cent. As more employees retire every year with higher wage rates, pension costs will start to skyrocket.

“The minor tweaks suggested … cannot possibly keep up with the ever increasing pension costs and pensions will start to eat up more and more of the city’s budget.”

Neither group is calling on the city to backtrack – nor can it legally do so – on existing benefits.

“We support the proposal to close the current plan to new entrants and enrol any new civic employees in a hybrid type pension plan or a defined contribution plan. This would be an important first step in striking the right balance between employees and taxpayers,” Tufts said.

The group did support the pension amendments approved by council earlier this week.

Tufts said city employees aren’t unfairly treated and receive typically 12.5 per cent more than their counterparts in the private sector, he said.

The group said the benefit spending allowance – essentially the city’s health plan – should be also be eliminated in the calculation of final pensions.

“It is not usual to include non-taxable benefits for pension purposes,” he said.

The group is also suggesting the standard retirement age for full pensions become 65.

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