Union Update
Spotlight on Pensions - September 2009
- Protecting workers, protecting pensions
- Resources on pensions and retirementResources on pensions and retirement
- How to improve pensions for everyone
- Court appeal on $30 billion pension surplus litigation pushed to 2010
- Updated travel guidelines for federal workers
Protecting workers, protecting pensions
PSAC stands up for the right to retire with dignity
By John Gordon, PSAC National President
Pensions are a hot button issue for many Canadians now and rightly so. The current financial crisis is casting a long shadow over money markets, imperiling the retirement savings of many and raising uncomfortable questions about how millions of Canadians have been left to fend for themselves.
In this climate of fear and uncertainty, half-truths and misinformation are being cultivated by corporate interests and their allies in government who are attempting to cobble together a rationale that will excuse them from making good on their pension obligations to workers. This allows them to avoid the broader issue: the need for pension reform for all Canadians.
Witness the haste and the narrow mandate of the national pension consultation recently conducted by the federal government. Rather than address the glaring inadequacies of our current pension patchwork – a system that leaves millions without adequate retirement income – the government chose to focus on narrow issues.
Bullying tactics
The federal government has narrowed in on the need to tweak existing pension funding regulations for a handful of large, federally-regulated corporations. Meanwhile, public sector workers who have paid into their pensions their whole working lives are being scapegoated in the media as “pension predators.”
A key tactic used to distract the public from meaningful discussion about pension issues is to exploit the latent hostility against public sector workers by portraying them as pension “haves” among the many Canadians who are pension “have-nots.”
The plan seems to be to discredit defined benefit pension plans as a costly and unfair benefit. This creates pressure on companies and on unions to scrap good pensions in favour of defined contribution plans that shift all the risk onto workers, with no guarantee of proper returns. Ultimately, this would lower the bar for all workers.
One misconception that is frequently used to ratchet up the hostility against public sector workers is the notion that public sector unions somehow hoodwinked the government, securing guarantees for overly-generous pension plans that the government cannot now afford. This often comes out as “why do my tax dollars have to pay for your gold-plated pension?” The short answer is they don't.
Deferred salary
Pension benefits paid to our members are deferred salary. The bottom line is that all – and I repeat all – contributions made to public service pension funds represent part of our members' total, overall compensation package.
For example, right now one of our members who makes $50,000 per year contributes about 5.4 per cent of his or her annual salary directly to the pension fund. By 2013 that worker's contribution will increase by roughly 20 per cent to 6.5 per cent of annual salary.
In fact, employee pension contributions will have increased by 41 per cent over the period from 2005 to 2013 – and remember that these contributions are in 2 | Spotlight on Pensions | September 2009 addition to required contributions to the Canada/Quebec Pension Plans. By 2013, employee contributions will constitute about 40 per cent of the total cost of providing pension benefits.
Nominally, the employer “contributes” the other 60 per cent. In reality though, this employer contribution to the plan is really just a component of the employee's total compensation package. It's not a gift from the taxpayers or a hand-out from the employer – it's a part of the employee's pay, and this becomes very apparent at the bargaining table. That's why, strictly speaking, the pension benefits paid out to our members must be understood as deferred salary.
Pension fund deficits
The other part of the one-two punch often used against public sector workers and their pensions questions why taxpayers are on the hook to cover pension fund deficits when the markets decline. Because this paper-thin analysis trades on the complex workings of defined benefit pension plans, it provides very fertile ground for half-truths and distortions.
Without getting into a discussion about actuarial models and pension fund solvency ratios, suffice it to say that over the very long time horizon that defined benefit pension plans operate, there will be pension fund deficits and there will be pension fund surpluses. We know this because in 1999, the government used legislation (Bill C-78) to appropriate $30 billion from the surpluses of three public service pension funds. PSAC, along with 12 other plaintiffs, is currently involved in a lawsuit against the federal government that seeks to recover those funds.
Time for change
PSAC is joining with the Canadian Labour Congress to call for a meaningful national debate on pension reform. In particular, we are campaigning for enhancements to the Canada Pension Plan and Old Age Security to move towards fairness in retirement incomes for all Canadians. Everyone should have the right to retire with dignity. PSAC is working hard to make this a reality.
Resources on pensions and retirement
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PSAC's popular guide, Retiring from the Public Service, has been updated and will soon be available on the PSAC website. Visit psac-afpc.com or call 613-560-4200 for more informaiton.
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The Association of Public Service Alliance Retirees is a valuable resource for retired PSAC members and their spouses. The association keeps members informed about issues related to their pensions and benefits and also lobbies the federal government on issues related to seniors and retirement. Visit them at psac.com/about/apsar.
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The Canadian Labour Congress will be holding training sessions this fall, as part of its Retirement Security for Everyone campaign. Visit canadianlabour.ca for more information.
How to improve pensions for everyone
The Canadian Labour Congress is launching a major campaign in support of public pensions. Canadian labour unions have come together to demand that no seniors should be forced to live in poverty due to meagre or non-existent pensions.
The following is adapted from the CLC's discussion paper, Security, Adequacy, Fairness: Labour's Proposal for the Future of Canadian Pensions:
Without question, recent events have exposed major faults at the heart of our pension system. Our public pension system – Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) plus the Canada Pension Plan – provides a secure income in retirement, but the maximum value of public pensions falls well short of replacing the 50 to 70 per cent of pre-retirement income needed to maintain decent living standards.
Compared to many other advanced industrial countries, our public pension system is very under-developed. The private part of our pension system, which was meant to make up the big difference between public pensions and adequate retirement incomes, is in deep trouble.
Only about one in five workers in the private sector now belong to an employer pension plan. Very few non-union workers, with the exception of managers and professionals, are covered by an employer plan. Many of the plans which do exist are on shaky financial ground because of low interest rates and the recent collapse of stock markets.
Despite improvements in recent decades, a disturbing number of vulnerable seniors – single women, First Nations, recent immigrants, and those with disabilities – still live in poverty.
The labour movement believes that Canadians should not have to “fend for themselves” in retirement. After a lifetime of work making a positive contribution to our country's development, all Canadians deserve security and dignity in retirement.
The Canadian Labour Congress calls for a national summit of government, employers, labour and others to discuss and bring forward a concrete plan to rebuild and reform our pension system.
Here are some immediate ideas that could go a long way to improve retirement benefits for all workers:
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Double benefits for the Canada Pension Plan (CPP) This would offer efficient, secure and enhanced pension benefits to the 93 per cent of Canadians who make CPP contributions, while also taking financial stress off workplace pensions moving forward. The great majority of workplace plans are coordinated with CPP benefits, meaning that a defined benefit tops-up the CPP pension benefit, with the employer plan making up the difference. We propose to phase-in a doubling of the proportion of average earnings replaced by CPP from 25 per cent to 50 per cent over seven to 10 years to $1,635 per month. This would be financed by a modest increase in worker and employer premiums which would be fair for lower-paid workers.
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Increase low-income pensions by 15 per cent so no senior lives in poverty Our proposal would give low-income seniors up to an additional $110 per month, enough to move virtually all seniors above the poverty line. Moving forward, since an improved CPP will provide better pension benefits, tax subsidies to RRSPs could be reduced to finance an increase in Old Age Security benefits paid to all workers.
- Introduce a national system of pension insurance An insurance floor should be set for defined benefit pension benefits (to a proposed maximum of $2,500 per month) through a system funded by contributions from pension plan sponsors. This would be a federal system initially covering federally-regulated pensions, but provinces would be encouraged to opt into the new system.
The pension insurance system should also take on the task of administering abandoned pension plans from bankrupt employers with no prospects of recovery. Pension insurance should be backstopped by a reserve fund financed through a small financial transfer tax on Canadian stock market transactions.
For more information on the Canadian Labour Congress' campaign for retirement security, visit canadianlabour.ca.
Court appeal on $30 billion pension surplus litigation pushed to 2010
PSAC's appeal of the Ontario Superior Court's decision to dismiss our claims to the more than $30-billion pension surplus that the federal government appropriated from public service workers should be heard in early 2010.
The decision by Ontario Superior Court Judge Antoine de Lotbinière Panet to dismiss our claims was released in November 2007. The plaintiffs, which include PSAC, the Professional Institute of the Public Service (PIPSC) and 15 other federal public service unions, filed an appeal in December 2007.
Due to the complexity of the issues, legal preparations for the appeal have taken a long time. The plaintiffs have been working with a coordinating judge to prepare and exchange appropriate transcripts and factum reports.
PSAC considers this case very significant and important to former, current and future members of the union. That is why we are working hard with the lawyers of the other plaintiffs to prepare the best possible legal arguments that will hopefully overturn the decision of the Ontario Superior Court.
It has been 10 years since PSAC filed a case against the government for passing Bill C-78, legislation which essentially allowed the federal government to appropriate the $30-billion surplus in the pension plans of federal public service workers. PSAC made the claim against the federal government for breaches of trust, fiduciary duty and contractual obligations to pension plan members. Hearings took place over 18 days in a span of about 18 months from November 2005 to May 2007.
PSAC will be keeping the members informed of any significant developments in this case through postings on our national website. Visit psac-afpc.com for updates.
Updated travel guidelines for federal workers
The National Joint Council has released a new Travel Directive, effective October 1, 2009. This specifies the reimbursement rates for meals, accommodations and other expenses related to work travel. Visit njc-cnm.gc.ca to see the new guidelines.
