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Public sector workers pay 8% to 9% of their income to finance public pension plans, far more than the 3% to 5% contribution rate for other workers with pensions. - NUPGE's Larry Brown.
By Larry Brown
National Secretary-Treasurer
National Union of Public and General Employees (NUPGE)
Ottawa (16 June 2009) - Our popular media has been filled lately with rote repetition of a convenient untruth: that public sector workers have a huge advantage over most others because they have cushy pensions provided by, or backed and guaranteed by, the taxpayer.
A recent story in the Toronto Globe and Mail contained no fewer than three iterations of this supposedly unassailable fact: “While most public sector employees have the security of taxpayer-backed pension plans”; “the relatively generous taxpayer-guaranteed pensions of government employees”; “the divide is between those with rich, taxpayer guaranteed defined benefit plans and the rest of us”.
So important is this fact that it must be repeated three times in one story? But never mind, one can find such references almost daily these days.
All this repetition of falsehood obscures a simple truth. To a greater degree than in any other sector, public sector employees pay for their own pensions.
8-9% contribution rate
More than half of the workers who get pensions outside the public sector do not pay directly for them at all – the employer pays the full cost. When workers in other sectors do contribute to the cost of their pension, it’s usually at the rate of about 3% to 5% of their income.
Public sector employees are unique in Canada in that they pay about 8% to 9% of their own incomes for their pension.
If all public employees received on retirement was what the government contributed to their pension plan, their pensions would be a mere 35% of income after 35 years of service. Hold the caviar, and don’t uncork the champagne for that!
There is an obvious point here but not obvious enough for the commentators, who ignore it in favour of their convenient untruths. Public sector workers may work for the public but their employer is the government. The wages and benefits of public sector workers are provided by their employer, the same as every other employee in Canada.
Their benefits were bargained for, and trade-offs were made along the way. For example, public sector workers traded off other benefits and greater wages to finance their pensions. So what’s wrong – after doing that – with a decent pension at the end of the day, especially since they pay for half of it themselves?
The real fact in Canada is that taxpayers subsidize every pension plan – all of the private sector plans for sure. This is because private sector employers can deduct the cost of private pension plans from their taxes – a clear case of the taxpayer subsidizing the cost of private plans.
RCAs for CEOs
There are RCAs. Have you ever heard of a Retirement Compensation Arrangement? RCAs are pension plans for business owners and senior executives, allowing companies to pay out exorbitant pensions to retiring executives. With an RCA, business owners and executives have an opportunity to increase their contributions to a retirement program beyond regular RRSPs and pension limits.
These programs allow for increased tax deductions to the corporation as well as the ability to increase retirement funds as a perk – growing in a tax-free environment. RCAs therefore cost every taxpayer in Canada. We all subsidize them – not only the pensions of ordinary private workers in this country but also the gargantuan pensions of business owners and CEOs.
Pious commentators who call for an end to taxpayer funding of supposedly luxurious public employee pensions should be careful what they wish for.
If we truly ended taxpayer underwriting of retirement income in this country, RRSPs would also go down the tubes. Although more than six million Canadians contribute to an RRSP, their annual contributions are relatively small. In 2007, the mean RRSP contribution for all Canadians was just under $2,400.
RRSPs benefit higher income Canadians disproportionately. Roughly one in four Canadians contributing to an RRSP makes over $100,000 a year, although they account for just 2.7% of all tax filers.
Ironically, these high-income investors are subsidized at a higher rate than are average Canadians. This small elite snapped up about 30% of the roughly $12 billion in tax deductions that Canadian taxpayers pay each year to subsidize this private investment.
Contribution holidays
One final point. Sometimes public sector pension plans have ended up short of funding. But when this occurs it is almost always because the employers did not contribute the amount of money they were supposed to contribute.
Employees paid their full share – they had no choice. But employers, governments in this case, often give themselves what are known as ‘contribution holidays’. This occurs when an employer decides that the pension plan has so much money that they do not need to match employees' contributions and they award themselves a ‘holiday’.
At other times governments, as the employer, make use of the employees’ contributions to pension funds without paying the going rate of interest for doing so, thus causing the plans to be short.
Are these cases where the taxpayer is unfairly called on to guarantee the pension – or cases where the taxpayer is called upon to make up for the misfeasance of the employer?
These are strange days. Employees who dare to belong to a union are considered fair game for attacks – attacks on their wages, on their benefits, on their pensions. Instead of figuring out how to ensure decent wages for all Canadian workers, we are told that we must bring decent wages down. Instead of figuring out how to ensure that all workers get a pension, we are fed misleading information intended to weaken existing pensions.
Public pensions not the problem
Public sector pensions are not part of the problem. They are in large measure compulsory savings plans that employees themselves finance. And taxpayers, as noted, subsidize all pensions, which is sensible because retirement plans serve a social good. We the taxpayers subsidize RRSPs, even the huge pension plans for executives. Taxpayer backed pensions? Every one of them.
Don't believe the current flurry of critiques of public sector pensions. All of these unwarranted attacks are based on a single, unsupportable, convenient untruth.
NUPGE
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE