Public sector unions slam new legislation as severe, unnecessary
Pension reform has spread like wildfire across the nation — and Alberta is up next.
In September, the provincial government revealed its plan to overhaul four of its public pension plans to meet soaring costs and to create a financially sustainable and secure model.
As it currently stands, those four separate public pension plans will set the government back more than $7 billion.
As such, finance minister Doug Horner introduced the changes to combat rising longevity numbers, an aging workforce and unpredictable economy. That includes scaling back cost of living adjustments and eliminating early retirement.
"Alberta’s public sector pension plans are facing the same challenges pension plans around the world are facing — people are retiring early and living longer, investment returns have been lower, and the ratio of pensioners to active members is increasing. And while Alberta’s public sector pension plans aren’t in a crisis, now is the time to ensure we’re making the right changes to improve the long-term financial health of our pensions plans," said Chris Bourdeau, spokesperson for the finance ministry.
Among the proposed reforms, two major changes have resonated with public servants. First, the government will put an end to early retirement subsidies, meaning workers can still retire as early as 55, but with a reduced pension. Secondly, cost of living adjustments will be reduced to 50 per cent of Alberta’s inflation, as opposed to the previous guarantee of 60 per cent.
Under the plan, both employees and employers would make contributions.
But according to Marle Roberts, president of the Alberta chapter of the Canadian Union of Public Employees (CUPE), the clawbacks have blindsided public sector staffers.
"It’s not a gold-plated pension plan, it’s a savings plan for members they’ve negotiated with their employer, who have been putting this money away for years for retirement, and now they’re pulling the rug out from underneath them," she said. "Retirement is something you plan for over a long period of time. It’s just the rug being pulled out from people’s entire income security."
However, Bourdeau maintained the province must shake up its current pension model to keep up with a changing labour force and economy. Moreover, the changes are not as drastic as the unions are making it out to be, he said.
"First, benefits already earned are not being touched and the core benefit — and how it is calculated — is not changing. This is an important distinction. The retirement age is not changing as well — only the incentive to retire early for those who choose to do so is being removed," Bourdeau explained.
While public sector unions have decried the program as a death knell of traditional defined benefit plans, Michael Wolpert, a Calgary-based pensions lawyer at Lawson Lundell LLP, said change is coming — whether we like it or not.
"I certainly wasn’t surprised. It was expected, and underway at a lot of provinces. Public sector plans are under a lot of scrutiny throughout the world and certainly in North America," Wolpert explained. "Of course the size of the liability with these plans is growing. They’re facing, in some ways, some of the same issues as private sector plans have faced with continuing low interest rates and changing demographics, people are living longer, things like that. There’s a question as to whether or not these plans are sustainable. All provinces in Canada are looking into this issue, whether something has been done or not, that’s just a matter of time."
Wolpert pointed to New Brunswick, where seminal pension reform has blazed the trail. Back in 2012, the province introduced a risk-sharing model that guaranteed its public sector employees with a pension, but offered no guarantees for changing market conditions. According to the government, it had come up with a plan that was financially sustainable — and Alberta was quick to follow suit.
Even CUPE New Brunswick backed the model, saying it was designed to fund longer years of retirement and, despite the fact there is a reasonable expectation (but not a guarantee) funds would be protected from inflation, the shared risk design is one that was self-sustaining.
Similarly, when Detroit filed for bankruptcy in the summer, industry stakeholders were forced to sit up and pay attention. With increasing pension obligations and no way to fund them, how can these plans remain financially sustainable?
The answer, perhaps, lies with a New Brunswick-esque shared-risk model.
For public service employees back in Alberta, that will likely spell longer working lives and more savings to finance their retirement.
Roberts maintained the proposed cuts push the envelope too far.
"The cuts that they’re talking about in Alberta are severe," she said. "Preliminary research that we’re having done by our pension experts (show) the cuts have not been this drastic across the country. Even the New Brunswick plan, these cuts were not as drastic that (Horner) is talking about in Alberta. We’re talking here a race to the bottom in regards to retirement security, all across this country, not just for the labour movement."
The provincial government has requested feedback on the proposed pension reforms from stakeholders, who will have until the end of the year to discuss the matter. The changes are slated to head back to the legislature in 2014, with the program coming into effect at the beginning of 2016.
