Canada’s Public Policy Forum

Identifying the Solutions:

Defined Benefit Plan Sustainability in the

Public Sector

Paul Moist, National PresidentCanadian Union of Public EmployeesOctober 9, 2014 │ Toronto, Ontario

Big Picture

•Canada’s #1 pension issue is the lack of workplace coverage.

•Half of middle class baby boomers looking at steep drop in living standards when they retire (Wolfson) and problem projected to get worse with each successive generation (CIBC).

•Combined employee/employer contributions to all mandatory social security programs of 20 advancedEconomies; Canada ranks 2nd last.

(source: World Bank 2010)

• Need to be careful with this term.

• Employer and employee definitions of “sustainability” differ.

• Sustainability can’t be a goal on its own.

• Benefit security and adequacy also have to be key goals.

“Sustainability”

“Sustainability”• CUPE rejects notion that DB plans no longer work.

• DB the best way to meet real set of pension goals:

1) secure, adequate, predictable benefits

2) sustainability

• We recognize demographic trends and have been making changes to plans.

• Plan funding improving.

“Sustainability” │CUPE’s View

DB the Real “Shared Risk”• JSPPs, conditional plan elements (indexing) share risk

automatically.

• Beyond this, CUPE has strong record of working with employers facing funding challenges to find reasonable deals.

• Employer pension costs often downloaded to members during wage bargaining.

DB the Real “Shared Risk”

Selling “Shared Risk”Selling “Shared Risk”

• Media and governments largely repeat message that these plans share risk between workers and employers.

• Employers face virtually no real risk in “Shared Risk” – only risk shared is between active and retired members.

NB Gov’t to PSSA Plan Members:

• “My pension is protected better than ever before.”

• “Your pension will be more secure under an SRP.”

• “Members can have confidence that their base benefits are protected better than before and that their benefits will be protected against inflation.”

8

NB Auditor General Report, 2013 v 1 ch 3

NB Gov’t to Auditor General:

• Is this double-speak politically sustainable?

• If plans require big cuts to benefits of actives and retirees (and all employers have to do is pay a tiny bit more), plan members will be angrily asking:

I thought we shared risk with our employer?

Selling “Shared Risk”

• “Shared Risk” plans and others (QC, PEI) allow past promises to be re-opened.

• Unprecedented outside of insolvency: are we now treating all plans as though they are bankrupt?

• Governments continue to make good on debt obligations to other creditors like bondholders

• Aren’t we a country where a deal is a deal?

Broken Promises

Another Story on DB

• Not “gold plated”

• Largely paid by investment returns, remainder of reasonable cost shared between workers and employers

• Macro-economic effects: positive job, GDP relationships

• Lowered demand on social and income support programs

• Source of macroeconomic strength and “sustainability”

:jv/ceuOctober 7, 2014 │ 9:25am