November 1, 2012 – 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 more information contact: William Robson, President and CEO, or Alexandre Laurin, Associate Director of Research, C.D. Howe Institute. 416-865-1904; email: [email protected].