Ontario Budget Week

[TOareaFan]

The problem, it seems to me, is pensions... we have public sector workers retiring at 55 at 100% (or close to it) of their top wage. People live into their 90's now; that means that the provincial and municipal governments are paying thousands of people six figures to do nothing for 40 years.

Along their working lives, the worker and the employer contribute to the pension plan......the pension plan invests the money to generate returns.....upon retirement the employee ceases to receive payments from the treasury of the province and starts receiving a pension (a stream of payments) from the pension plan which is a separate corporate entity from the province.

You may argue that pension contributions that the province makes on behalf of public service workers is too high...but it is false to state the bolded part above.

OTTP and OMERS are well managed funds.

 

[crs1026]

There's nothing wrong with good pension plans - provided the balance of contributions between employee and employer is fair and predictable.

There's a lot of debate about whether defined benefit plans - which virtually all public sector plans are - have been fair and equitable, considering that the employer (ie the taxpayer) makes up the difference when the plan projections don't pan out.

Many public sector plans were projecting huge surpluses back in the nineties, when interest rates were higher. These surpluses got spent in the form of improvements to pension benefits (largely earlier retirement eligibility, and better inflation protection).

Since then, interest rates have fallen, and the pendulum has reversed.

If one advances the argument that interest rates will remain low and stable, one has to assume that Ontario will face additional pension plan expenses. Or, public sector pensions will have to be pared back. Some plans have successfully increased employee contributions, or pared back benefits. But many are still showing shortfalls. The funds are well managed, so they are making lots of money - but not enough to cover future liabilities.

- Paul

 

[crs1026]

The higher level executives are dramatically underpaid compared to private sector standards, yet they're the ones the populist "OMG TAXPAYER DOLLARS" rage harps on about.

You're very correct in that it's the support staff and lower level people who are the overpaid ones.

This phenomenon has been studied fairly extensively. It's a long-standing view in academic circles that unionization tends to drive lower-paid employees' rates upwards faster than the higher-paid workers, creating wage compression within a single employer and disfunctional cross-employer bargaining attempts.

See for example
Kuhn, P. 1998. “Unions and the Economy: What We Know; What We Should Know.” Canadian Journal of Economics.Vol. 31, No. 5 (Nov), pp. 1033-1056.

- Paul

 

[TOareaFan]

There's nothing wrong with good pension plans - provided the balance of contributions between employee and employer is fair and predictable.

There's a lot of debate about whether defined benefit plans - which virtually all public sector plans are - have been fair and equitable, considering that the employer (ie the taxpayer) makes up the difference when the plan projections don't pan out.

Many public sector plans were projecting huge surpluses back in the nineties, when interest rates were higher. These surpluses got spent in the form of improvements to pension benefits (largely earlier retirement eligibility, and better inflation protection).

Since then, interest rates have fallen, and the pendulum has reversed.

If one advances the argument that interest rates will remain low and stable, one has to assume that Ontario will face additional pension plan expenses. Or, public sector pensions will have to be pared back. Some plans have successfully increased employee contributions, or pared back benefits. But many are still showing shortfalls. The funds are well managed, so they are making lots of money - but not enough to cover future liabilities.

- Paul

OTPP is in surplus and OMERS is +/- 90% funded to future obligations....a ratio that has been climbing since they introduced new funding formula in (if I recall) 2011. The new funding formula was a combination of increased contributions (both employee and employer) and some reduced benefit payments. That, combined with above market/target rates of return have the scheduled to be fully funded in the next decade.

 

[crs1026]

Ontario has done well with its two biggest plans - the federal plans aren't doing quite as well. And there are other plans in the province.

http://news.nationalpost.com/news/c...ll-that-liberals-are-legally-bound-to-make-up

http://www.theglobeandmail.com/repo...s-for-canadian-pension-plans/article26563605/

- Paul

 

[torontologist]

I don't think the average public sector retiree is making $120k for 40 years. You're exaggerating here. Also, public sector employees pay a hefty amount into their own pensions.

I can't speak for the average public sector retiree, only the ones I know personally, who fall into the aforementioned category.

It's great to hear that OMERS and OTTP funds are doing so well; I wonder what will happen once the boomers retire and commitments expand.

 

[LNahid2000]

I can't speak for the average public sector retiree, only the ones I know personally, who fall into the aforementioned category.

It's great to hear that OMERS and OTTP funds are doing so well; I wonder what will happen once the boomers retire and commitments expand.

So you know thousands of people in the public sector?

That means that the provincial and municipal governments are paying thousands of people six figures to do nothing for 40 years.

 

[TOareaFan]

I can't speak for the average public sector retiree, only the ones I know personally, who fall into the aforementioned category.

It's great to hear that OMERS and OTTP funds are doing so well; I wonder what will happen once the boomers retire and commitments expand.

I am going to bet you didn't study actuarial science? These things get adjusted throughout the life of a pension plan and adjustments are made to the payout rate, the contribution rate, the inflation indexing (if applicable), the investment mix, etc.

It is, typically, only shocks that throw them off track...in the case of OMERS they were more caught off guard than some of their peers by the 2007/2008 "financial crisis".

 

[torontologist]

So you know thousands of people in the public sector?

Nope, you're putting words in my mouth without contributing anything to the discussion. Well done, hope you're proud of yourself.

I am going to bet you didn't study actuarial science? These things get adjusted throughout the life of a pension plan and adjustments are made to the payout rate, the contribution rate, the inflation indexing (if applicable), the investment mix, etc.

It is, typically, only shocks that throw them off track...in the case of OMERS they were more caught off guard than some of their peers by the 2007/2008 "financial crisis".

Nope, not an actuary. Thanks for the explanation.

 

[LNahid2000]

Nope, you're putting words in my mouth without contributing anything to the discussion. Well done, hope you're proud of yourself.

Love the snarkiness. Hope you feel better now.

 

[kEiThZ]

I would say it is stupid policy to impose 0% salary increase to government employees. I hardly see that as some sort of achievement. Public sector needs to be competitive and attractive to the right talents too, just like the private sector. To use the government employees as the scapegoat every time to please voters is missing the point. Our problem is not the wages are too high, but that there are too many government employees many don't have enough work to do.

The public sector is pretty competitive for most fields. You won't find any public sector position that's not getting lots of qualified applicants applying. Heck, people sometimes wait years to willingly take up a public sector position (at least with the Feds anyway....in my experience). The benefits are that good.

 

[1overcosc]

The public sector is pretty competitive for most fields. You won't find any public sector position that's not getting lots of qualified applicants applying. Heck, people sometimes wait years to willingly take up a public sector position (at least with the Feds anyway....in my experience). The benefits are that good.

The problem is the sorts of people who are that motivated to work in the public sector specifically for such reasons, tend to be more risk-averse, less creative-minded thinkers. The types who will gladly play it safe, don't work as hard, guarantee to do reasonably well, all in exchange for sacrificing the ability to get rich.

 

[kEiThZ]

The problem is the sorts of people who are that motivated to work in the public sector specifically for such reasons, tend to be more risk-averse, less creative-minded thinkers. The types who will gladly play it safe, don't work as hard, guarantee to do reasonably well, all in exchange for sacrificing the ability to get rich.

Paying them more, though, won't necessarily attract better talent. I saw that in government. Most of those who have talent want to have careers where they rise up and/or do substantial and meaningful work. That's rarely true in the bureaucracy of government. Also, until we address this issue of paying lower skilled workers too much, there's not much money in the wage-envelope to attract that top-tier talent.

Any solution to these problems will be painful to the workers and politically painful as well. Imagine the politician who campaigns on paying secretaries less and engineers more. Or the politician who pushes for a portion of teachers' pay to be performance based. In this province, they'd be toast at election time.

 

[Euphoria]

Virtually no pensions in the public sector equate to 100% of wages. At best it's about 70%. These days pensions are adjusted down based on market conditions. As far as the business of attracting talent to positions goes, whether public or private, it always depends on the level of compensation and professional respect these jobs are accorded. In Finland, which consistently gets the best results on standardized tests in math and language, all teachers must have master's degrees and it takes about five years to become a teacher. Teachers aren't paid more than Ontario teachers but they are given greater independence and professional respect. Basically, if you privilege a position there will be lots of competition for the position, which should attract the best and the brightest. No mystery there. Whether or not we are willing to pay more or less to attract better or worse public servants is always up for debate. I think the major problem we are facing right now with the longstanding Ontario Liberal government, apart from the expensive scandals (ehealth, ORNGE, gas plant cancellation), is the ridiculous number of pet projects that we are paying a fortune to maintain that are of arguable value. I'm not sure that cap and trade is the answer to emissions reductions, for example. The high cost of energy consumption is enough incentive to conserve. I'd say the same thing for the wind and solar subsidies, the hard cap on primary class sizes, etc. The federal Liberals might turn out even worse. Every time I hear Trudeau grandstand about some high-minded policy that he can brag about as though he's paying for it personally, I think, "How much is this going to cost me?" As governments promise more and more freebees to the so-called have-nots, we have to ask how much harder working people are going to have to work to pay for this spending spree. We should be cutting our cloth to fit and balancing our budgets rather than saddling future generations with debt. I'm only interested in politicians who are not going to raise the cost of living and further incentivize unemployment. Make no mistake, cap and trade represents a net increase in tax revenue. It's a cash grab, not unlike the health levy. I'd love to see an analysis across income levels of the tax increases since the Liberals took office under McGuinty. I'll bet it's in the thousands.

 

[1overcosc]

Make no mistake, cap and trade represents a net increase in tax revenue. It's a cash grab, not unlike the health levy. I'd love to see an analysis across income levels of the tax increases since the Liberals took office under McGuinty. I'll bet it's in the thousands.

Except, unlike the health levy, the revenues from cap and trade will actually be tied to emissions reductions initiatives and not thrown into the general pot... this has been written into the cap and trade legislation.