Undefined Benefits

Undefined Benefits

undefined benefits

Ignoring expert warnings and employee protests, Progressive Conservatives turn pensions upside down

by Mark Wells

Communications Staff

By the time you pick up this issue, you and your colleagues have e-mailed more than 19,000 letters to MLAs, demanding that they reverse course on plans to water down your pensions. Thousands of you have attended townhall meetings across the province, in person, online and by telephone to learn about the Progressive Conservatives’ attack on your retirement plans. Hundreds more have taken the brave step of confronting Progressive Conservative MLAs face to face, demanding answers (with unsatisfying results). And on the first Sunday of March, 2,000 employees like you, from unions across the province, braved -30 C temperatures to join in a massive downtown Edmonton rally to defend your retirement security. But despite all of these efforts, and increasing nervousness from back-bench Progressive Conservatives about their prospects for re-election, the government is intent on carrying out its destructive plans for your pension.

On Feb. 24, Finance Minister Doug Horner (Redford’s favourite commander in the war on public employees) announced that the government was implementing massive changes to the Local Authorities Pension Plan and the Public Service Pension Plan, without further consultation. Of course, true to form, they had carried out no true consultation before the announcement either. Instead, the government simply requested submissions from each affected union and then ignored the recommendations, choosing to sweep away the 85 factor, increase early retirement penalties, and remove the guarantee of already inadequate cost-of-living adjustments.

"I’m immensely frustrated and disappointed by this government. Facts mean nothing to them. Their only concern is trying to score political points by picking fights with their employees," said AUPE President Guy Smith.

"The truth is that there is no crisis in the pension plans. Members are paying higher contribution rates now that will pay off the unfunded liability no later than 2026. Even the Finance Minister has admitted that there is no crisis. The Auditor General has weighed in saying the government has failed to prove any of their changes to the plans will improve long-term sustainability. But it’s not

by Mark Wells

Communications Staff

enough to persuade a government that fundamentally objects to helping their employees obtain a secure retirement," Smith said.

Indeed, the Auditor General’s February report on the pensions was a damning indictment of the government’s handling of the pension file. He recommended that the government:

• validate the objectives for the review with stakeholders,

• evaluate and report on how each proposed change meets the objectives of the review, cost and stress-test all proposed changes to assess the likely and possible future impacts on the plans,

• conduct or obtain further analysis of what effect the proposed changes might have on employee recruitment and retention.

By the time Horner had announced his changes to the plan, not one of those recommendations had been followed. But perhaps the most worrying was the Auditor General’s comment that despite all of the changes proposed by the Redford government, the pension plans may be no better off than they had been before, as the government had failed to test the impact of their changes.

The report stated that when the audit was conducted, "the plans had not yet been stress-tested with all options incorporated into the testing to support this conclusion. Stress testing means modeling how the plan would perform if significant risks were to occur…It is therefore unclear whether the proposed reforms significantly increase the likelihood of the plans’ sustainability."

Equally concerning was the fact that the government had failed to ask any of the employers in the plan how the changes would affect employee recruitment and retention. "We did not identify a coordinated process amongst public sector employers that would enable the department to assess the impact of proposed changes to the pension plans on employee recruitment and retention," the Auditor General’s report stated.

"We are hearing numerous reports of employees who are planning to leave the public service as a result of these changes. And that’s worrying because a run on the plan would only drive the unfunded liability up to a much higher level, leaving the plan in worse shape than when they started," said AUPE Executive Secretary-Treasurer and chair of AUPE’s Pension Committee Jason Heistad.

"Frankly, this PC government’s failure to examine how the changes to the LAPP and PSPP would affect public service retention is an insult to employees and degrades the importance of public sector careers. They don’t realize that these changes, combined with their insistence on a wage freeze, are systematically turning public service jobs into a second-tier employment option in the competitive Alberta job market," he said.

LAPP & PSPP changes on Jan. 1, 2016

End of the 85 factor

The "85 factor," which allowed employees to retire with an unreduced benefit as early as age 55, if they had accumulated 30 years of pensionable services, has now been replaced with a 90 factor. To retire five years early, at age 60, an employee will now need 30 years of service instead of 25.

Increased early retirement penalties

For employees that don’t have the "90 factor" benefits will now be reduced by five per cent each year of early retirement, up from three per cent. So a $1,000 per month benefit will reduced to $750 per month if you retire five years early, rather than $850 per month.

COLA indexing

Your pension has been adjusted to make up for 60 per cent of increases in the cost of living. Now, COLA indexing has become conditional on the financial performance of the pension plans. The bottom line is that if the plans do poorly, you could end up with a lower benefit.

Contribution caps

The Finance Minister has stated that a contribution cap will be brought in "after further consultation with stakeholders." This is the most destructive of all the planned changes. What a contribution cap means is that if the plan faces another stock-market crash, the only option will be to reduce benefits. In essence, your retirement benefit will no longer be defined, even if you are forced to continue paying high contribution rates.

a tale of two pensions

Peter Watson has suggested everyone is pitching in to achieve government’s objectives. But some can afford to pitch in more than others. Here are two hypothetical pension scenarios, based on actual salaries.

Admin Support employee, Age 65

Retiring Dec. 13, 2015

35 years PSPP membership

Final average earnings: $57,900

Income replaced: 54%

Annual pension $29,748

Deputy Minister, Exec. Council, Age 65

Retiring Dec. 13, 2015

35 years MEPP membership

Final average earnings: $342,631

(Peter Watson’s salary)

Income replaced: 70%

Annual MEPP/SRP pension: $239,841