Based on a recent Fraser Institute report, the Vancouver Sun editorial (Sept. 20, 2013) headlined "BC must address problem of
public service pension plans" is wrong both in fact and tone. It is
one thing for the Fraser Institute to pen a disingenuous,
ideological offering in which it conflates various public pension
plans across the country; it is quite another for the Vancouver Sun
to uncritically transfer these whole-cloth ideas as an editorial.
The first distortion is that public sector employee plans are lumped
in with the self-serving, gold plated pension plans of members of
parliament and members of the legislature. These plans are not the
same and they are not funded in the same way. The latter include
taxpayers' contributions of many multiples of the contributions
regular public employees. With public service plans, the employee
from earnings and the employer usually contribute very similar
amounts.
The second contrast I would make is a very critical contrast between
the public service pension plans in the Federal government and the
public service pension plans in British Columbia.
The Federal Government funds annual public-service pension payouts
from general revenue. Over the years, the contributions of
employees from their earnings does not go into a separate
pension fund. Direct contributions from the employees'
salaries are transferred into general revenue along with a
'matching' book-entry payment from the taxpayer.
So, when a Federal Government employee begins to collect the
defined-benefit pension at the end of her or his career, there is no
separate fund. These payments are funded by the general revenues,
year to year. Hence, in the case of the federal pension, there is
an ongoing unfunded liability. So, in the case of the Federal
government, there is a 'pension problem'. But the problem is not a
problem created by the rich treatment of employees; it is a problem
of poor fiscal arrangements made by the Federal Government policy
makers -- the politicians.
The public service employee pension plans in British Columbia
operate very differently and there is no taxpayer problem.
In British Columbia, on each pay cheque, the public sector employers
and each employee make roughly similar contributions to specific
defined-benefit pension plan funds (College Pension Plan, Municipal
Pension Plan, Public Service Pension Plan, Teachers' Pension Plan,
Work Safe BC). In these cases, the funds are actually deposited
and administered by an organization at arm's length from government,
the BC Pension Corporation. Ultimately, the BC public sector
pensions are funded by these funds; not from ongoing general
revenue.
I am a retired member of one of the BC plans. My gross monthly
pension is $1,564.47 or, in pay-cheque terms, about $782 by-weekly.
As indicated above, none of this before-tax pension money comes to
me from the taxpayer. It comes from the built-up pension fund and
the revenue earned by the investments of that fund. In this regard,
the operation is similar to the manner in which the Canada Pension
Plan operates.
On behalf of current and future pensioners, those administering
these funded plans, invest the monies in order to fund the future
payouts. For example, the March 31, 2013, report for the College Pension plan
indicates that over the past 23 years, the fund has earned a return
of in excess of 8% annually; and for the last year reported,
investment income was in excess of 5%. All the other BC plans
operate similarly. The BC pension payouts are funded overwhelmingly
by earned income from investments. Not from the taxpayer.
It is true that pension contributions by employees and employers are
adjusted regularly to take account of actuarial assessment of the
funds liabilities into the future; but just as with any other
expenses one considers nowadays, the costs of future pensions is not
static. Costs go up. Such costs likely would go up also for the
defined contribution plans apparently favoured by the Fraser
Institute. In this world of ongoing inflation, surely no employer
would hold employees to a one-time-only pension benefit amount.
While I am grateful to have the pension I have, I would argue that
it is anything but gold-plated and though it is a defined benefit
plan, it is NOT a problem to the BC tax payers. In fact unlike the Fraser Institute, I pay
income taxes just like most others.
The tax-free status of organizations such as the Fraser Institute --
now that really is an editorial worth writing.
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