Proposed pension changes target longterm sustainability
EDMONTON — Alberta is proposing a raft of changes, including an end to early retirement incentives, to overcome a $7.4-billion unfunded liability in public-sector pensions.
Unions, however, say the proposed changes are too much, too soon with too many unanswered questions and will put the nest eggs of current and future pensioners at risk.
The plan was announced Monday by Finance Minister Doug Horner.
“There’s no crisis today, but it’s the long-term sustainability that we need to address in these (pension) plans,” Horner told reporters on the steps of the legislature.
Horner stressed that the new deal would not claw back benefits already promised to current pensioners.
“For those pensioners out there today, this does not affect them,” he said. “We’re making sure that promises that were made are promises that will be kept.”
Alberta’s public-sector pension, spread over four plans, has 200,000 active members and 120,000 retirees.
Some of these employees are represented by unions such as the Alberta Union of Provincial Employees, United Nurses of Alberta, Health Sciences Association of Alberta and the Canadian Union of Public Employees.
Horner said the funding model that allowed the plans to thrive with surplus cash in years past no longer applies with people are living longer and taking early retirement.
Horner’s proposal notes that 20 years ago, every 12 public-sector employees supported six retirees. But 20 years later, those same 12 workers now support eight retirees.
The proposed changes affect benefits, cost-of-living adjustments and how the plans are administered.
Benefits earned up to 2015 wouldn’t change, but would be reduced marginally starting in 2016. No improvements to benefits would be allowed until 2021 at the earliest.
After 2015, there would be no more subsidies on pension benefits earned for service for those who retire before age 65. The pension would be reduced to reflect the cost of paying it out longer.
“We want our employees to stay and work and to contribute for as long as they’d like, so early retirement is an incentive that we want to move away from,” said Horner.
There would be changes to inflation-proofing.
Those who get pensions before the end of 2015 would get cost of living adjustments covering 60 per cent of Alberta inflation. Those who take their pension after 2015 would get 50 per cent.
There would also be changes to the current defined benefit plans to make them “jointly sponsored (and) managed defined pension plans.”
The funding would be split 50-50 between employees and employers, and new rules would give both sides more room to manoeuvre to maximize payouts and keep the plans out of the red.
The province would set a ceiling on total plan costs to make sure taxpayers and contributors are not unduly burdened if financial targets are not met.
Gil McGowan of the Alberta Federation of Labour said the main concern is that the government can set the contribution rates, tying the hands of pension directors. He also noted that while the new inflation proposal is at 50 per cent, it would only kick in when the plan can afford it.
“As a result of the changes that were proposed today it’s clear that Albertans working in the public sector will have to work longer for their pension benefits and when they retire those benefits are likely to be reduced, and in some cases those reductions will be significant,” said McGowan.
Horner said the province is accepting advice until the end of the year. Legislation is to be introduced early next year to make the required changes to the Public Sector Pension Plans Act.
“It better be meaningful consultations,” said Guy Smith, president of the Alberta Union of Provincial Employees. “What the minister has done, unilaterally, severely affects the pension security of our members.”
The lion’s share of pension payouts come from the Local Authorities Pension Plan and the Public Service Pension Plan.
Under the Local Authorities plan, an average retiree takes home $14,958 a year. Under the Public Service plan, it’s $12,414.
Union leaders say their members have hiked their contributions and could get the plans back in the black in seven years without reducing benefits.
NDP Leader Brian Mason agreed.
“The minister is weakening public-sector pensions unnecessarily,” Mason said Monday. “What (the changes) do is force people to work longer.”
Liberal Leader Raj Sherman said he is not convinced the province will do right by those who would be collecting pensions under the new system after 2015.