Posted by Tim Stobbs on January 11, 2012
I came across this article the other day in regards to cost cutting in the next federal budget. While a 5 to 10% cut in department spending is a noticeable drop, what caught my eye was the discussion around government worker pension plans. Why would that stand out for me?
Perhaps of some stats (from The Taxpayer, Fall 2011) that I came across over the holidays on pension plans in Canada for the public and private sectors.
Employees with Workplace Pension Plans
1977 – 75.5%, 2009 – 86.2% for a +10.7% increase
Private Sector Workers
1977 -35.2%, 2009 – 25.3% for a -9.9% decrease
It gets worse when you look at who has defined benefit pension plans.
Employees with Defined Benefit Pension Plans
1977 – 74.8%, 2009 – 81.0% for a +6.2% increase
Private Sector Workers
1977 -31.4%, 2009 – 14.2% for a -17.2% decrease
Holy, S*&$! 81% of government workers have defined benefit pension plan while less than 18% have one in the private sector. Talk about the classic 80/20 split. That isn’t great for a lot of retirements, but what is more concerning is the huge liability the government keeps growing for having those type of pension plans.
I should know. I work at a crown corporation that got rid of defined benefit plans for new workers about 20 years ago. Which is precisely what the government has to be thinking about in the long term with this. By shifting plans for new workers you can then contain the cost to the taxpayer…ie me and you. Not to mention on an early retirement perspective, you really don’t want to be tied to a given employer for the next 20 years. I rather have the cash and be able to leave when I like.
Of course this is hardly just a federal problem, all levels of government have similar cost issues and pension issues. I know there was discussion on my local city council in the last year with regards to not wanting to raise taxes purely to fund pension plans. You can bet that went over like a lead balloon with the unions involved.
So overall, I can see the next few years being very hard on defined benefit pension plans as struggling governments at all levels take a hard look at those increasing costs and shrinking revenues.
What is your thoughts for the future on defined benefit plans? Keep them, cut them or do you wish you had one?