Opinion: Quebec cannot afford its public sector pension plans
The same problems facing Quebec’s public sector pension plans are happening across the rest of Canada too, where governments at all levels are staggered by the cost of funding pensions.
In 2002, Canadians contributed $8 billion into the pension plans of public sector employees and this year over $35 billion will be contributed.
While half of Quebec seniors live on income of $20,100 or less, most retired municipal employees have retirement incomes two or three times higher under the current system.
Those who say changes will hang Montreal pensioners out to dry are disingenuous and entirely self-serving.
It’s important to remember that many municipal employees, while being members of the city’s pension plan, also receive full benefits from the Quebec Pension Plan and the Old Age Security program.
Government plans form the base of their retirement income with QPP, at age 65, providing up to $12,459 and Old Age Security, an additional $6,700.
When the funding problem became evident and Montreal-area mayors started to talk about pension reform in 2012, the average city worker’s pension was $35,000 and they retired at age 55. City managers retired at age 59 with a $51,000 pension.
A Montreal police officer leaves the force at an average age of 53, and collects $59,000 per year in pensions, while a city firefighter retires at an average age of 52 with $53,000 per year in pensions.
In the City of Montreal, the average non-government worker makes $38,900.
It’s not sustainable or fair that taxpayers must pay for retirees to receive more money than they make themselves while working.
A police officer, retiring at age 53 will collect his pension, on average until age 85. That’s another $1.8 million.
Current pension reform proposals began with some pretty basic changes.
The first was to raise the age of retirement and the other was to raise the current portion that an employee contributes plan which would be be 50/50 with taxpayers, with 70 per cent now being paid by taxpayers.
READ MORE: Unions slam Liberals’ pension plan bill
Municipal mayors have come to realize the damage that pension plan obligations are doing to the long-term economy of the cities they run.
These are putting cities into financial stress and diverting money from other essential spending areas.
The residents most affected are lower income earners who count on the programs first to be reduced or eliminated to fund pensions. They are also seeing the effect of dramatic tax increases in the services they use and the rents they pay.
All employees need to take heed or Montreal will end up like many bankrupt U.S. cities.
Rather than encouraging members to get behind the reforms, necessary to save their jobs and preserve benefits, unions have spread misconceptions about pensions to gather support for the status quo.
One common myth is that pensions were negotiated as part of a fair collective bargaining process.
In many instances, the agreements were approved by city councillors who are collecting from the same city pension pots. So, unions are negotiating for more generous pensions with people who directly benefit from the proposed increases.
This has created a perverse system of incentives and has lead public pensions down the road of unsustainability.
These pension advancements become political side deals that politicians make with the unions in return for political support. The process certainly does not seem fair for the taxpayers footing the bill.
Many municipalities have now unofficially defaulted on pensions. Expect more of the same, as cities in the Montreal area find that they are unable to provide the basic services that taxpayers pay for.
When cities do go bankrupt, retirees may find that the pensions they have counted on will not have any money left.
Employees may not have been given much motivation to makes change, but in the end they could lose everything.
The retirees of today are counting on taxpayers to continue funding these pensions. They also need contributions from current employees.
But younger employees are becoming increasingly alarmed to see retirees earning more in pensions than they themselves make working, yet are forced to contribute a significant portion of their wages into these plans. They have the very reasonable concern that despite paying big contributions, the same pensions won’t be there for them.
A fix to the pension problem is within reach
There are two things that would protect cities and taxpayers against future pension meltdowns:
1. Give current employees the option to have a defined contribution plan that will provide an adequate retirement benefit while costing them much less in today’s contributions.
2. Take the responsibility away from municipalities for managing these plans and give unions full control, with cities only being responsible for their annual contributions.
The solutions are surprisingly simple. All it takes is the courage to makes the changes happen.
Bill Tufts is a specialist in employee benefits and pensions, and the founder of Fair Pensions For All, an advocacy group that focuses on public sector pension and compensation issues and works for major changes to make them secure and fair for both employees and taxpayers.
© Bill Tufts, 2014