Submission to the Standing Committee on Alberta’s Economic Future - Review of Bills 9 and 10 (Pension Reform)

Bills 9 and 10 transfer unprecedented powers to government, allowing current and future governments to make sweeping changes to public and private sector pensions through regulation. This legislation is both unnecessary and inconsistent with the stated goal of sustaining pensions. The bills were prepared without full and proper engagement of either the individuals directly affected or the Alberta electorate. And the bills do not respect the fact that employee-employer pension plans, however they are constructed or managed, are deferred income. Finally, neither of these bills addresses the urgent issue that many Albertans do not have adequate pensions or savings for their retirement years.The Alberta government website cites Canadian data from 2010 that shows while 87% of public sector employees were covered by a registered pension plan, only 24% of employees in the private sector have access to one. Bills 9 and 10 may be seen as an attempt to level what appears to be an inequity between public and private sector pensions, but it does not make sense to undermine security in all pensions. The bills would weaken pensions by requiring that benefits be determined by the funds available at the time of retirement.The government website also points out that public sector employees in Alberta receive on average only $13,000 or $14,500 per year, depending on their pension fund, as many pensioners have only a few years of pensionable service or may have retired years ago resulting in low pensions today. These average amounts are below the poverty line and do not constitute sufficient income on which to live. Eliminating COLA when markets are down as proposed in Bill 9 exacerbates this problem. Undermining defined benefit plans by moving to a target benefit plan would adversely affect confidence in pension plans, and therefore, recruitment and retention. As well, low enrollment in such plans would almost guarantee lower benefits for pensioners.Data regarding saving patterns in low paying jobs, low participation in RRSPs, and low participation in private sector pension programs already show more and more seniors are reliant on government assistance programs, which ultimately are funded by taxpayers. A study conducted by the Boston Consulting Group shows that only an estimated 10% to 15% of defined benefit pensioners collect the Guaranteed Income Supplement compared with 45% to 50% of other Canadian retirees. This means that secured pensions save taxpayers about $2-3 billion a year. The study also shows that defined benefit recipients contribute $14-16 billion annually to the economy through income, sales, and property taxes alone. The purchasing power of seniors with an adequate income contributes significantly to the overall economy too. Cenovus Energy, an Alberta oil company, is in the process of implementing a defined benefit pension plan to retain its more experienced staff. Bills 9 and 10 are out of step with the best interests of seniors, the economy and increasingly, innovative companies like Cenovus.With Bill 9, the government does not appear to consider the immediate impact of implementation, set for January 1, 2016. Long serving staff in the public service is calculating the benefits of leaving prior to that date. Even though government has stated that current pensions will be grandfathered, few Albertans are prepared to trust these reassurances. Staff normally recruited from the private sector will be less likely to see their future in the public service. Civic leaders have already warned the government of a mass exodus of experienced and talented workers. The quality of life for all Albertans will suffer as a consequence of Bill 9, as public services deteriorate further in the absence of well-qualified and experienced staff.While the government’s unfunded liability was reported at $19.2 billion in 2013, strong returns on investment have reduced this figure significantly. For example the four largest pension funds were at $7.4 billion and an analysis by the Labour Coalition on Pensions estimates that it has dropped by about $1 billion in 2014. This unfunded liability is not a sufficient reason for undermining the stability of pensions, as all are on a strong footing. Agreements that amortize the liability over 15 years are in place. Actuaries have included in their calculations the increase in numbers of seniors drawing pensions and government has agreed to accept payment of the projected liabilities. It is unacceptable for government to change unilaterally the terms of these agreements and renege on its share of the responsibility. Trust in government is at issue.Defined benefit plans may be either funded or non-funded. In an unfunded defined benefit pension, no assets are set aside and benefits are paid for by the employer or other pension sponsor as and when they are paid. Almost a generation ago, the Alberta government made great progress by moving toward setting aside assets for each plan. The Alberta Teachers’ Retirement Fund was the last major fund to work toward the status of a fully funded pension. Defined benefit pensions provided by the state in European countries continue to be unfunded, with benefits paid directly from current workers’ contributions and taxes. This method of “pay as you go” financing creates the very problems alleged by the government as the rationale for these bills. However, even the wage-based retirement plan in Canada, the Canada Pension Plan (CPP), is fully funded, with assets managed by the CPP Investment Board. Rather than becoming further immersed in pension plans, the government would be wise to extend the management of each plan’s liability to a parent entity and any other person/agency/business, which has rights to the income or assets of the employer.Bill 10 is particularly concerning as it gives government the legislative power to make changes to all pensions retroactively and convert them to target benefit plans. Not too long ago, private sector pension plans were required to insure that promised benefits would be paid. Government has permitted considerable slippage over the years. Today, few companies offer pensions at all, and those that do, offer defined contribution plans which do not provide a guaranteed benefit. Bill 10 fails to protect all pension income/entitlements for the employee/pensioner in the event of bankruptcy or other event that interrupts the employer’s operation. Frankly, it is immoral to allow the market of the day to determine a pensioner’s benefits after paying into a fund for 35 years and counting on a secure income afterward.As these bills undermine pension security and must be abandoned for the reasons stated, the Alberta government should redirect its efforts and begin to work with other provinces and the Federal government on improving the CPP. Data show that an estimated 46% of employees in Alberta are living paycheck to paycheck. Albertans either cannot or choose not to take advantage of saving plans. Only 24% of Canadian tax filers contributed to an RRSP in 2011. In 2012, it was revealed that 66% of members of the Canadian Federation for Independent Business would not take advantage of a Pooled Retirement Pens
ion Plan for its employees. The reality is that many seni
ors currently, and in the future, do not have enough money to live in dignity in their retirement. Albertans are disappointed that our government failed to stand with other provinces in support of a better CPP at the December 2013 meeting of Finance Ministers.Going forward, we urge the Alberta government to abandon Bills 9 and 10 and refocus its efforts on improving the CPP for the benefit of everyone.