Further Reforms to Federal Pensions Required: C.D. Howe Institute

TORONTO, Nov. 1, 2012 /CNW/ – While Ottawa’s proposed reforms to the
pension plans of federal employees and MPs are a move in the right
direction, the deep flaws in these plans require more fundamental
revisions, according to a report released today by the C.D. Howe
Institute. In “Federal Employee Pension Reforms: First Steps – on a
Much Longer Journey,” authors William B.P. Robson and Alexandre Laurin
argue that more sweeping reforms are needed to achieve better funding
and a more reasonable division of obligations and risks between
taxpayers and public servants.

“The guaranteed incomes those plans promise participants are far more
valuable, and their costs and obligations on taxpayers are far larger,
than reported,” said Robson, President of the Institute.

Currently before Parliament, the new provisions include increasing
employee contributions to the plans and raising eligibility ages for
new employees’ benefits. “The prospective increases in employee
contributions would start saving taxpayers money in the short term, and
raising eligibility ages for new employees’ benefits will reduce the
growth of these plans’ liabilities in years to come,” said Laurin, the
Institute’s Associate Director of Research. “But the flaws in Ottawa’s
employee pension plans are so serious that these steps should – and
almost certainly will – not be the end of the journey.”

The authors find:

        --  The annual accumulations of wealth in these plans are now much
            higher than their reported current service costs, meaning that
            employee contributions will fall far short of their advertised
            50-percent share
        --  Taxpayers will still bear more than half of the risk of changes
            in the cost of new obligations and - more important - the
            entire risk of changes in the cost of servicing past
            obligations unless the federal plans are converted to
            target-benefit plans in which benefits adjust depending on
            funding.
        --  Federal employees now get tax-deferred saving that is triple or
            more what Canadians contributing to defined-contribution
            pension plans or RRSPs get, an unjustifiable unevenness in
            treatment.
        --  The proposed reforms will still leave the MPs' plan completely
            unfunded, which weakens parliamentarians' moral authority to
            lead Canadian pension reforms.

For the report go to: http://www.cdhowe.org/federal-employee-pension-reforms-first-steps-on-a-much-longer-journey/19517

SOURCE C.D. Howe Institute